The Highs and Lows of Fundraising with Founders of Expensify, LaunchDarkly, Coda, and SaaStr

I think you take money when you have a plan to spend it. There is a risk of being overcapitalized and that it just changes your entire company. You know, you lose the idea of caring about reality. And I think that at some point reality matters. Most of Silicon Valley exits before reality even comes into the picture. And that's become our business model here. If you're trying to actually build a business and you care about things like I need my employees to think about the customer and the culture and scalability, and I'm gonna be here for a long time, then I think there's actually a risk of being over capitalized because it causes your team to not care about the important things until it's too late. And so I think that if you care about building a real business, you should view your equity as something that is, you should trade it for something when you have a plan to spend it. This whole idea of getting a gigantic war chest, I think it's bullshit. I think that it's just a big waste of money and capital and it just like ruins your company's culture. I need some traction.

You need some traction.

Let's get some traction.

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Raised nearly a billion dollars in funding, and that's not easy to do. How should founders think about fundraising and valuations, particularly in this market?

Yeah, so we announced our series D of 200 million at a 3 billion valuation, which is pretty fun to say, by the way.

Yeah.

Is it fun?

Yeah.

All right.

I mean, it's, it's. But behind that is like seven years of grinding and the team working incredibly hard and us getting 2,000 customers and being recognized as the category leader. Our first round of funding, I remember our co founder and me celebrating about a 15k check from an angel. We were like, okay, let's, you know.

This is, you know, got some ramen.

Yeah, we were ground out. Our first round was like a 200k friends and family round. And that was excruciating.

And then in terms of valuations right now, are they. What is it, 5x2 years ago? Is it 10x? Like, how should founders think about, do they even command the valuation? Like, how did you go about it?

The thing about evaluation is that you have to grow into it. I mean, David, I think, is actually a counterexample because he's. We were talking backstage like, he's about to ipo. It's no secret.

Talking about.

Yeah, but you've raised very little money and been very efficient. So I kind of don't want people to just say, like, valuation when your private company in Mount Mary's is the measure of success, it's really about actually producing value.

What's your viewpoint on that?

I think the valuations have gone up because the. Everybody's realized the markets are a lot bigger than they thought. And so it all sort of trickles down. As you see, these companies get much, much larger than people expected. It's surprising to people that don't see the way technology is taking over industry after industry after industry.

David, how about you? What do you think about it?

I think it's all bullshit. Like, I think the reason the valuations are high is because there's a shit ton of money in the markets and it has no place to go. We just printed, what, three and a half trillion dollars of stimulus money out of nowhere, and it went to a whole bunch of people that have no place to spend it. So it just goes into the banks the banks have just. They're just flush with cash. They give it a tiny fraction of the VCs, and, like, I don't give a shit where it goes to. Does not matter. There's a finite number of investments. They just get super competitive. The money has to go somewhere. No one cares about any of this. Like, none of it makes any sense. And so I think that the idea. I think there's a part of, like, oh, the markets are bigger than we realize. The world didn't change. It's like, it's the same fucking size. And so I think, like, maybe. Maybe that's part of it. I actually don't think that's most of it. I think that most of it is. None of this makes any sense. And so as a result, there's just a bunch of money going around and it's just all chaos.

Can I briefly disagree?

Please.

I do think the market has gotten bigger for SaaS. Like, I've been going to saster back when we. I don't know, we're stuffed up on Nob Hill. And my joke to Jason is we. You get a bigger venue and it fills again. But SaaS is not this new hot thing anymore. It's now an established category where you have people who are doing it. And the universe is much bigger in terms of, like, this is a way that you could build your business instead of it being seen as like a niche weird thing. Will it last?

Yeah, but it's not like the market itself has changed. It's become, or rather, it hasn't grown that much. There's hundreds of millions of businesses in the world and virtually none of them use any of our software. It's like, on a grand scheme of things, the entire sum of SaaS is still like a rounding error of actually the global opportunity. But it's not that the opportunity hasn't been there all along. I think that we're just finally finding models that can acquire more of it. But I don't think the market's changed. More of the models have changed, perhaps, but even that, I still don't even think that's true because most of the companies rating this shit, tons of money, they're not using, like, novel customer acquisition techniques that couldn't have worked 20, 20 years ago. They're just willing to lose more money on it, and then the VCs are willing to allow them to lose more money on it.

I will again, respectfully disagree. You know, when we started seven years ago, it was a slog to sell SaaS. Like, we had Our like our initial customers would always say, do you have an on prem version? And we would say no, we believe in SaaS. And they'd say like, okay. And then they'd come back a year later and say, hey, we've actually moved out of our own data centers. We are ready to buy SaaS. So it has been this extreme uplift for us in terms of we're not arguing about cloud anymore.

But there's obviously truth to both sides of this. The markets are clearly bigger and there is a lot of money going around and they converge. I think the money also has other places to go other than SaaS. It doesn't have to come to us and it's choosing to come here because I do think it's the markets are proving to be more open to these companies taking over business processes that they didn't used to be allowed to.

David and I, we're all actually somewhat old timers of SAS in different generations. We've been through like the three generations of post Salesforce SaaS. Salesforce one, you and I started Salesforce two. Edith was maybe 2.5 and then Coda now is maybe 2.7 or third generation. But you've been doing this for a decade and a half. I'll tell you. First of all, it was interesting when I did a podcast with rene Lacert from build.com and his point was there's still 6 million buyers@build.com today and there were when we started. So the TAM in a sense is the same. But let me tell you, the jaw dropping statistic for us old timers in the BVP Cloud 100, which I think maybe LaunchDarkly was in, 25% of them are growing more than 100% at 100 million. ARR. That is the difference in the cloud, the top quartile, not the top one or two. The top quartile is growing triple digits at 100 million. And when you think about compounding, assuming those have NRS approaching north of 100, that means they're all going to hit a billion in revenue. So that is now as silly as it sounds, that's commonplace. So what are the odds that any of us will do it? Well, high. And Coda is interesting. The bet is that it's high, right? Coda has the team and the technology and you've taken advantage of the market to raise at attractive valuations. But it's the same bet for. So when I tell old timers that number like their jaws drop a little. What so. But I think the top Quartile grows triple digits at 100 million because you're going triple digits at 10 million. A generation ago was like, that was the magic number. Could you actually sustain 100% growth at 10 million five or eight years ago was you're fucking going to be a unicorn.

So that's interesting. So the TAM hasn't changed. The business model also hasn't changed, but the awareness that it could scale has changed perhaps. And so people are willing to like project forward further now than they were before, which can explain the higher valuations as well.

It's made it easier to buy. But this begs the question that probably everyone's asking, right? And Jason had a great post on this you talked about. Just because there's so much money in the market, should you raise right now? I remember you wrote that post. You still need the metrics. So when is the right time to raise?

Look, every founder in the room, there's a trade off. We'd all love to be capital efficient. Like you look at your cap table and you all wish a few slices weren't gone. Either there was that early investor where you got ripped off or that middle round where you needed the money. And you look back, you're like, who owns 22% of my company? So we all respect capital efficiency because you can only sell 100% of your company or 90, 80%. But there are moments these days where you're an idiot not to take the money. You're just an idiot. And I had a. And especially today, if you can sell less than 5% of your company for an attractive price, right? I mean launchdarkly, your next round, you only sold 7% in that round. You could probably sell 100 million at 6 billion today to someone just because they want to get in 100 million, 50 million at 6, you never even notice. The extra 50 million will. So I think you almost have to take those crazy checks and there's good challenges to it because I don't think there's no like down round drama. There's no issues. All this stuff that we used to care about. Oh my God, if you, if you raise a too high evaluation, the world will end. I mean the world just gets a little worse. It just gets a little worse if the dilution, especially if the dilution is modest.

I think you said that you do have to be careful about growing in your valuation. I don't think it's like you said, all of us have been around the industry long enough to have seen those things happen and they can happen. So I Don't think there is a level of responsibility but it's definitely true that every round is, you know, ours was 100 at one point for it's a heavily oversubscribed. You could easily take in more at a higher price. And there's some, you do some math and where you think the, the right price of the company is. My view is don't take money from people if you don't think you can hit their investment goals. If you're misaligned with your investors, that's going to be trouble at some point.

I look at taking funding as allowing us to invest like so, you know, we talk a lot about CAC payback and say hypothetically you're at 18 months, that means you have to pay for all that sales and marketing 18 months before you get that turn.

Yeah.

So either that means that you have to build up this bank from your own non VC funded business or you can get VC and say hey, I'm going to take this 18 months of capital, invest in sales and marketing, get the payback in a year and a half and also by the way, invest in my product so that I continue to create a category and outrun competitors. Yeah. So it's just a choice. They're both valid.

I think you take money when you have a plan to spend it. I think one thing we're not talking about is there is a risk of being over capitalized and that it just changes your entire company. You lose the idea of caring about reality. And I think that at some point reality matters. Most of Silicon Valley exits before reality even comes into the picture. And that's become our business model here. But I would say if you want, it's like there's kind of two business models. There's like build a viable business which you care about. Things like profit margin, things of this or you just sell to a bigger sucker. Overwhelmingly Silicon Valley is based upon the latter of those. And like the reality is at no point relevant in actually the cut the entrepreneurial journey. And so I think that if you're going the classic Silicon Valley route, yeah. Raise money early as much as you can. It doesn't matter. The terms, they're like, doesn't matter. Nothing matters because you're going to get out before the music stops and if you don't, you're just going to wash your hands and do it all over again. Like that is the entire strategy. So if your plan is to basically just take that classic strategy, raise as quickly and as often as you possibly can, don't give A shit about anything else. Take as much secondary as you can. Take as much primary as you can and just like, whatever. On the other hand, if you're trying to actually build a business and you care about things, like I need my employees to think about the customer and the culture and scalability and like I'm going to be here for a long time, then I think there's actually a risk of being over capitalized because it causes your team to not care about the important things until it's too late. And so I think that if you care about building a real business, you should view your equity as something that is, you should trade it for something when you have a plan to spend it. This whole idea of getting a gigantic war chest, I think it's bullshit. Like, I think that it's just a big waste of money and capital and it just like ruins your company's culture.

I think obviously raise money when.

Thank you. Thank you.

I think the truism of like don't raise money you don't intend to spend, that seems fairly obvious. I think there is a big difference in categories. There's certain categories where there is a race in certain categories where there's not. And you know, the way the market is moving does matter to that. Our category, I think there's only so many blinking cursors that people will pick and you have to be ahead of that and we can't, you know, so you have to invest faster or as fast as the rest of the market is moving on it. And in our category there's like obvious big competitors with both Microsoft and Google kind of owning that space. And you have to, you know, you want to be as fast out there as possible in that there's other categories where that doesn't matter and you can build your way up as at your own pace, but I think that matters.

To actually completely agree with David that culture is super important. I think it's a false dichotomy though to say that if you take VC money you're going to have a terrible culture.

What were you saying behind stage just earlier? That basically you can't talk about culture because every business sounds exactly the same.

Edith is an inspirational leader and I think that's a really important point to dig in on for a moment because we've all had some version of the experience that Dave brought up, which is that money or something or, or the fancy new outside CEO or the whatever kind of ruins the culture, right? And sometimes it's not even the round, it's someone spending tons of money like a VP comes in and blows 20 million on a marketing campaign. But at this point, having gone From Ultra Scrappy a 200k round to a 200 million is her challenge is. No. As a leader, you can maintain that culture even through the unicorn. Right. And that's a good challenge to the binary thinking here. Maybe.

I mean, LaunchDarkly is creating a category. We do feature management to allow people to ship software more safely. We brag about 2,000 customers, but to David's point, the vast universe has not heard of us ever. We raised the rounds that we could have marketing dollars to evangelize a way of software that we felt was a lot better. And when we struggled to raise prior rounds, I actually would run our financial models and we could get to this point where we were break even. But I was like, if we could get the money to invest in marketing, I know that it's going to pay off and I know that we're going to have happy customers.

Yeah, I don't really understand the money leads to bad culture point. I mean, I think there's plenty of great examples of companies that raise no money that have shitty cultures too. I don't think there's any.

Oh yeah, definitely.

There's any correlation.

A lot of ways to fail.

Yeah.

Yeah.

So I mean, you have to. You have to raise money when you need it. You have to be. I don't think that's. That's rocket science. It wasn't part of my calculus that we're going to raise money and risk our culture. I didn't think about that at all. It's not.

I think the general theme here is have a plan to spend it. More people die of indigestion than starvation. Metrics were required for each stage. Right. You have a validated market, you raise a seed round, you have some unaffiliated customers, you go and raise an A product market fit, high retention product channel fit, you raise it B at scale. What are the metrics today? Or do they even matter? And I don't want to set the audience here to think that, oh, your metrics don't matter. Just go and raise a lot of money. Take some secondary. But really what are the metrics today.

When you don't understand a venture round, when you see a crazy competitor doing worse than you that raises a ton of money. Just bear in mind no one's stupid. I know it's easy to think stupid. Everyone's making a bet, okay? And everyone and the people writing these checks are experienced, with a few exceptions. We could talk about some new money categories. And what's different is when Dave started Expensify and I started Adobe Echo Sign, those bets were it might end up being worth 100 million and we're hoping it might be worth a billion. Okay. That was the general venture bet. So like valuations had to be in the 20 to 30 million range for an A. That's interesting because you couldn't make money on $100 million. Exit. Forget about the seed. If the A was much north, it was just math. If you're going to exit 100 with dilution, I only make three times my money even at 30 post. So today, every single bet either has a bet that someone else is going to mark it up, but it's still the same bet, or that it's going to be a decacorn. So Edith raised.

That's interesting.

Think about this for a moment. Edith raised it. 3 billion coda @ a bill and no one's sweating on the stage, Right? We used to sweat. Right. There's no. Both of them have committed to a $10 billion, a $10 billion and maybe a $15 billion out. These are the commitments you made to a $15 billion outcome. And so what's weird in venture is sometimes people will do that at a billion ARR or 100 million ARR, sometimes they'll do it at a 1 million ARR, which just blows our fucking mind. Like, how can someone at a million ARR raise at 200? But it's the same bet, isn't it? And you saw it at Koda, right? Because it was hot, unhot and then hot. And so you saw people take that big bet on you, didn't you?

I don't think the metrics have fundamentally changed. The multiples have changed. I mean, I think the. What you said earlier about expectations that everybody builds the same models, they show up with the same look at your growth, look at your nrr, so on, and build out your forecast. The only change is how long do they think you can sustain it? And as your point is, we're now seeing many companies sustain it for much longer. Just size of market, size of model, like all those things matter. We still had to go through all the same numbers. And I don't think it's that different.

Yeah, I would think the numbers are probably the same and there's just as much bullshit as before. They're basically all lies. And they're the same lies because basically you go talk to a VC and they're like, you're a startup, you've got a couple of customers, you scrappy a whole bunch of different ads and like, cool. What is your cost of customer acquisition? Now statistically it's unfucking knowable. Like we haven't done anything sustainably for long enough to actually have any confidence in any number. But you still get the question, what's your cost of customer acquisition? What's your lifetime value of your non existent random set of customers that you only looking at for a couple of months? It's like it's a, it's, it's 7 or 700. No 700. It doesn't fucking matter. None of this stuff is actually statistically relevant. They are all actually noise. All of these numbers is equally valid. And so I'd say just say whatever they want to hear because they actually don't care. They just need to check a box and, and they're so excited to invest money in you because they don't make their money based upon the outcomes. The vast majority of VCs of a typical VC's income will not come from their carry, it'll come from their management fees or some slice of that over the course of their career. They don't give a shit about the outcome or the success of your business. By and large they hope they do. It's kind of like the house always wins in the sense that it's, they make money either way. It's like the VCs are not exactly stressing about you failing. Like your failure actually simplifies their life in many cases. And so I think that the numbers are the same. They're still all bullshit, but I think the valuations are higher because they're willing to convince their LPs of a stronger story and then they get paid along the way.

I do think VCs care about metrics and I think you as a founder and entrepreneur should care too. Yeah, like, so I was product at Tripit. So there's some faint rivalry because I worked at Concurrent, you know, we had meticulous dashboards about, you know, here's our funnels, here's what we're spending and I took that into my own company of, you know, and you're right. At the early stage, what is your cac? You have no idea. Yeah but like just the in and out of like. I think a lot of startups lose track of their cogs in terms of AWS spend. It can actually go upside down tracking your net retention, being super meticulous and honest about your churn so that when that VC does come knocking and Maybe there is a little bit of a storytelling that you have all the numbers ready to go because they're going to drop it into all their proprietary models and whatever pretty slides you make to razzle dazzle them. The truth then comes out. So like it was, it was weird when we raised, they were like, wow, your metrics are actually far better than we expected because everybody exaggerates. Like they, they throw out people who churn within three months where we keep them in and we're then honest about our.

I want to direct some of that too. I mean first off the. I would not lie about your metrics. Like you can't. There's obviously some level of guesswork in every metric, but it's how you're running your business. My view of it is show your investors your board deck that you use to run your own company and if you're not willing to do that then that's a problem because you're running a company differently. Of course, like with fast growing cohorts and so on. There's only so much you can know. I mean, I take your point on how well can you really know CAC and NRR if you're just. If you're growing so fast, but you're running your business based on those decisions too. If you think it's a shitty business, don't keep running it and just take whatever that is and hand it to your investors. I think the cynicism on VCs making their money off management fees. I don't want to defend the VC business model. There's lots of different parts of it that work and don't work. But it's absolutely not true that a VC that makes all their money off fees is going to continue to raise great funds. And, and these, I mean all these funds are returning, you know, astronomical results. This is now we're in a phase right now where this is all being, these companies are getting bigger. This is not theoretical anymore. I think the idea that VCs aren't looking for that, I think that's a little cynical. But I think it's. They're just seeing companies sustain these growth rates for so much longer and they're just trying to spot it earlier and that. And it's guesswork and everybody's. We're all guessing too on, you know, is this thing going to work or not work? We're all making a choice to continue to run our business that way. But I think that's what we're seeing just, just seeing multiples increase that way.

I like don't lie. Just guess with conviction.

Guess with your own conviction.

Right.

If you're going to run, just show them how you're running your business and let them make their call.

Yeah, but if you're running your business on noise that you call data, you're doing it wrong. Like, you should at least not lie to yourself.

Yeah.

It's like if you know that this is not statistically relevant, don't pretend like it is. Maybe to pretend to others and guess with conviction to everyone else. But like don't guess with conviction yourself.

But it's also very stage dependent.

Right?

Like, I mean, when you're raising a pre seed or a seed, you just need validation. And maybe you, you have some unaffiliated customers who've agreed to a paid pilot with you in the B2B space, but when you're maybe at half a million or a million in ARR, you have high retention, maybe 100% plus NRR customer NPS is high. So those are real metrics.

Right?

If customers love your product and they don't leave and they're paying you for it a couple years, what is that bar to hit? I guess in today's market, a series A or a series B? You raised a series D, right, Edith, or Yeah.

And it's funny rounds today. I feel just like I'm like I used to buy a Coke for a nickel type, type, type envy. And I'm like, wow, the rounds that you that they're raising. But it doesn't get easier though. I have a startup I'm friends with, they did a pretty decent sized seed of not going to like 4 or 5 million, which just blew my mind. And then now they're trying to do the same grind that we did. They're like, how do we get our customers? How do we get our ACV up? How do we turn this into business? That part does not get any easier.

That's the real work.

Yeah.

And so what is that number though? Maybe that number is arbitrary. But what is the growth rate you need and what is the revenue you need and what is the retention you need? Get a B and a C. In.

This market, there's no magic formula. A lot of people come to me for fundraising advice and it's heartbreaking sometimes because they think they get fed into the model and a yes or a no gets spit out, Magic eight ball style. But really it's a yes or a no. And then also, do I like your business? Did this partner have a bad lunch yesterday? And they're still a little Grumpy at the partner meeting. It's not automatic.

The seed and A are primarily just about you and the story you tell, especially the seed. A, it's like you have to have some evidence that the story has some anecdotal evidence of some kind of traction. B, it's like you need to invent numbers that seem reasonable. And C, the numbers have to start seeming actually solid. And by the D stage, these numbers might actually mean something. Your company's gonna die way before you have any meaningful numbers. So by the time you're either gonna succeed or fail, way before you have any numbers that actually matter. And so really the key thing I think as a founder is being a powerful storyteller is like understand where the market's going, be able to state with conviction that the market actually is going there, and express a story for how you're going to get there. And the strength of your story is like 90% of the success of like your first couple of rounds.

I mean, I think that's, that's why the most important point is investors. I mean, if I look at the companies that succeed in raising, don't. Obviously if you're not growing and you don't have any of those indicators, it's hard to raise that. That's necessarily not sufficient. Investors are making a bet on your category, on your tam on and then your chances of acquiring it. And I think the great founders, there's a reason why they're all great storytellers, is they have a way of talking about their market that helps people dream about it. And I think that's really important in some cases. It's obvious. I mean, there's cases where you're creating brand new categories, you tell a lot of stories. Cases where, like our case, our categories is somewhat obvious. People spend a lot of money on productivity software. It's all a question of can we earn our share of that or not. But other cases where you have to tell a lot of hard stories on why is this market going to be big, and then people will use that to calculate, do I think this, this company can be a meaningful leader of that or not? I think that's a really important piece of it.

You know, I don't know if any of you have open sourced your decks, but one of the best evolution of round decks I've seen is Front Matilde Colin. She had a seed series A, series B series C decks. It's on slideshare. Check it out, you'll see that evolution of Deck 1 and 2, very vision focused and Then the sort of series B, series C, extremely numbers focused, still shares the story, but it shows that we're growing. And you know, there's a lot of other examples, but probably as we were raising, I referenced that a lot. David, you raised a while ago, you raised about what, 20 million?

Something like that. Yeah, but we've been raised in like, I can't remember, like five, six years, something like that.

Why did you raise when you raised.

Because that's dumb. I mean, because like, they're just coming like $1 million. And I'm like, that sounds like a lot of money. Yeah, I'd like a million dollars. And I'm like, you want more? I'm like, it seems like it. I mean, I don't know, I've been pretty cynical up here. But I think that comes down to like, Silicon Valley is just such a grinder. I think that. And we elevate as our heroes the whole idea of like a serial entrepreneur. The only other time we use the word serial is serial killer. And I think the. And there's a similarity to that. Cause it's like, you know, we talk about as founders, we're like, yes. You know, I work so hard. I built this product. I am so committed to this social network for kittens. It's all I've ever wanted to do since I was a child. I brought in my teammates. No, no, no, not my team, my family. I worked with my family. I grew them, I mentioned, and then I sold them again. It's just like, what the fuck? It's like the idea that you build a company and then you just like. And that's where the secondary comes in. It's all like bribery. It's just like, hey, how much of your family will you sell me to go in this front? It's like everything about it is just so morbid. If you kind of think about it from like the perspective of what you're actually trying to do. Like, it's. It's such a rarity to actually try to build a business that you want to work at forever. It's such a rarity. It's almost like you're laughed at. Like when I started expensifying, like, yeah, I'm going to build a company. I think I can make this insanely profitable. Like the most cash efficient cash cow business in the world. And like, but, but why? Like, because, I mean, profit's kind of good. And like, I don't know, a job is nice. And they're like, yeah, whatever. And people just roll their eyes at Me, the idea of trying to make a company that I wanted to work at forever. And so I think that I did it at the start because I bought into the serial killer mythology. And then over time, just realized it's like, no, that's a horrible lifestyle. It's terrible for your employees. It's not good for creating real value for your customers and so forth. And so, no, I think that I did it until I got smart enough to realize actually that's just not the future that I wanted to have.

How many people here want to build a company they want to work at forever? Show of hands.

I'm so glad to see that I'm skeptical, because I would say if that were true, you would be doing a whole bunch of things that I doubt most of you are doing. Like, how many of those same people just brought in some kind of outside executive from their VCs? Yeah, you just fucked your entire company. Because by doing that, you just indicated to every one of your employees, you cannot grow here. We value skills that you cannot get here. And so basically, you put a cap on all of your best people and they will absolutely leave. And so I'd say if you care about your employees, that means you have to do things from day one to demonstrate that you don't. Take this giant fucking secondary round. This is like, hey, employees, thank you so much for grinding. I'm just going to be over here with like this huge check. Like, like the, like the mailchimp guys. Like, don't worry, we're never gonna sell. We're never gonna sell. Sorry, suckers. It's like again and again, every single big round we have, the employees get fucked. And there's a whole bunch of reasons for that. It's like the VCs always win. The founders sometimes win. The employees rarely win.

You asked the secondary question earlier. And I think maybe that's one of the biggest challenges with secondaries, is we've done a secondary in every round. Employees go first, founders go last. And I think that's very important for.

Folks that don't know what the hell is a secondary. It used to be very rare in a venture round that the founders or employees could sell in that round.

Yeah.

And then maybe, I mean, we're dating ourselves. And then maybe five, six years ago, when you did a bigger round, 200, 300, 400, when you were about to get big, the VCs would offer you a little extra money because they wanted to buy 10%, but they could only get 8. So to bridge that gap.

Yep.

They would Say, look, I can't get my 10, but Edith, can I buy a couple of your shares? Sure. Can I buy a couple of shares? And it would happen later, right? When you were likely at 2100 million in ARR. And then what's happened the last few years is it's happened earlier and earlier. And then what started to happen in hot seat and a rounds anyone, because bigger funds would come in and they'd want it. And so it would happen at valuations at 30, 40, 50, 60 million, which we could talk about. And then it's become hyper aggressive as a way just to get into an expensive ira. So it's changed. But what to be aware of is the good news for founders and the employees versus founders is a good topic is you don't have to get to an exit to make a few bucks anymore. Okay. And that was maybe my biggest mistake as a founder is I sold in 2011, I sold in 2011 to Adobe and AVC offered me $10 million in secondary okay to not sell. And I just didn't know what the. What's this? What, what do you mean by how does that. Like I can't get, like my head's hurting. What do you. I'm like, oh, sounds good. That's more than I made off my last startup. But it was just starting. And bear in mind, it's hard, right? You have to be in the elite of cat. These are elite companies, okay? Don't forget that money's hard no matter how it looks in TechCrunch, it's the elite companies. LaunchDarkly didn't get 200 million until it was a top 3% startup. Right. Coda didn't get it either. So you have to be elite. So don't get confused. But if you're top decile, you can cash out a little bit. Like you can get millions of dollars and not have to wait 10, 20, 15 years.

I think that's a key point. So one of the seven Spotify board and one of the Spotify sort of opened up the direct listing. They're not the first to do it, but the biggest at the time, one stat about Spotify, one of the reasons it worked, 60% of employees had sold at least some stock before the ipo. And that allowed Daniel to take a longer view on it, not have to worry about lockups. The heart of what makes an IPO work as you constrain supply and, and you didn't have to do that because it wasn't going to be this run for the exits. I think it's really important that right now you hire employees and many of them have an offer that they consider to be completely liquid from a large public company and an offer from yours where they think their stock is a lottery ticket. And the more you can help them understand that. No, no, I intend for your stock to be worth something that's really important. So for me, even it's. If it's symbolic, we have a secondary every round. It's always oversubscribed from investors. Employees almost never sell anything. And they. You give them the option, they sell as much as they want. And some people have their circumstances, they're buying a house or doing whatever, but they're making their choice at that moment, am I investing the company or not? And they're hearing a commitment from the founder that I intend to make your stock worth something. So I think it's actually quite important.

That's great. I haven't really heard of that as a regular strategy. I think that's a great model.

Yeah, that is indeed.

I think if you can make it to 10 million ARR. And let's use a rough number just in your head and you're able to raise north of 20. Okay. Don't get me wrong. Statistically that's still hard to do no matter how it looks on Tech Coach. But if you do it, those investors are probably going to offer you secondary. Okay. So just know as a founder, if you can get to 10 million and you can get. I'm not saying take it. I will tell you the single best investment I've ever made. The founder refused to take secondary at 301 billion. 3 billion, and again at 10 billion, you don't have to take it. Okay, but just knowing that if you're able to slug it out to that level and one of these fancy funds wants to invest, it's par for the course today in your term sheet.

Right. There's one. One other thing. This is a very tactical suggestion, but I got this early on. There's a. There's a type of stock called Founders Preferred Stock that I don't know why more companies don't use this, but when we were starting the company, I got this advice from another founder that if you structure your stock this way, people aren't familiar with it. It's often referred to as FF stock because the Founders Fund came up with it. It works just like common stock, except during a round it can convert into that series of stock and be sold to the investor. Is that series like we had a series D. They can Buy founders preferred stock, convert into series D mechanically. It makes the investors, it makes secondary much more attractive to the investor because they, they can now take the exact same class of stock. At Coda, every employee, 20% of their stock is found as preferred. And it's a way of, of telling every employee, we want your equity to feel semi liquid. I think then, then they think like investors. Which I think is the heart of how you hire great people is you make them feel like investors in the company. And that's a signal, that's of how it's going to work.

You should open source that playbook on Coda.

When you talked about front, right. I was an angel investor in front and it's. And I saw something happen in front. I'm sometimes slow that now in 2021 has become commonplace. Which was the last round in front, which I think was at 6 or 700 million, was all founders. Okay. It was Ryan Smith from Qualtrics. I forget who else. The other billion, our friends, the billionaires of sas. But they all I think led that round instead of a vc. And at first I'm like, well that's great for the, that's great for Matilda Co. But now this happens every week. Right. So many founders have their own funds and should you take advantage of that? Right. And do you even need VCs for a while if you're fortunate enough to get these alternative sources of capital. These aren't crazy, weird offshore sources of capital. It could be wanted. A $50 million fund. I don't know what you do any angel investing, they would give it to you, right. Your investors would give it to you if you wanted. So is it, what do you, what do you think of this trend? Is it good?

I think it's weird to be honest.

Weird.

Like I have a full time job.

Yeah.

Like I'm CEO and founder of LaunchDarkly. That's, that's a full time, that's 100.

Hour a week job right there.

Yeah.

I mean I have a very small angel fund. Just because sometimes I was talking to somebody who wanted advice. I was like, you don't need advice, you actually need money. Like you need to get that first angel in. And like it's just, it was so inspiring. There's somebody I invested in that I only counseled over the phone and I met her in person and she said you were the first person that ever invested. And when you wrote me that email, she just started getting extremely emotional that somebody believed in her. Like on this entrepreneurial journey.

Yeah.

So I think Entrepreneurship is really valuable and the ability to help people with that, it feels so good. But it's not a full time job if you're a founder.

Yeah, absolutely not.

Should you take it or should you give it?

I think there's a lot of interesting questions, but even in the last 12 months, there's all these new sources of capital and you can raise a seat or even an A today without ever needing a traditional vc, but still from folks you would look up to and respect. This wasn't even possible, I don't think fully a year ago.

I think the risk with that is that the pro rata and lot of risks and subsequent rounds just gets bigger and bigger and bigger.

Yeah.

So I wanted to get into the process. What is the process you guys followed? Maybe starting with David, because you raised.

20 million, what was the process to Jason's point? The world's changed so much and I don't know anything about this world anymore.

It really has changed. It really has changed. We'll get you up to speed.

Yeah, yeah.

It's better. Isn't it better? It's better.

I wonder. I think the early rounds are entirely different than the later rounds.

So let's say an A or a B. Right. Like Edith raised a D, but I don't know if it's that much dissimilar than a C or a B.

For the early rounds, the process is weird. You're meeting people, you're. Everybody is not quite sure what the business is. There's no metrics to look at. It's how well you tell your story. So on later rounds, it's a little bit more standard. These are the set of people you can talk to. These set of people are too early, these set are too late. They require this type of model of doing it. I mean, the biggest thing I tell people is compress the process. I think one thing we can all agree on, you should spend most of your time not fundraising and so do whatever you can to take that process and when you start it, finish it as fast as possible. Turns out that's actually very helpful for the process because there is an incredible amount of FOMO in these processes. And so I had one founder that he's, he's raised money for five different companies and I guess he's a serial entrepreneur. And his rule of thumb is no process over a week. So he'll start on Mondays. Tell everybody, here's what I'm raising. I'm taking the best offer at the end of the week and if I don't have A great offer, then it is what it is, but I'm not letting it expand out. I think compressing the process is very important that way. But it's very different.

Early and late again, it's been a while for me, but early, you're just trying to scrap money together.

Yeah.

Like I literally had a spreadsheet of everybody I knew that had money. I'd been early at tripit, I'd been at Vignette, I'd been at Concur and I was like, do they have money? And I just worked my way through the list and scrapped together the money and. But late stage, it is much more about running it more like an enterprise sales process because your own time is valuable.

Yeah.

Four to six week sales cycle, bring people along at the same time. And it's also a very stressful process.

Right.

When you got a lot of VCs in the mix. Everyone wants you to meet somebody that. Let me show you what I can do for you. Let me introduce you to this partner, that partner everyone else. It's a huge time suck. As a founder, you want to run your company and you should spend all your time running the company. So compress the process. I completely agree.

I think those early days, yeah, I think there's so much hustle. So I'd say some specific advice would be one, make your slide deck full of pictures, but no numbers. And two, when they say. And then when you reach out to a vc, they say like, I'm not sure if I'm going to raise, but I'm thinking about it and I really like you. So I'd love your advice because it's kind of like, if you want money, ask for advice. Because if you ask for money, you're just going to get advice.

I was in a song by Pitbull as well.

I'd say that the converse though is if you're. If it's an angel, just ask for the money. Because otherwise they don't know. Like, that was.

No, no, no. Everyone likes to feel like they're super smart. You're like, you're so smart. I love your advice. I read your shit. So I just. But I'm not. I'm thinking about raising. What do you think? And of course they're in venture capitalists. Their answer is always going to be yes. And so don't never mail your deck ahead of time because then they'll make their decision before they see you show up. Gesticulate, speak very loudly, swear a little bit, be edgy and then say like, hey, it's really great and just say whatever number they want to hear because it doesn't matter anyway. But even then, before that, I would probably do a Kickstarter. Free money, something like that. As much as I can get. I'd do an ico. Is that a thing anymore? I'd try it anyway, because. Why not?

David, I don't know if you're just trolling us at this point or not.

There's all sorts of great options out there, like as the early days, you gotta fucking hustle. And so, yeah, I would do all these things. I would scrape together all of this and I would avoid the VCs as long as possible because they're the devil. Now, don't get me wrong, sometimes you need to do a deal with the devil, but you're probably going to get fucked in the process. And so. And that's okay. Maybe that's just acceptable for the path you're going to take.

So Dave and I agree on one thing. Don't have a deck.

Don't what?

Send the deck.

Don't have a deck.

Yeah.

Out of all that, actually, I'll go one step further. The deck is actually. I agree. Tell your story whichever way you can. I like to use my whatever I presented to the board last as my starting point. But the one thing I would encourage writing is write the investment memo that you think they should write to their partners. One of the things I think founders often miss is you're pitching a person who's going to become your advocate and think about an enterprise sales term. This is your sponsor. That person cannot say yes. That person can only say no. So help that person turn around to their partners and pick your story on your behalf. I love. So that's the one thing I would encourage writing.

Or even at the end of your meeting with them, say, well, how would you pitch my company?

Yeah, yeah.

And then you can see if you've.

Just like, oh, that's also great. If you ask it for advice, then if they ever catch you in something, you say like, man, thank you so much for finding that. How would you recommend I answer that question that you just caught me on? Because it puts them to a collaborative mindset rather than an antagonistic one.

Can I just add one, like, quantitative piece on this? You guys know Mark Robert spoke on Tuesday. He was Sierra HubSpot, so he's at Harvard Business School now. And he started investing a couple years ago. I think he raised an $8 million initial fund for operators in revenue, and he just raised 80. And I was talking with him in the green room. And I'm like, how's the investing going? And he's like, you gave me some great advice. He's like, yeah, when we started two or three years ago, we'd get three to four interesting inbounds a week. He said, now we get 100. Not randos, not weird in mails, 100 good companies. So there's all this advice on the Internet, but remember, you have to actually break out so much more than you used to. This coffee advice. I will tell you during our digital events, I did one called. It was called Saster Money. And I asked Keith Raboy, David Sachs, Eileen Lee, Kristoff Jantz and Sacha Patel from Homebrew, all sitting on massive gains. Every single one of them said they read every single cold email they get and every single one of them invests in one week. So that's the way the world changed. Now that sounds interesting, but even if Mark, who I love but is new to adventure, gets 100, there are so many SaaS companies today. If he gets 100, how are you gonna break through that hundred? Do you want coffee? Do you want to not send the deck? Do you want to just talk about your theory of collaboration software or feature flags? I don't think any of that works anymore. When there's a. When Mark's getting. And he's. I mean, he's got a brand, don't get me wrong, he's got magnet. But 100 a week and then he flies out to Saster, he's another hundred behind because it came out from Boston. So just think about how the odds have changed and don't get all the headline things to confuse. Cause statistically, in a way, odds might be harder, right? But once you break through, it's easier, right? Once. I mean, launchdarkly fuck 200k from concur people. But now 200 million in a week, right? I mean, it's just. But you had to break through to the obvious category, right? So just don't forget those 100 a week. That's. DC can process 100 even with the team. It's too many, isn't it? No matter what anybody says. You could do like three, right? If you really wanted to have a conversation as CEOs, how many deep conversations can you have a week? A couple. So just think about the odds.

What is the best way to build relationships with VCs and break out? You're getting 100 in your inbox. Jason's a proponent of cold emails. Some VCs are not but like what is the best way to build relationships? What is the best way to get that coffee meeting when Mark Robert or Jason Lemkin's inboxes thousands of emails.

I think you deliver results first and then they wait for them to come to you. Focus all your time on building a product that customers care about and then the VCs will care about you and doing the reverse I think is very, very hard.

This is surprising but I actually agree with David. Again focus on your business. Focus on your business. Build up your customer base. Your customers will start talking. They are the ones who will tell the VC what they're using in house or what they what the new tools are and that will build your brand for you, build the actual relationship. I do really like it sounds stereotypical but like a coffee or a lunch and just slotting that into your schedule every month so that way you can be 12 different VCs in a year. And so that when it is time to actually run a fundraising process, you're not starting from a cold start of like that's clever. Do I even like this person at all? Do they like me?

Do they get me obviously agreed on the focus on your business first I'd give two suggestions. One is when you're pitching, take advice from people one stage investors that are one stage forward or back from wherever you're pitching. Just go, you know you're pitching people for a normal B, go talk to a few people that would normally be C and D raisers. Show them this is the investment memo I'm pre writing. What do you think they'll know they're not in the market for it and they'll give you real advice. They all know they're kind of I want to be involved in this raise. It's I'm getting an early peak. It's something my might come later. You can do that early too is like go have the seed investor guide you on your A. That's one thing. The other thing is just find, I mean they're all people just find a way to connect with them that doesn't have anything to do with raising money. And I always told candidates ask me that question all the time. How do I, how do I get a job at Google? I said number one thing, don't show up in the recruiting folder. Show up in some other folder of why, why you're reaching out and everybody has different ways of doing it. You know for me I have a lot of other because of the way Coda works and the way we like to promote Ourselves, I'll generally reach out to people about how they run their companies, how their other companies run. That turns out to be a very good way for me to stay connected with people. Everybody has their own way of doing it. Some people do it with, you know, with sports or events or whatever. But I think just don't show up in their fundraising folder until you actually want to be in the fundraising folder.

If you got three intros, like if Mark Roberge introduces to somebody and maybe two other VCs you really respect saying, hey, you got to talk to this portfolio company, you're going to take that intro.

I just want to say two things. One is don't fall into the trap that you have to have a warm intro to meet an investor. Cold emails work. I did this thing online. I asked five of the top investors, including Eileen Keith. They all read the cold. Now no one at the series C level reads the cold email, okay? Because they all assume, they all assume that companies at this stage know everybody. It don't work, but don't assume you have to. It sucks if you're not privileged. It sucks if you didn't come out of Google or Y Combinator. It does suck, but you can break through it. This is our job as founders. So don't feel like cold emails don't work. They do work. And the one thing I just want, all the advice you hear, it's back and forth. Edith said something which distills all of it. Like fundraising is sales. And fundraising has pre brand sales and post brand sales just like SaaS does. And once you have a brand, it's all different, they will come to you. It doesn't mean you'll close all the deals, but the leads start coming in in venture. But don't confuse the two stages until you have a brand, right? Until you're maybe even at 10 million ARR. It's sales hustle. And if you think hiding stuff is good in sales, fucking go hide the deck, okay? If you think coffee enterprise sales works for you, go do it. But remember, it's sales. I say in sales, put your best foot forward, do it the way you know how to do. And it's selling stock. And founders get really, really good at it. You're hearing almost too good of advice because by the time you've sold stock five times, you've met with 500 investors. And founders get fucking good at this, right? But it's sales. And if you're not good at it, be thoughtful and take the risk to do whatever it takes to close the deal.

That's great advice.

Thank you.

Lloyd thank you for listening and we hope you enjoyed this week's episode of the Traction Podcast. If you enjoyed the show, please leave us a five star review and you can find more information and all the resources mentioned in today's episode at Boast AI that's B o a s t AI blog.