How To Raise Your Seed & Series A with Brian Ascher, Venrock

But the one mistake you want to avoid is, okay, so now you've raised money and you have a board. Your job is not to continue to sell the board. You have to now realize that you're on the same team. You're on the same page. It's time to be honest with each other about all the things that need fixing in the business. And that creates a cycle of trust. I need some traction. You need some traction. Let's get some traction.

Hey, what's up innovators, entrepreneurs, visionaries and disruptors. This is your Traction Podcast host, Lloyd Lobo. We're a community of over a hundred thousand people just like yourself, on a mission to help you get the methods, the money, and the madness to explode your business growth. Featuring stories and tactical advice straight from those who've done it before, like Shopify, Twilio, Asana, and many more, this episode is brought to you by Boast AI. Each year, the US And Canadian governments give out billions of dollars in R and D tax credits and innovation incentives to fund businesses like yours. But the application process is cumbersome and prone to frustrating audits, and receiving the money can take up to 16 months. Boast AI gets you access to research and development tax credits and innovation funding opportunities without the headache and red tape. Join thousands of North American companies leveraging Boast AI software to maximize cashback. Check out B Oast AI. This episode is also brought to you by Launch Academy and an international tech hub that provides mentorship, resources, network and the environment for entrepreneurs to launch, fund and grow their startups. Since 2012, Launch Academy has incubated over 6,000 entrepreneurs, of which 300 have grown their startups past Seed and Series A and have collectively raised over $1.2 billion in funding. To learn more about Launch Academy's programs, check out Launch Academy. Special thanks to our Podcast partner, Content Allies From Podcast Production and promotion, content allies helps B2B companies build revenue generating podcast. We recommend them to any B2B company that's looking to launch or streamline their podcast production. Learn more@content allies.com hey everyone, Lloyd Lobo.

Here, co founder at Boast AI and Traction. Super excited for this topic. How to Raise Seed in series A in 2022 as you've seen uncertain markets, interest rates are up, valuations are down, layoffs galore. So Brian here is going to tell us all about how to leverage the market conditions to raise money for your benefit and to sustain for the long haul. Brian's a partner at Benrock and invests broadly across enterprise and fintech and has a super successful career investing across unicorns exits IPOs. And he's been named to the very famous Forbes Midas list multiple times. He's on the board of a number of unicorns like Sixth Sense and had a very successful investing career in the past. I had a personal story with him. So previously I was part of Speakeasy, which was incubated by Bessemer Ventures, and we were pitching to Brian and he was super interested. And this was 2015, I think 2015. That was the era of Slack like growth, Dropbox like growth. And so they were super excited about the product and they said, let's pitch to the partnership. So we go, we're pitching to the partnership. And then they ask, hey, what are the cogs on this? What is your profitability? And we're like, profitability. And that was the era of growth at all costs, like no profitability. And that went from partnership meeting to the deal being killed. And I think a very important lesson there is growth at all costs doesn't last and sustain. And especially in this market, it's very important to have your business fundamentals. Brian, welcome to Traction. Thank you so much for joining us. You've had a terrific journey as an investor. Walk us through your backstory. How did you get to where you are today?

Yeah, absolutely. First, thanks for having me here. It's great to see you again. Excited for the discussion. My entree was really, I guess it started at Intuit 1995. Company had gone public about 18 months earlier. It was still pretty small, particularly by today's standards, and Microsoft was about to acquire the company. I interviewed with Intuit, then they announced an acquisition and then the DOJ blocked it. So I wasn't sure who I'd be reporting to, but turned out to remain independent. I was product manager for Quicken, which was really fun. This was the era when Microsoft first released Microsoft Microsoft money and gave it away for free, which was a new thing to give software away for free back then. And we had to compete with that. So it was a ton of fun. Then the Internet happened. Netscape IPO 1995, and I transitioned to the quicken.com team. Did that for a number of years. Product management back in those days was annual release cycles and MRDs. And I'm very envious of today's product managers. Anyway, after a couple of cycles of that, I felt the itch to see if I could get into venture capital. So I applied to the Kaufman Fellowship, which seemed like an interesting entree. It was like a fellowship in VC and I got lucky, got matched with Venrock, had some great mentors and that was 24 years ago. So have been investing broadly over time, had dabbled in consumer and hard tech, but really my love is for enterprise and fintech and that's what I've been doing for the last 10 plus years.

Tell us more about your investment thesis. Intelligent Enterprise fintech. What do you guys look for? How do you know when you talk to an entrepreneur that this is the right sort of founder market fit and we want to invest and you guys do seed and Series A, so it's much harder at the earlier stages when there's little to no data on the company. So tell us more about your thesis. What do you guys look for in founders when you invest?

Yeah, absolutely. The theme of the Intelligent Enterprise is one I've been excited about for a while and it's really the meaningful application of AI and ML to SaaS in a way that sort of self powers or automates a lot of the workflows that SaaS enables. I think the transition to the cloud has been amazing and it's really been a revolution in accessibility because of the pricing, the deployment is so much easier, the maintenance of the software, the usability of the software, where it really democratizes the benefits of software applications for more companies and broader user bases. But a lot of SaaS has looked and functioned a lot like what we used to have. On premise. It was a form on a database and that's still what many of the OGs of SaaS companies, that's what their products really are. And that still requires a lot of human effort to enter data, to retrieve info, to run reports and analytics, and then use that to inform a business decision. The software can help facilitate a workflow, but it's amazing how much business still runs on email and spreadsheets and unstructured documents and PDFs and reports and analysis. And that's still very labor intensive. But with the revolution in AI and ML and natural language understanding and voice recognition and computer vision, you can have the software do a lot of the functions that the human was still doing with at the keyboard of the cloud app, or in their email or in their spreadsheets, etc. And I think that is going to be a massive gain in efficiency, if you will. The second act for SAS in terms of efficiency gains and as we look at the labor shortage that we're going to have, which will persist for a very long time, especially as population or demographics are imploding around the world, I think having this intelligent applications that do more and more of the work for the end user are going to be a long term trend that's going to be revolutionary. So that's what we see in intelligent enterprise and I think it plays in all sorts of domains, whether it's the functional areas of the business, sales and marketing, finance, hr, et cetera, as well as verticals. And the verticals are even more interesting in some way because the way to build an intelligent application with AI and ML is you need massive amounts of data and in a vertical app the data is going to be a tighter set and you're going to be able to introduce domain specific taxonomies, et cetera, so, and get even more power in these vertical apps. So anyway, that's that theme. Fintech I think likewise is becoming just pervasive in terms of digitization of financial services. And when you think about traditional financial products, whether it's wealth management or loans or insurance, the incumbents are held back by massive amounts of analog process and paper old systems, branch offices, way too many people involved in these organizations, distribution strategies that rely on agents and brokers and intermediaries who charge all sorts of commissions and fees and then opacity, not really knowing how this agent makes their money. So I think the best fintechs take all that away. They go direct to consumer. They have much more transparency around their business model and pricing. They don't have the cost burden of branch offices and paper processes. And that's enabled a revolution. And then of course there's a marriage of the two. The marriage of FinTech and SaaS where you as a software vendor are now handling payments, maybe you're even making loans, maybe you are providing transactional support. Like the two, the worlds are blending in a way that there may not even be the phrase fintech or AI SaaS anymore. It's just going to be the new way that you help companies through technology.

I 100% agree with that. We don't say web 2.0 companies anymore, we don't say mobile companies anymore, we don't say cloud companies anymore. Every company is going to leverage AI and ML in some aspect by taking their customer data to do intelligent decision making and streamline the process so customers get more value and eventually leveraging that data to then either do payments or lend to their customers. Like Shopify has done, like Toast has done, like Honeybook has done. So I think we will stop saying fintech and AI companies. Yesterday's innovation always becomes today's option and tomorrow's commodity and when it's a commodity, nobody leverages that word anymore.

What has me so excited is I feel like even though we will adjust our languaging around these things, like I think they're long running trends and they have a ton of Runway ahead of them. You could have said once Salesforce went public and had achieved market dominance, oh wow, I need a new idea. SaaS has been done and here we are like 20 years later and we're nowhere near done.

I don't think it'll ever be done.

No. This AI journey is going to take decades. So tons of opportunity left, lots of.

Convergence in different technologies to make better, smarter, faster decisions, help customers and companies out there get more value. And that's what the best entrepreneurs are doing. So let's shift to fundraising. In this market, we went from one and a half unicorns being minted every day and sky high valuations to this market where it seems like things are tanking very fast. And I'm not sure if we've seen the bottom yet. What do you think is happening in venture capital right now? What's driving decision making in vc, particularly at the seed and series A stages? Is it adjusting to public markets or is it still more like 10/21 since a lot of VCs raised a ton of money and have money to spend?

Yeah, yeah, that's true. I think it depends right there. There are definitely companies being started by repeat entrepreneurs who have track records and can raise money very quickly at almost a name your price kind of number at early stage seed and pre seed. But I think most founders don't have that kind of track record. They might be first time founders or they might have had a win, but it wasn't a massive win. And there's still plenty of capital at the seed in series A. But I think VCs are looking at is this truly an innovative and compelling idea? Because we're not in a climate where the second derivative of someone else who's out there is going to work. You don't want to be a me too, chasing what had previously been a hot category and you have a derivative spin on it or no spin on it at all. Your assumption was every VC is going to feel like they need one of these in their portfolio. I don't think that is the climate we're in now. So innovative ideas and then we're all looking to say, okay, if I invest now at this price, do I have pretty good confidence that 18 months from now we're going to be able to raise from outside investors at an up round. And that's a hard thing to estimate given that we may not have hit bottom. So you need to present a compelling picture about how you're going to spend the money and what the milestones are going to be and then show really strong understanding of the challenges that lie ahead. And this is something that we focus on quite a bit. And you asked, what do we look for in a founder? I think it's really this combination of two almost opposing traits. One is the classic set of entrepreneurial traits of they're compelling, they have a vision, they have conviction, they know that they're going to succeed and it's going to be huge and awesome and they're going to change the world. And everyone wants that in an entrepreneur. And that is the classic traits. But especially in this climate. But really all the time it needs to be balanced with this pragmatic sense of I've got a lot of challenges. Starting a company is really hard. There's going to be ups and downs and lots of setbacks, and right now it's tough. And here are the problems I foresee, the problems today, the problems I think I'm going to encounter in a year or five years, and when you can share those in a real transparent way, at least for us, that builds tremendous confidence that, okay, they're not blind to the difficulties out there and instead they're going to face them head on and expect the worst and then hope for the best. So that, I think is more important than ever because it's a tough, uncertain time that we're all in together.

What is driving valuations in this market? How should founders think about fundraising and valuations in this market?

I do think it very much differs by stage, late stage, clearly there is some pullback, if not dramatic, due to the public market pullback. Public market multiples have come down dramatically in some categories in SaaS by half or even more for some of the companies that were super richly valued as a multiple of ARR. So that's just reality in late stage companies and hopefully they've raised enough in the last couple of years and still have cash on the balance sheet. But if they need to raise, the thing to avoid, if you can, is complicated deals with lots of structure on top of them that might put multiple liquidation preferences or participating preferred or things that could really hurt a company if things get bad. At the early stage, I think there is valuation pullback, but at the end of the day it's an equation of valuation and amount raised equals dilution. So I don't Think we're in a situation where you have to sell dramatically more of the company than you would have otherwise. If you're going to sell 20% at a series A, I don't think you all of a sudden sell 40%. Because when you get down the road, even for VCs, if the founders don't own enough, if management doesn't own enough, it doesn't work and you wind up having to rejigger cap tables and fix a problem that has grown unsustainable. So I think you wind up selling close to the amount of company that you would have and just raising less money. So Instead of these $25 million Series A rounds, maybe it's back to 15 or even 10, what we used to call a seed round. The labels have gotten so blurred and I think we just get back to more modest early stage funding that gets metered out and stretched out for longer Runway to the next set of milestones.

So let's look at best in class then. What are the best in class metrics when you're doing a seed and a series A? And what multiple ranges can they command? Because at the height it was at seed, I've seen a hundred X more than 100X. Those days seem to be coming near an end. But what is best in class metrics at seed and series A look like? What are good multiple ranges?

Yeah, it's a very valid question, but I think it's so situationally dependent and we tend not to necessarily think that way when you have such early revenue, it's almost statistically insignificant or an N a not applicable situation to put a multiple on it. I'd instead think of it this way, like pre seed. What you're really looking for is great founders and that does not necessarily mean that they've been founders before, but they really understand their domain. They're really articulate about the vision and the problems they face today. They have an innovative idea like that's in essence how you're going to decide to invest in Pre Seed. In a seed stage company, I think you want to see the above plus some semblance of a product and maybe some early customers. So they've convinced someone to use the product and hopefully pay for it. And then Series A, you're hoping they have some reference customers and some repeatable use cases, repeatable ICPs and ideal customer profile. I think at that point maybe you've got a million ARR, maybe it's a couple of million. And the multiples on that I'm throwing out numbers 25, 30. It depends a lot on the margin profile. The topic of conversation we had, what the market size is, what the competitive situation is, but I think it ultimately pricing at that early stage comes back to a balancing act between what's fair and what does the market bear.

And the question here was, does Vendroft do Pre seed as well and what does Pre seed look like?

Yeah, we absolutely do. Again, labels are fuzzy, but for us it's a company creation effort. It might be a single founder with not a line of code written and an idea. And sometimes we get intimately involved in the operations, getting things started, or sometimes it's simply a super early pre revenue, pre product and all hands on deck with regards to assistance and pricing. That is much more of a discussion around how do we split the pie for the founders, for the investors, for the future employees in a way that is going to be sustainable long term and have everyone feel like they've got enough skin in the game. Obviously founders and investors too, but especially founders are going to be faced with lots of dilution coming along the way. You want to make sure they have plenty of motivation and ownership to last through the entire journey.

There's three things I want to double click on. One, as a founder now doing this a few times, I would like to share that focus on building a business. And businesses are built in phases. Phase one, you have an idea, you need to validate it. What does validation look like? It's very much message market fit, right? You have an idea, you can get 8, 10 people, maybe B2B SaaS, 8, 10 people to say, I'm going to pay you and try this out. It's resonating. And then you expand that cohort to 50 people. And people they identify with the problem. So it's validation. They're paying you to try it out. At cohort expansion to 50 people, they're saying, I'm paying you, but I'm getting value. So there's high engagement is the leading indicator. And I keep coming back and that takes you to maybe a million and you have product market fit. When you build it in phases, it becomes a very calming discussion. And then the lines to seed and Series A ignore valuations for a second. The important question is how much money should founders raise at Pre Seed, Seed and Series A because you have very specific things you need to accomplish. At seed, it's validation. At Series A, it's product market fit and maybe figuring out a repeatable scalable channel. So how much money you should raise and how much should the founders Own at each stage or give up.

We've been through an era, really 10 plus years of this notion of blitz scaling. And I think now the notion, a mantra that we're using internally is build, don't blitz. Your shirt says time is money. Money is also time. And what you want to do is give yourself time to execute each phase thoroughly and completely to the utmost proof points. And so you want to raise as much money as it's going to take to get to that next set of milestones, but not so much money that you've sold half your company and you regret it very soon. So I think for the traditional series A, a lead investor is going to hopefully or from their perspective, get to 20% ownership. If there's other investors follow on investors or maybe pro rata for some angels or seeds, Maybe that's another 5%. That would be, I think, the most equity you really want to sell in a series A, particularly if you wound up selling 10% of the company precede and seed and then it declines from there. The good news is for series B, you're selling less, maybe it's 10%, 15%. And by the time you're at C or D, you're selling single digit ownership. And at that point as a founder, you're participating in refresh grants. So you are getting more equity as you're scaling as a company leader and achieving milestones. And investors, good investors, want founders and key executives to always have skin in the game, always feel like they're being treated fairly and have plenty of financial motivation to play for the long game and win.

I think one thing to keep in mind when you're raising venture capital is you're looking for outsized returns. And so you're also looking at a compressed timeline. Just because you had maybe a quarter million in ARR at seed and now you're at 1 million, you got to look at the timeframe between seed and series A. I think that growth rate is very important. What are the drivers of these valuations? Is it growth rate, is it gross margin, is it net revenue retention, which is revenue minus contraction minus churn plus upsell cross sell? You can't just say I had a quarter million ARR at seed, that was five years ago and now I'm hitting 1 million. That's not going to command valuation. So let's talk about that as we advise people here.

So I think there's a number of core metrics to look at. The very early stage one is churn. You can't build a large business if you have a very leaky bucket. So you do want to see low gross churn and you want to see compelling net revenue retention, which incorporates expansions and upsells on the gross churn. If you're in the 90s, that's terrific. Now it's going to differ depending on whether you're selling to large enterprise or SMB or consumer. In SMB and consumer, you have to expect higher churns. So maybe you're in the mid-80s and you're doing nicely. In large enterprise, like Zero Churn is a wonderful thing if you have it, but it's not sustainable. You will have churn and that is okay, but much more than 10% annual churn and you might have issues to fix. Of course, at small numbers, some of this is random and episodic. On the net revenue retention, I do think you want to be in the 120s, 130s at the early stage. But again, small numbers can skew that because you may have one customer that came in large enterprise, maybe it was a departmental sale, they're spending 40k with you, and then it became an enterprise wide deal and now they're spending 150k. And that's going to make your NRR for that period look amazing. But I think in general, if you can get in the mid-120s, that's good, that's really good. Another metric that we look at which is less widely used is I like to see as a company is transitioning from founder selling to being able to hire a rep off the street, put them in the seat and have them effectively sell. So they got a ramp and they got a hit quota. And ideally you want to see your ability to do that multiple times, multiple sales pods, whether that's an SDR plus an account rep, maybe there's some ratio of application engineer or sales engineer required. And when you can start to see that you have repeatability in someone who is not the founder, because founders have superpowers, they could sell anything to anybody pretty much. But hiring someone off the street, letting them learn the story and be able to do it on their own, is super powerful and is a great indicator that you really have product market fit. Because until you've done that, I think you have founder superpowers clouding the equation of whether or not you really have product market fit. And the reason I like to look at some of this raw metrics like quota attainment is because some of the derived metrics like CAC can have a degree of subjectivity to them. So customer acquisition Costs. There's a little bit of fuzziness as to what did you include in that acquisition cost if the founder is doing a whole bunch of the selling, did you fully allocate the founder cost? If you're not running any marketing programs but you're doing other things. I saw a pitch recently where the founder was claiming that their lifetime value to customer acquisition cost ratio was 250x, which Lloyd, I don't know about you, but I haven't seen too many companies with that kind of LTV to CAC over any meaningful period of time. So I asked him about that. I said, what do you think it's going to be a year from now? And he said it's going to be 273x. And to me that's just nonsensical and is probably an issue with you haven't been around enough long enough to have any meaningful churn. So you're calculating a nearly infinite lifetime and you're not fully burdening your cat. So getting rid of that and just saying, okay, can reps hit quota? Yes. Okay, let's hire more reps. That's a core metric.

Can reps hit quota. And I guess in these markets you want maybe your CAC payback period to probably be not infinite, maybe less than a year. I don't know what you're seeing best in class here. And usually when people tell me that oh, we're getting all this growth with no marketing or 270x CAC to LTV ratio. Two things come to mind when you say no marketing. It just tells me you don't have a repeatable, scalable way to get, keep and grow customers. You just threw things at the wall and you got few customers and the data set is not long enough. And then the second thing with those numbers is just usually in SMB you're just estimating an infinite ltv. And with the smaller customer base, you probably haven't seen churn. It's very hard, especially if you're doing like five $10,000 or maybe a few thousand dollar deals for you to see meaningful churn for a while. Because it's not picking at big dollars.

That's right. And it may be that you haven't hit an annual release cycle or you smothering them with unsustainable amounts of support and love, which, which you need to do is a good thing to do because you learn that way and you figure out your product roadmap and what's the scalable deployment model. But it, it does mean that you may not have the churn, but it does. But you don't necessarily have a product yet. You have software with a whole bunch of people supporting the customer.

Founders always say no churn, but maybe somebody signed an annual agreement with you or the cost is really low and what trumps everything? Like looking at the leading indicator. If you need people to log in to use this product every week, are people logging in? Is there engagement? Engagement is a leading indicator of all growth. And if there's no engagement, then it ends there.

I couldn't agree more. Just a plus one, that or plus ten. That engagement to me is like the most important metric at like seed stage. Forget worrying about even revenue and all the other metrics, like just build a product that people use and then use more of and absolutely love and can't live without.

Does the product get better the more I use it or the more I use it, the more I would lose if I were to leave. And if you have that level of engagement, then the money will follow. Sometimes things take longer and ideal case, you're growing triple, double, and that commands best in class valuation. But sometimes it takes longer. What if you've raised a seed and you need a seed extension because you found a better market opportunity during the seed stage? How much should you raise or give away during a seed extension? A extension? How should founders think about it?

Hopefully you have supportive existing investors who will do that seed extension, or they can introduce you to other investors with a high degree of candor, saying, look, this is a seed extension. We know we're a little light for a Series A, but here's what's really going on, here's what's working in the business, here's what we're working on in the business. And that is oftentimes that degree of candor and truthfulness will enable someone to say, oh, okay, this is a unique opportunity to get into this company as they're figuring things out. And my research, my diligence convinces me that they are figuring it out. I think if you're in a phase where you're required to do a seat extension, hopefully by then you do know how much time you need to figure it out. Or you can have a pretty good guess and then it's just backing into, okay, here is my monthly net burn. I think I need another year. That's how much I have to raise with a little bit of cushion on top and not a whole lot more. Because chances are the amount that you sold at the seed was not the amount you didn't expect to have. To do that again before you raise a Series A. So I think enough to give yourself the Runway to hit the milestones that you can see out there on the horizon. But not so much. You've diluted yourself to the point that you're laying awake at night thinking about your shitty ownership position, not thinking about, how do I fix this business and get it growing. Really, you want to. You don't want those regrets. Instead you want to just have a clear mind, focused on the business. So I wouldn't sell the amount that makes you cry.

And you said at Series A, usually you're diluting 20. At seed, you're diluting. How much did you say? In these days, it depends.

Sometimes it's less than the 20% because your burn rate's low and your valuation's low. So it could be 10, 15%.

So by the time you get to Series C, you want to still own the majority of the company. And as a founder, you should be motivated to stay on. The biggest successes on the planet are all founder led. Shopify, Dropbox, Airbnb, they're all founder led. It does nobody any good if the founders are not motivated because they've diluted the hell out of it and then they move on.

That's right.

The opportunity cost is too high here. So I want to dive into this fomo. A bunch of people asked about FOMO last year. What FOMO meant during fundraising is, hey, you know what, I'm not raising. People reach out to you because you got some press. And like you said, if say a lending company raises then 10. Every VC is doing another lending company example like Pipe, Capchase, Clear Call and like 10 others. And then like Ramp announced lending and Brexit announced lending. So would that not seeing as much action these days. And then FOMO being the other one is like last year and I was in this, like a bunch of VCs reached out after we got all the Series A pressed and said, hey, let's talk about your next round. We're not raising. Then all of a sudden you're in a preemptive mix of 21 VCs. That landscape has probably changed. What? Unpack that. Unpack FOMO for us a little bit.

Yeah, well, there's a couple of things there, right? It's how far in advance should you be building relationship with VCs and when you're taking meetings but you're not in a fundraise, what does that really mean? And the past several years, when we were in a super hot market, you would take a meeting. And I always breathe a sigh of relief, frankly, when, you know, I meet with an entrepreneur and they're not fundraising, it's okay, great. There's not a decision that has to be made. Tomorrow we can truly get to know each other as people interested in solving business problems in innovation. This is going to be great. Like we can really collaborate and jam on a product, on a market and an idea. And then so often you'd hear back next week and say, I wasn't fundraising, but now I am because I have a preemptive term sheet. One meeting wasn't really a whole lot of time to get to know each other a week ago. I think it is a great idea. And the best entrepreneurs seem to have lots of relationships with investors and relationships with other entrepreneurs who have their own investor relationships. And I think getting to know investors, having casual meetings, getting input from them, is always a good idea and is always there in the background. You don't want to be constantly doing it, just like you don't want to be constantly going to conferences instead of focusing on the business. But I think you don't want to go dark and you want to have a nice steady cadence of meeting people. And you should take these meetings with VCs and expect something in return. Like they should be providing feedback, they should be providing introductions to potential customers. Talent add value. And it doesn't mean that you run your business based on what the last investor you met with. That's a huge mistake because it's your business and you take all these pieces of input and you synthesize it and say, that person didn't know what the hell they were talking about. I'm going to completely disregard that. Or, huh, this was an interesting idea. I'm going to noodle on that one. Or wow, that was a great idea that made me think about my business completely differently. Like I'm going to really give that careful consideration. It's almost the same thing as you should be doing with a board. A lot of first time CEOs, founders get really stressed when they don't hear the same thing from every single board member. When in reality what you want is a diverse board with diverse thinking. And then you make your own mind up as to what you want to do with all that information. So you're having these investor meetings, you're getting some value and if someone decides, I just need to own this business, be part of this business now, and give you a preemptive term sheet and you've taken the time to get to know them, you've referenced, checked them, hey, this is a climate where if that's a match, then take the money or call up that last handful of folks you also liked and say, hey, I think I'm getting close to a term sheet. I liked our conversations from a month ago. If you're interested, now is the time and see if you can get a little process that kicks off and maybe have a couple of weeks to get it done. But I think that's the climate we're in and there's, there's a healthy aspect to it, which is you're truly getting to know people because these I'm on some boards for over a decade and believe me that you don't want that to be a hasty decision, particularly at the early stage where that first investor is likely to take a is almost certainly going to take a board seat. You want a compatible person on your board and that takes time to get to know them.

Life and business is a marathon, not a sprint. And relationships transcend companies. Right? A lot of people optimize for the valuation. And what happens now? You optimize for the valuation during the height of the bubble or the valuation bubble. You got to as founders grow into that valuation. I know companies raise that 200, 300x and then what happens? A catastrophe hits. You got to raise at a down round. Founders get replaced. All kinds of things happen. So optimize for the relationship always. And I tell people the number one job as a founder is learn to sell. And I'm an engineer. I learned to sell when I say meaning a lot of what you do. Recruiting is evangelizing. Talking to customers to use your product is evangelizing and selling. Talking to the press, talking to VCs, it's all selling. And you need to develop that muscle. Not being a car salesman, really pushy, but ability to build relationships and navigate those relationships for the long haul. So Steve asks here, how many hours a week do you dedicate to meetings with startups not raising money? How do we get on your schedule? So like a bunch of this stuff is around. How do founders navigate investor meetings? Do they cold email? Does cold email even get read? Do they leverage the network? Is it combination? How do you guys decide who to take meetings with?

Yeah, so this will be not no advice and no surprise, but the best way to access an investor is through an introduction through an entrepreneur that you know is known, mutually known. The best of the best intros are people in our existing portfolio or folks that we have tight relationships with. But even distant relationships will be well Received as some degree of vetting and reference ability for that intro. And, and ideally it's not a boilerplate kind of intro where you can tell that reference source spent all of 15 seconds and sent it to 10 different firms because maybe they forgot to even change the name. Brian, I got a great deal for you. I think this will be a perfect fit for Greylock. I'm at Venrock, but it's one that they've taken some time to really endorse and maybe even there's an invitation. Hey, this is something I love. If a reference says sends an email intro, it's a double opt in, meaning they didn't copy the entrepreneur. But they said if you want the intro, let me know. And also if you want to talk about the business, I'd be happy to give you the good and the bad or the positives and the concerns and then it's okay. Now I'm going to get someone who really knows these folks to give me a balanced point of view. That's the best. Cold emails get read. Absolutely. They just have to be really good and they can't be boilerplate and they should be succinct. But I've read some emails that are like, wow, that person really has a compelling idea, presents it in a compelling way. Seems to have actually researched us and what we do in our portfolio. Like, I'm going to take a meeting absolutely. As to the number of meetings that I would, I would take in a given week with folks not raising. Like I said, I love to meet people early because it will give us time to really get to know each other and it's not. And I can do my research on the industry, on the company, on the competitive land, so I don't artificially cap the number of those meetings. We are all spending a lot of time with our portfolio companies these days because the climate is so challenging. But I think it's always a good thing to be meeting new companies well in advance. Lloyd, I wanted to get back to one other thing you said though, because this also impacts how these conversations go these early. It is undeniably job number one for a founder CEO to be able to sell. But the one mistake you want to avoid is, okay, so now you've raised money and you have a board, your job is not to continue to sell the board. You have to now realize that you're on the same team, you're on the same page. It's time to be honest with each other about all the things that need fixing in the business and that Creates a cycle of trust. Meaning I'm a founder with Brian on my board now, and we got our first problem. Do I patch it over, try and, you know, hide it and hope that it's solved by the time we have the next board meeting? Or do I call them and say, hey, something came up. I know you just invested, but. But here's what's happening, and I'd love for your early thoughts on what to do about it. I'm committed to make this work, but here's what's really going on. Then I feel like, okay, let's do this. This is 24 years in. There's going to be problems at every company of all shape, manner and form. It is expected. It's okay. Then we can get on with solving it or at least trying to address it. And then when you're not hearing something, you're not worried that, well, what am I not hearing? What's being omitted from the story? And then it's just this cycle of trust and collaboration and problem solving. The converse can get really bad, which is your spidey sense as an investor is something doesn't seem right. I'm not hearing about it. Let me ask some questions. The questions lead to defensiveness, and then ultimately the truth comes out because it'll eventually show up in numbers or some key executive will leave or there'll be a churn of your marquee customer. And then you're like, why didn't you tell me? And then there's the cycle of mistrust. Now the most important thing for the investors to realize is, okay, when that first. If you want truthfulness and candor and transparency, when that first problem shows up, you have to react constructively. Can't say, oh, my God, I just paid so much and you didn't tell me that you didn't disclose it. What the hell's going on? So you have to take it in stride and realize that, yeah, things happen. It's tough out there. The markets are tough. And then weigh in and help. And that, I think, is part of this candor and this duality of, it's going to be great. But right now we got problems.

Trust is the cornerstone of all relationships. And that was going back to my earlier comment on, you don't want to be like the salesman, the car salesman, unfortunately, get the bad name because they stick you with issues that you never saw. Right? You want to be honest even during your sales process. Now, I think the media has created for the last decade this obsession with unicorn porn and VCs as being like pitching on Shark Tank or whatever and this pedestal where founders feel like they gotta over exaggerate and bullshit. But if you want to build a long term sustainable relationship, radical candor is the way to go. You gotta be honest sometimes you're not the right fit. It's okay to get knows. I recently had Vishal Sunak from Link squares. He had 70 meetings and got two term sheets. The company is now valued at 800 million. They went from 0 to 10 million in two years at best in class metrics. You know, ultimately the customers and the metrics and the numbers focus on that.

You are so right. I'm so glad you brought up the topic of the media and unicorn porn and judging your insides against everyone else's outsides or in TechCrunch like it's just a recipe for stress and anxiety and heartache. Because the reality is everyone is working hard, fighting problems, has setbacks, misses a quarter, misses key metrics like has things to work on and that's not typically what gets reported unless there's a true disaster and the press sentiment turns wildly against you recognize that they're not as you're never as good as they say you are on the way up and you're never as bad as they say you are on the way down. So just realize that everyone's solving problems, fighting the good fight and it's a long road to success. It really is.

Be true to yourself, you're ultimately lying to yourself. Everyone's crushing it until you shudder one day. Now Neil asks here board composition at different phases of the company. Does this play into how VCs look at funding companies outside of board relationships with VCs? How does that play into you guys funding companies?

A seed stage company probably doesn't have yet have a board and when we do a seed, probably as often as not, we're not taking a board seed yet. There's still going to be no board, but we will generally proceed as if there was a board, at least in terms of formal checkpoints where we're going to go through metrics and meet more of the key hires and really discuss the business at length, several hours. And there should be a regular cadence of that even if there's not a formal board. By series A there's certainly a board and in the height of the bull market there was imbalance. Again, this notion of you want to be somewhere in the middle, not all founder advantaged and not all investor advantaged, but balanced. Meaning maybe there's a three person board and it's a founder, the series, a investor and possibly an independent. I can certainly live with and appreciate two founders and an investor with the expectation that we're going to try and bring on a real value added independent at some point. I don't get too hung up on, there needs to be an odd number in case we have a vote when things get down to contentious votes, like something else is wrong. But generally what you want is certainly founders get to be on boards, not all of them, not five, one or two. Certainly the founder, CEO, an investor in the A, is going to be on the board, probably in the B, you're still giving away another board seat. And then a great independent investor, independent board member. What makes a great independent board member is someone who brings some relevant domain expertise, either about your industry or about early stage company building and that they're going to be involved, that they're giving you much more than just their name and the marquee value of oh, this person's on the board, but really they're going to put in the time and that you trust enough to really get the hard advice from. Because the operators can often be a lot tougher than the investors. This is true on boards, certainly true on diligence. When we take a new opportunity and ask someone else in the portfolio, they are so much tougher than we are. Like at the end of the day, VCs are pussycats compared to the market and compared to, you know, operators who, who can really laser in and say, look, this is not right or this is an issue you better get on top of because if you leave it unchecked, it's going to get really bad, trust me.

So in these markets now you're sitting on a number of boards. What advice are you sharing with founders? Like where should they continue investing and where should they pull back?

Yeah, you certainly want to be mindful of your cash Runway. And if you can get yourself 18 to 24 months out, that is terrific. And that may mean stopping or freezing hiring. That probably doesn't mean no ads, but there's always going to be some attrition. And so if you're keeping net neutral, that's a good thing. Could be that you're running a little hot and you don't have sufficient Runway and you need to call the bottom performers. 5, 10%, hopefully not. Those are always difficult, but oftentimes that is what it takes and it's the right thing to move sooner than later. This is also a time to really focus on depending on your stage, making sure you really have product market fit that sustainable ability to hire salespeople making sure your product is really a product and not software supported by a whole too many people on your side. So focusing on the fundamentals because chances are your competitors are not going gangbusters pouring oil on the cooking fire either. So it's focused on the fundamentals and make sure you've got it right before you scale up. Now if you do have it right and you have those sustainable go to market motions, then yeah, hire more pods of sales folks. Invest wisely in marketing and gain share. It is a tremendous time. If you're a category leader and things are working like you will gain share. It's still not blitz scaling. One of the numbers that we like to look at back to metrics is net new ARR per net burn. So it's not the LTV to cac or it's not just looking at your sales and marketing spend, it's looking at your entire spend. Because in, in many business models maybe it's not showing up in sales and marketing, but it's a product cost. If your product led growth, then what? The growth engine is based on engineering spend and product spend. So I like to see efficiency, particularly once you're after that couple million ARR. And is this the total spend leading to enough growth to have a really sustainable model? And if you're around one and you have good retention, then you're building a very healthy business. Very healthy indeed. So these are the topics we're discussing. It is also time to upgrade team where you need to. Right? One of the hardest things is you have someone who's been on the team since the early days. They're good and they're loyal but they're holding the business back. And oftentimes it's a real judgment call. But there's going to be great talent available in this market and you can't afford to have any weak links on your team. And ultimately it's the executives, it's the CEO, the founder who's going to really know. And so our job is to just encourage them that I know it's really hard and you hate to have someone who's been there have to look for a job in this climate. But there's still plenty of hiring going on, there's plenty of jobs and you owe it to the rest of your team to make sure you have a players, A plus players because the going is really tough right now and it may get harder.

As a company that went from bootstrap to Series A to 30 people to 120 people in a year. I would say. One thing I learned, when you raise your institutional round and in the beginning at seed, you can have whatever title, president, CEO as a founder, doesn't matter. You are an individual contributor. When you raise this first round of funding, institutional funding, you get this shiny object syndrome and you start looking at big company logos and big titles and you want to bring like C suite execs and that causes you usually like startups build in phases, right? Validation, product market fit, product channel fit and scale. The same way as a founder you go from IC to becoming a manager to a VP and then an exec technically internally. But when you get the shiny object syndrome and hire big company execs in C capacities, you end up abstracting as a founder from being an individual contributor to C Suite and that ultimately will slow down your growth. You'll start making excuses for these people. So don't do that. Hire slow, do those extra 10, 15 interviews, back channel references. Would you work for this person? Would you come here. A big red flag is if an executive can't, doesn't have direct experience rolling their sleeves in the very thing they're taking on and they can't bring other people with them. And so those things are very important. Other advice, Brian here, as you've seen.

Yeah, you're spot on. You said that founders, you can give yourself any title you want at the, at the beginning phase as you're starting to hire team members in at that seed phase, you're really hiring for just an all hands on deck do whatever it takes. You're really hiring other entrepreneurs. It's an entrepreneur hiring someone who is truly entrepreneurial. Once you have that product market fit and you're starting to scale, it's the difficult task of saying, okay, I have someone whose title is technically head of marketing, head of sales, head of engineering, but I really do now need someone who is world class at that and can scale can take us from a few million to tens of millions or maybe to hundreds of millions. And that's like I said, that is so hard because you like the person, they were there with you. But it's incumbent to have a skill set who can take you the rest of the way. And that ultimately is what enables that founder to remain as the CEO on this infinite growth trajectory where they haven't built a business from zero to 100, zero to a billion. But if they're really self aware and good at hiring people who are better at their functional domains that they are, you don't need to be defensive about that. You don't need to worry that, oh, if this person's better than me, then I'm no longer the most important person at the company. Founders will always be the most important person at the company. No one knows the business better. No one knows the history. No one knows all the details. Probably no one knows the customer or the product better than the founder. And so you should have the confidence to always be hiring people smarter than you and better than you in each domain that you're hiring them, each functional area that you're hiring them. And if you do that, then everyone's going to want you to take it all the way because it's your baby and you're the best person in the world to continue to tell that story to the world.

Don't get driven by fame. Get driven by what's best for the company and what will propel the company forward. And the best founders I've seen hire people who are better than them at the job at hand. And equally true when you know you'll see employees. And I tell people, don't, especially going from C to A, don't give out titles like candy. I know you can't afford to hire people. Evangelize them on the purpose, the mission, the vision, the values of the company. Because titles are very hard to pull back. And as you go from seed to series A to B, or let's look at just regular numbers here, from no revenue to 1 million to 5 to 10 to 15, people will hit their local maximum. They'll hit a plateau. They'll hit a wall. And so if you're giving away titles, then there's no option but to.

It can often be a negative indicator that if the person, if the sticking point in whether or not they join is whether they get a C in their title, maybe it's not the mission that is compelling them, it's they want to build the resume. And that's probably not the person you need at that early stage. You need the person who's like, I don't care what title I get. I love what you're doing. I can add value. I want to be on this pirate ship and help build this thing.

Hire company builders. Hire people who are good at their craft, can roll up their sleeves. Don't hire people who want to build their resumes. And that's actually a very good task. Tactical piece of advice is if people are sticking that they have to have the C title, then it may not be a good thing. Brian, I want to take one Question here from Fong. Can you share some of those cold emails that impressed you? Just a high level of what those cold emails entailed.

A very clear articulation of the product you're solving. If it's truly innovative, like any experienced person would say, wow, that is a brand new idea, awesome. But most ideas have some prior history. I love to see people who are willing to admit, look, this thing, there have been some companies in the space in the past, here's why I think they failed, or you don't have to go into detail, but help answer the why. Now, if there's been a whole bunch of dead bodies on the road towards this idea and then some level of personalization that is truly personalized. I see you've invested in X, Y and Z. Company work thematically similar, then okay, they do their homework because at the end of the day that's a good trait. You want to do your homework on customers, on hiring people, so do your homework and fundraising. And if that is well written, hits those three areas. I think that's worth a meeting.

Here's what my company does, here's my revenue, here's my growth rate, here's my nrr. Here are some logo customers, here are some other high profile angels. I read everything about you, Brian. This is why I love you. Can we chat?

Yeah. Here's my differentiation. It's here's what I think makes me unique. Ultimately, that is the business that we're all in. We're changing the world, we're doing innovative things, we are supporting people who do that. And that is the greatest joy. And it's why I'm still doing this after a long time.

What's one piece of unconventional advice that founders ignore but shouldn't?

I think it is this notion of real candor and real truth seeking. The whole fake it till you make it and the unicorn porn. It is so unsustainable even for one's mental health to be thinking that I have to tell myself and everyone else I'm doing better than I am. And really just being honest and open with yourself first with your co founders, with your employees, with investors. Like, I think that is just really important. And there's a lot of advice about, I think that runs contrary to that. And I think it's unsustainable in the long term. Cognitive dissonance is a tough thing to live with.

I get told a lot, hey, you weren't supposed to say this or you weren't supposed to say that. And anyone who asks me this, I say, hey, I don't have two parts of a brain. If you don't want me to be transparent about something, then just don't tell me because I won't say it. But if people ask me a question, I have to be transparent. And transparency and consistency are two of the key drivers or leading indicators to building trust. So focus on that. Brian, what are some books you recommend founders read?

Let me give you some short form examples because right, most founders, they speak. You don't have time to read books. Some things I'm really liking these days is there's a newsletter called Category Pirates. It's all about category creation and category design. I think it's really terrific. They come out with posts just about weekly, every other week, little mini books. I also find that there's a whole new genre of bloggers out there that I call the synthesizers or explainers that really try and take things back to true fundamentals. Okay, we have inflation, so the Fed starts raising interest rates and tech stocks tank. Why the hell is that? What's the correlation between all that? So people like Thomas Pueo, I think Eugene Way has done great long form blog posts that really get to the essence of how things work. Then there's one Peter Zion on geopolitics who just the way he explains how geopolitics and demographics work, that is I find fascinating. And what I like about this genre is that it really goes back to first principles and understanding why are things the way they are. And I think that's really important for company builders because it figures out what is the essence of what this market needs and how to deliver it. It gets to ground truth, which is ultimately the way forward.

I love that. I love ending with first principles even as founders. Right. Don't reason with analogy. Focus on things to their fundamental truths and reason up from there. And Elon Musk says it and Bezos, keep digging. You'll find digging. A lot of founders will ask, hey, what's the next growth act? Channels get saturated, everything eventually gets saturated. And if you want to find new ways to fish in the same pond, then you got to keep digging like you said.

Yeah, totally.

Thank you so much, Brian. It's been a great pleasure, fantastic session.

Thank you to you and to all the entrepreneurs out there. Much success and keep doing what you're doing. Times will get better.

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