Scaling to Series A with Jed Katz (Javelin Venture Partners)

Welcome to the Founder Insights Podcast from the Founder Institute. I'm Jonathan Grecian, co-founder of the Founder Institute, and on these podcasts we try to bring you useful startup insights from our global network of entrepreneurs and mentors. In this episode, you'll hear from Jed Katz, the Managing Director at Javelin Venture Partners, an e-commerce pioneer and an investor that has consistently been rated as one of the top early-stage venture capitalists in all of Silicon Valley. Jed has invested in and advised a lot of companies that you'll definitely have heard of, including Peloton, Carbon Health, and more. And in this interview, he's going to share some important lessons on how to attract early investment and grow your startup from the pre-launch stage all the way to the Series A. This interview was done by Adeo Ressi, the founder and CEO of the Founder Institute, as part of our Scaling Sessions series. Enjoy.

Hi there, everybody. This is Adeo Ressi, CEO of the Founder Institute. I'm very excited today to be joined by by a good friend and amazing venture investor, Jed Katz. For a long time on a service that I used to run many moons ago called The Funded, Jed was actually the number one, numero uno rated venture capitalist in the entire world ahead of people you might have heard of like Mike Moritz of Sequoia or any other name that you've heard, they were rated 2, but Jed was still number 1. So I'm very honored to have you. Do you want to tell us a little bit about Javelin Venture Partners for a moment? Like the things that you do, the things you like investing in. And you got a few people online. More people will be popping in shortly. So we'll use a little of this time for intros and then jump into Q&A. Jed, I hand it over to you.

Thanks, Adeo. It's great to be able to do this. So to answer your question, Javelin has been around almost a decade now. We're on our fourth fund. Current fund's $125 million. In total, we manage about $500 million, mostly Series A investments. And we actually do sector last. So we have a whole set of other criteria that's important to us, most important of which being team, which I know we're talking about today. But we tend to invest in businesses that we would want to do if we weren't doing this. Things that we can't stop thinking about and love tinkering with and just brainstorming with the founders all the time. Giant markets, real moats that can be created. All of us here are former operators. So we all spent half our careers building companies from two guys in a garage to either IPO or decent exit. And so we tend to invest in things where either our expertise or our network or just our passion can help the thing succeed.

That's amazing. And yes, to your point, one of the things we will be covering today is team because that's so important for raising a Series A. But let's start with some basics, Jed. So you have $500 million under management, 10 years old, invested in some unicorns and others. A lot of people don't really understand what a Series A is. And to be honest, someone who's in the industry, It's confusing to me too, right?

So the labels obviously have changed, uh, and they keep changing. So I'll tell you what it means to us. Okay, something different to everybody. Um, so our, our average— it really means first institutional money in. Okay, so the first, um, professional money that's going to come help you organize the business, help set up the governance properly, help you initial recruiting, you know, some of the infrastructure, set the, the terms and help get the financing into shape, set you up properly to be able to raise future rounds of capital. So for us, that means an average check size right around $4 million of a round that could be just us at $4 million, or it could be as high as $10 million with other investors coming in. Typically before us, maybe they've raised a small seed round, a million or two, or just some angel or friends and family money. And we kind of get the whole thing started with a formal round.

I just turned some beeping off behind me. Hopefully that will make things a little better. So question about that. So they're taking in, you know, as you said, $4 to $10 million in this Series A, which is the first institutional money. And that, you know, to a lot of people, that's a lot of money. And is that, you know, I'm going to ask you kind of primitive questions, no offense, and in many cases I know the answer, but do they need that much money to scale? Or is it, as you were saying, it's not just scaling, they're also setting up a lot of this kind of blocking and tackling of corporate governance and correct management?

Well, that's all the stuff we help them with, but product market fit and just getting the early launch right, the early release of the product, the you know, the— all the tinkering that needs to be done to, to, um, really prove that there's a scalable business here. The true scaling comes later when, uh, more capital is raised, Series B and on. This is just to be able to prove there's a real business here. It's something that's hard to do and hard to copy. The customers want it. There's a price point that makes sense. There's a value proposition that makes sense. You're able to recruit a great team to build it, you know, things like that.

I'm going to come back to team obviously in a moment. And remember, for everyone out there, if you have questions, pop them in the chat. But I want to talk with you about what you just said right there, sort of tinkering product market fit. So a lot of companies are raising, you know, you mentioned, you know, maybe a $1 or $2 million seed, and they could have raised another $2 to $4 million beforehand through various friends and family and angel rounds. Are, and so they've been tinkering to some extent for some time before they hit your doorstep, right? So what level of product market fit do you, do you like to see or expect to see coming to your door?

So if somebody comes in and they've raised that kind of money already, they should have some of the answers at that point. They should have some clear signal that the world wants this product to exist. There's, there's pull. For it. The more money they've raised, the more they should be able to prove at that point. And, you know, that's what we used to call Series A's, right? That first like $3 or $4 million round or even $2 million round 10 years ago, that was a Series A. Now, if they raise a big seed round like that, whatever the label is, they should have accomplished a lot and they should have a real team together. They should have real sales numbers usually, or a very sophisticated product built. And, you know, really the A they're raising is not just to prove things out at that point. It's a bit of fuel to be able to grow a lot faster.

And then someone, Ron, was asking with the Series A definition, you know, how do you see the difference between Series A and seed in this new world? Because to your point, some of the seed rounds today look like old Series A rounds, right? So is that— how do you define it differently?

I think it's, it's more than the amount of money you've raised. It's, um, you know, is there a formal board being put together? Does somebody really care, right? Does somebody have enough skin in the game where they're going to help you build this thing and, uh, spend a lot of time on it? You know, a lot of the seed investors, um, if it's you know, a big group of people that are coming in, everybody wrote $50,000 or $100,000 checks, they'll help. They care a little bit, but it's not that big a deal to them. They're not gonna spend a ton of time on it. When you get the first institutional money who's writing a multimillion dollar check, they care. You know, it's important to their fund. They wanna see this thing thrive. They're gonna save a lot of reserves for it. They're gonna help you put the board together, all that stuff. So I actually— you're going to have to repeat the question. I think I probably—

No, you got it. You got it. So you're just like seed investors. You were talking about that. Well, we were asking about the difference between seed and Series A. So I want to just ask that going in back to team, because that's one of the key things I want to cover here. You know, going in, you mentioned some of the Series A money is going to be used to bring that team together.

Right.

But I presume that you want to look at a team going into a Series A. What are some of the things, you know, maybe we can divide this question into two parts, like what do you want to see before the Series A and then what do you want to see after the Series A from the perspective of a team?

So the founding team is really important, right? Obviously the founders have to be, um, they have to This has to be a passion of theirs to solve this pain point and build this business. They have to have recruited at least some of the key people that are going to help them build this. Clearly, there's going to be holes. There's going to be lots of positions that we're going to help them with or that they're going to have to fill after this. But they need to be able to show us that they actually can bring on other great people that, that find this just as interesting and want to be here for long term and build it. It shows us that they can recruit. It shows us the type of people that are interested in this.

So you look at the resume and bios of the whole team closely when you're evaluating the diligence.

Yeah, we usually meet the key people, whoever comes to the initial pitch. Maybe it's just a couple of founders. If we're going to get all the way to term sheet and to, to invest along the way, we're going to meet the other 3, 4 or 5 key people that are important to the business. And just we're going to instinctively get a great feel for them. Of, you know, are they the right person for the job and why they even joined, you know, what they saw in the opportunity, how's their relationship with the founders and with each other, you know, the whole team dynamic.

You can kind of gauge that pretty easily by body language, the way they talk to each other, things like that, or is there other things that you look for?

I mean, it's pattern recognition. We look for signal, we look for body language, we look for commitment. We just brainstorm with them for a while also, just see how their mind works and how they talk to each other, that type of thing. But, you know, make no mistake, there's no crystal ball. I mean, we're getting a kind of an instinctive gut feel of how this team is going to gel and are other people going to want to join this team in a fairly short amount of time, right?

I mean, what's your time span? You know, just a tangent on that for a moment. What is the time from like, let's say, short first meeting to check to sort of average first meeting to check? Is it like a month to like 3 months type thing?

For us, it's probably 6 weeks. And we tend to move a little quicker. We tend to act more like entrepreneurs than we do like a lot of VCs. But the second we decide that we want to pursue something, the sooner that whole team is refocused on building the business and away from fundraising is better for us. Right. But we'd rather them not spend 3 or 4 months away from building the business. We'd rather them get their heads down again.

That's not all venture capitalists think that way though. Most people like to— that's unique. So that makes you probably one of the few that want to move quickly. A lot of people think more time is more data.

And so, yeah, I mean, there's, there's, it's an easy trap to fall into, you know, more data is obviously more signal, but there's only so much signal you can get in the, in the seed and Series A stage. Right. At some point you have to make the call. Um, and also a lot, a lot of VCs tend to be fairly bad at saying no. They tend to kind of drag on and kind of try to maintain the option for a long time, even though they kind of know in their heart they're not going to do it. It's just wasting the entrepreneur's time and it's wasting our time. So we just, if it's a no, we tell them, uh, right after the partners meeting, you know, within 24 hours usually.

Oh, that's beautiful. That doesn't happen a lot either. Now there's some other questions in the chat I'll get to and other questions that we're getting, but I want to turn to one thing about the team before they come and pitch you. This is a common question that we hear. So you mentioned, you know, caliber of the team members. You look at the team dynamic by meeting them, seeing their interactions. So you're really saying like Is this a group of people that can collaborate to make something amazing? And the question that I commonly get is about tech, right? So there are lots of people have to solve tech in a lot of creative ways. So they might not have a tech, they've outsourced it. They have tech that is in Ukraine. You know what I mean? Like, it's that— that's one area that— and then some, it's just all tech, right? And there's no business people. And, you know, so I mean, I'm sure you've seen it all. And I'd love to hear, you know, how you view the importance of tech related to an opportunity and related to the team.

Yeah, I mean, man, it totally depends on what type of business it is. I mean, we're a seed investor in a a business that's building a platform for voice applications, and that's entirely tech, right? We've also done a lot of consumer e-commerce companies, and that's less tech. Tech is very important to that business, but a lot of it you can outsource or get kind of things that have already been built before. And it's more important what the product is and the branding experience and things like that. The marketplaces we've invested in, there's a lot of tech, right? Those tend to be businesses with a lot under the hood. And the tech leader is going to be super important to us at that point.

Would you say that almost every company you invest in has some sort of tech person full-time when you make the investment, part of the team, maybe not like a CTO, but maybe a lead engineer?

The vast majority of them do. There's been several that, that worked out that they didn't yet. They might have had, you know, sort of outsourced the beginning of it and had maybe a director-level person working on it, or at least managing the outsourced firm, and then ultimately hired in-house and brought the tech in-house to be able to really control it better.

But that's rare, you're saying?

That's rare. Usually there's a tech person that's part of the founding team.

Yeah, because that's a big question, you know, and then so, so That because most technology businesses, even as you said, if they're e-commerce where you can get a lot of that stuff off the shelf, have an important tech component. You know, so I want to spend just another second on the pre-team, and then I'd like to contrast that with the post-Series A team. So the pre-Series A team, is there any other things that you look for, you think founders should know? Because, because This is going to be watched by generations of our founders who are going to go raise capital. And I think team is one of the most important things. So your insights would be very helpful to them.

So I look for a level of sophistication in the team, especially in the founders. And by sophistication, I don't mean that they're in their 40s and they've had 3 IPOs. They could be 22. It means that they're able to articulate what they're doing really well. They're able to recruit and convince people to join. They're able to sell the product well. They're able to— you can see them raising future rounds well. They're well organized with their data. They understand their metrics and numbers. You could see them working on a complicated business dev transaction with somebody, you know. And back to team, when you have to go out and start recruiting A+ people, You really need to be able to be good at those things to recruit those people. Those people will see through you immediately if you're not. And, you know, if you're only good at recruiting B-level people, then that's the type of company it's going to be. So, the fact that we can tell you're going to be good at recruiting A+ people, that's just enormously important for us.

You brought something up that I heard you reference in relation to another company that we once talked about. And you said to me, you know, Dale, I might need to pass because I'm not sure they can raise a Series B. And I thought that was a very interesting way of looking at the team, right? So you, if you obviously care that they raise funding past the Series A, so you're not just evaluating if it's a good business, a good group of people, but if they can raise future rounds, which is saying you just brought up. Is there any insight? And then I've got another question, but is there any insights that you can share on that?

I actually think Series B is the hardest round to raise because you need a combination of showing the vision of what's going to happen. You might have some proof points, hopefully a bunch, but some proof points at that point, but you're still selling what this is going to become. Whereas future rounds, it's really about fuel and the metrics. Yeah, and, uh, you know, I— this is a job where, uh, every year that goes by you realize how bad you were at it a year earlier. So, uh, over the years I've learned, uh, when we bet on, uh, products we loved and we really wanted to see happen, but, uh, you know, the founder just wasn't going to be good at raising money in the future, and— but we still took the bet for some reason, and then it failed. You know, they were never able to raise that next round. They eventually run out of cash or have to sell for a small amount of money. And, uh, even though the product was great, it just never really took off. So I think the ability to fundraise and, uh, and get the capital you need to grow the business is, is really crucial, as is the ability to recruit great people. And it's kind of the same qualities if you think about it. You know, it's, it's, it's It goes back to can you articulate really well what you're doing here, why it's special, why it's hard to do, why you guys are going to win, why the market is big enough, you know, why the team dynamic works. It's all those things. We've gotten much better at detecting early on if someone's going to be good at that or not.

So I want to— again, if you have questions, pop them in the chat because I got lots of questions. So I'm going to keep, keep rolling. And some of the questions are kind of later on. I want to give a counterexample to what you just said with a famous entrepreneur and then kind of dig into maybe what someone can do to improve. But Evan Williams, I know him pretty well. That guy cannot pitch for his life. In fact, I heard about from him and others about how bad at pitching he was with Twitter. Now, to be fair, he had built Blogger beforehand, which was a pretty big success. But everyone I spoke to who heard his early Twitter pitches were horrified at how crappy they were. And so, I mean, it's— it's—

Was Jack with him?

No, he pitched mostly alone. Sometimes with Jack, though. Jack's better for sure.

And whatever happened to Twitter? No, I'm kidding.

No, I mean, that maybe is something we say in 2 years' time, but you know, I, I rely on Twitter for, uh, news.

But, um, yeah, so I don't know at the time what the early metrics showed, but it got, you know, people were using it pretty quickly and it became, yeah, what they intended it to be originally, right? Which means it started taking on a life of its own, and that helps a lot. I also don't know what happened between that Series A and the Series B to help him get other people around him and other resources to make the—

That happened by the Series B, but he pretty much raised the Series A with verbal diarrhea but good metrics. So, I mean, I guess you could argue that if you can't really pitch well, at least have superb metrics.

Whatever your key metric is, and that might be, it might be revenue, it might be, you know, just users, um, you know, like with Instagram, um, whatever it is, if your metrics are basically going straight up, uh, that's a lot of things when you're raising money. That's almost everything. Uh, those businesses are not, you know, on that trajectory, especially in the early, early years. They still have to figure a lot of things out before they really start, uh, having exponential growth. And it usually happens after the B round.

Well, if someone starts having exponential growth— well, let me ask this because we do see this happen from time to time, and I'd be interested in your views, but I want to go back to the other question still, which was, you know, how can they fix before they go out for the A and then post-A. But so let's say that someone has that exponential growth they usually don't have time to go fundraise, right? So, and that's just, by the way, that's the same story with Twitter because we have a few companies now that are starting to grow real fast and they're like, I don't even know if I have time to fundraise. And like, do you, I mean, but I think that's a little bit short-sighted. I think they should try to fundraise, right? Because then they're going to run into capital and scaling problems later.

The concept at all, to be honest, because number one, you're going to need the capital. So one way or another, you're going to have to find a way to get the capital. Number two is you're going to need help, right? So you're, you're, you're, when you raise capital, you're also choosing partners and you're choosing to help guide you through that exponential growth. And it can be really scary. I mean, yeah, good way, but it's scary exponential growth. You have to solve a lot of things really fast. And to the extent you can get great people around you that care and are putting in the hours to help you solve those things, you're going to be more successful.

Right. And I think most entrepreneurs— this is a really good point for everyone out there. Essentially what Jed is saying, and he brought it up earlier, is that the investors, particularly these larger investors, the Series A investors, are almost like an extension of your team. I mean, how many boards are you on? Not many, right?

About 8. Right.

So that, that, and that's basically the most of your work.

Yeah. It keeps me plenty busy. I probably have the capacity for one or two more. Um, but it's, uh, it's a good number because I can get deeply involved in each of them.

That's awesome.

All right.

Let me go to the other question. So yeah, you're like, raise the money now. Don't wait. If you're starting, if your metrics are going up, you know, go right. And I completely agree. So let me go to the other question, which was, is there, if let's say you're thinking looking to raise a Series A, your metrics are good, your team's good, your pitching's good, but they're all kind of good, not great. Are there any tips you could give someone to take a good set of— like, which would you focus on, maybe metrics, team, or pitching? And then how do you get from good to great?

Yeah, so, um, there's not a quick answer for that. There's actually a lot of factors you can use. I have a whole presentation on our— it's out there somewhere in our Medium post or somewhere about raising Series A. I've seen it.

It's great. Maybe we can find the link and post it in the chat, Mike. We'll put it in the chat, but keep going.

But it's, you know, look, you got to find your champion at the firm you're pitching to, someone who kind of shares this passion for solving this pain point or just loves this idea. And just keep talking to them about it. I mean, at the end of the day, you need someone in the partners meeting banging their fist on the table saying, we absolutely have to do this deal. That's the way it gets done. So how do you convince that guy to do that?

And, you know, okay, that's a really important point. I don't want to drift off of. Do you— can I dive into that for a moment? So most people probably don't know how. I mean, it's still kind of secret, right? You— it seems obvious to us, but most people don't know how this works. So, a venture capital firm has partners, different degrees, and they usually almost always are either unanimous or semi-unanimous in order to make an investment. And there are always going to be people who don't like it. So, to your point, Jed, you have to be fairly adamant to get it done because someone's going to complain about something.

We say no to 149 out of 150 things we see. That's our rough ratio.

And less than 2% you say yes to. And that's yes, yes, or yes to stage 2?

No, no, that's yes to close. That's yes.

Okay.

Okay. And but It's fairly easy for something to get a no. You know, really all it takes is one person in the room just not liking it at all for whatever reason, and that's it. Or not liking the people, or, or not feeling that they're going to be successful raising that next round, or there's too many competitors. Whatever, for whatever reason, it dies. Um, if there is somebody that, that clearly just has just the, the desire to do this and is screaming about it and giving all the reasons why they want to do it and willing to debate their partners on every reason they would bring up that there's risk there and clearly wants to get involved with the company. That's the way these things get to yes. You know, it's a true champion. The ones, the deals I look back on over the years where we just shouldn't have done it are the ones that everybody kind of thought it was good. We liked it. It should be a good return, but no one was really like fighting for it and just passionate about it. And I'm not sure why we went forward on those deals except that it looked like a good investment at the time. But those aren't the right ones to do. The ones— the right ones to do are the ones that just like you don't want to end the partners meeting until you get these guys to agree that we are funding this thing.

I got a question relevant to this from the chat, and then I want to move on like what you look at after the Series A is over. Jack was asking if you've never actually raised anything besides, let's say, friends and family round or put some savings money in, do you recommend— can you do a Series A or do you just say, you know, go to angels first? I mean, I can't think of anyone that's done friends and family to A, but maybe you have more— clearly more experience than I do.

So No, it happens. In fact, I'd even say it's fairly common, right? If the idea is good enough and there's early signal that there's something here, you know, all it takes is that Series A investor to feel really passionate about it. Obviously, the more you've raised in either friends and family or angel or seed or whatever you want to call it leading up to that just provides more proof points and more of a chance to convince that champion to fight for it. But it, it certainly does happen. In fact, it's kind of a phenomenon that sometimes the, the very best deals out there, um, get funded the earliest, uh, because people see kind of what the entrepreneur saw and want to be involved earlier. So, and that applies across all the rounds. So even after a, um, something got a real seed investment, uh, the one that's able to raise the Series A round in a much shorter amount of time after the seed round over time tends to be actually more successful.

So when you say they saw what the entrepreneur saw, sorry to cut you off there. What do you mean by that exactly? So the entrepreneur has a vision and maybe the investor—

It might be just really still about what they plan to build, what they plan to launch, you know, the whole concept, right? We do a lot of things that have revenue and established metrics, but we also do a bunch of things that are pre-revenue. And just—

Yeah, let me ask about that because that's interesting because what you're alluding to here, and I know is somewhat true, is that a lot of people, particularly investors, have theories on how the market will evolve. And so then you see a company that fits. Is it more like, oh, I have this theory of the market. Oh, look, there's a company doing exactly what I think should be done.

Yeah, I, uh, firms with bigger staffs or really firms that specialize in certain areas tend to do it that way. We don't actually like doing it that way at all. We, we look back at our like top 10 deals and they were for the most part things we would not have found at all had we started with a thesis and just, or a sector that we liked and gone down that path. Usually it's people that come in here and blow our mind on something that we would have never thought of. I'll give you an example. You know, yes, we've thought of online education and entertainment and media, etc., but we would not have found MasterClass that way, right? But MasterClass came in here with just a fantastic idea, pre-revenue. They hadn't even filmed their first class yet. And if you don't know the company, they get the world's best teachers, normally celebrities, to teach online streamed classes on the subject they're an expert in. So think Annie Leibovitz teaching photography, or Steph Curry teaching basketball, Martin Scorsese teaching directing. You get the idea. Anyways, they came in and we loved the idea so much of what they were building that we took a chance that they were going to be able to get their first one, which would lead to their second one, which would start the flywheel going and lead to a bunch of them. And, uh, you know, fortunately it did work out that way, and, and, uh, now the flywheel is really moving. And, uh, all the A+, you know, we call them masters, are lining up to film their own classes. But that's pretty great. And we just love that. We just fell in love with the concept.

Mario was asking, and I'll take some of the questions here, and there's a couple questions like these. So this one's like, if a B2B company is coming to you and a masterclass sort of B2C, obviously, is there a sort of minimum monthly revenue run rate or annual revenue run rate that you like to see? And similarly, Suzanne was asking, is it important on the B2C side to have users and how many? So maybe like, are there entry-level B2B metrics that you like to see or B2C metrics? Or you kind of implied like it doesn't really matter, but I'm sure there's a preference, right?

It's hard to answer that question. I mean, every business is different, obviously. But so on the B2B thing, The biggest thing that we worry about is kind of sales cycle, sales dynamics, velocity. And what you mean by that, how quickly?

Oh, velocity, right. So how quickly?

Quickly and just friction. Is there a lot of friction or little friction, right? I don't care if you got 5 meetings, but 4 of them signed up for it or made a decision within 2 weeks instead of 6 months. That's a clear signal to me. Right. So it's less about the actual revenue and more about does the universe want this to exist? Or that when you walk in, do they, are they interested in solving this problem and do they react well to your product? Um, B2C.

Yeah.

B2C, it just, it just, man, it depends if it's so, so if it's something like MasterClass, then really you have to invest in the company and start doing this thing on a first-class basis before you can release it to consumers and see how they react. So it's impossible to get signal first. But something like an e-commerce thing that's, or a marketplace that can launch on a small amount of capital, you know, their seed financing and show some early signal of our consumers, you know, buying this stuff.

What was the cycling company you're in?

I'm a personal investor in Peloton.

Peloton, right. Did you have, did they have metrics? When they came?

They did not. Now that's a situation where I happen to know the founder who's a superstar. And I, you know, I would have backed this particular guy doing anything, to be honest. You know, John Froehle is just awesome. But I love the idea. I actually, you know, we actually did not invest as a fund. It didn't fit our model. Just based on capital intensity. But we all love the product and I invested in him personally, which I don't do that often. It's actually pretty rare that I do it, but I just have so much faith in John and wanted to back him with this.

That's great. Some other questions that have been coming in. Tom was asking, and I want to get to the post-team thing in a moment, but obviously hear what people really care about. How does the macro forecast for the US economy economy affect the company's ability to raise in valuations, right? That's interesting. I don't know what the macro forecasts of the US economy are, personally.

So the good news is with seed and early stage, it almost never matters because—

Yeah, they're kind of set.

It's just a long horizon anyways. We're in these companies for like 7 to 10 years now. So it's all going to change. And we're more interested in just, you know, can we get that initial market going and product market fit and sales and all that?

And the valuations are largely standardized, right, Jed, in that you buy a certain amount of the company for a certain amount of money, give or take. They don't swing that much.

Not even the valuation. The whole term set on the term sheet. It really should be like a 5-minute negotiation. That's the very easiest part of my job. Right. The hardest part is deciding what to invest in. Occasionally, back to your question about kind of macroeconomic things, occasionally we invest in something that's just a grand slam swing that would— that stuff would matter. Like with, you know, Dale and I are— he knows the company very well since he reconnected me to it. But as a fair You know, FAIR is completely changing the way car leasing works, removing the concept of term from car leasing. And it's a pretty amazing product. It's a huge swing with a founder that's done it twice before in this industry, Scott Painter. And we think the deal is a multi, multi-billion dollar opportunity. We think it's an enormous opportunity. And so there are some macroeconomic things that could affect what happens with the future of financing of cars and cars in general.

Right. And so to some extent, you bet on some trends there with some of your investment. Hey, investor, and, and do you try and fix them or do you just walk away? Because Alex is wondering if his cap table gets too messy, should he walk away?

Okay, that's a great question. We will try and fix it if we have enough passion for the business, if it's worth it, because it's a headache. And what we normally see is when some big equity holder on the cap table isn't involved in the business anymore. Either it was a founder that—

What do you mean by big? Give me a percentage.

I mean, let's say, you know, 20% of the company and they're not even there anymore. Yeah. Right?

That's a problem.

Spinoff from a bigger company and that bigger company is still going to own 60% of the company. That just doesn't work. Right, there has to be enough equity left over to recruit the people we need to recruit, to raise future rounds of capital, and to not dilute the management team and the founders down to such a small number where they're not motivated anymore.

I remember that you, you've done that type of cleanup before. You were talking to me about it once and, and you said it's pretty hairy. So, so you will do it, but you, it, it means you have to love the company even more.

—because it also means to do it, you're going to end up hurting people. So if it's just one founder who isn't there anymore, isn't adding value anymore, and you're just creating a bunch of stock options, and that person is eventually going to be diluted down a bit so that you have more room for everybody else, that's one thing. But if there's 10 great seed investors in it also, and these people are friends of yours, and they refer deals to you, and you work with them all the time, the last thing I want to do is dilute those guys down. Right. Rife between us. It's not worth it.

Okay, so Tom and a lot of people are rallying behind Tom's question, is asking, you know, he wants to— this is an interesting one too— he says, look, I've got a $9K MRR now, and by the end of this year I plan— I fully expect to be at $100K MRR. So should I wait to the end of the year to raise or start now? But because my story is better later. And I mean, I think this is the classic question of humanity because a lot of people are like, yeah, John's question. It's like if you wait, your metrics are better, right? Yeah. What's your advice?

So this goes beyond just Javelin, just advice in general with regard to other firms. There seems to be some magic moment at a million-dollar ARR, that, uh, where more early-stage investors will look at you more closely.

So, um, that's true, right? Can I ask you, can I— well, let me— okay, so I have a theory and I want to write a whole blog post, I guess, on this, but promote this idea. I look at companies today and I see 3, um, marker milestones in growth, and I want to see if these ring true to you. One is the million, around a million ARR, $100K MRR. That's sort of like initial product market fit. The second one's about $10 million a year. And the third one's about $25 million a year in revenue. And I see like— What?

$10 million is more for the Series B. Yeah. And the $20— I haven't really heard the $25 one, to be honest. I think Uh, what the Series C investor is going to want to see is just scalability. You know, that more fuel makes it grow a lot bigger. Um, and I think they will have wanted to see that you went from $10 million to a bigger number and growth is accelerating. And a clear, um, they want to see how the machine works. So if they put more cash into the machine, they're going to understand what's going to come out of it.

So, you know, the 10 and the 1 and the 10. Yeah. $25 million number. Yeah, yeah, but you've seen it, right, um, in some of your portfolio companies. Okay, so, um, sorry about, uh, to, to interrupt there, but yeah, the $1 million seems like, to your point, like that's a pretty common early product market fit. $10 million is— you're right, that's like a B-level, but there's a lot of stuff that has to happen to get you to $10. The reason why I added the $25 is that We see a lot of companies that can get to 10 and hover around 10, but they almost need to start introducing new product lines, new innovations to break the 25 level. Okay, let's move on to the, I've got some questions, so we got a little bit of time, but let's talk about, you've given them the A and now you talked, you said you like to see them up their governance, up the team. What are some of the things that you like to see quickly after the A? Happen, you know, on average, right?

Obviously it differs per company. Um, so the biggest thing by far is recruiting well. And, uh, that's why, um, we actually recently hired a full-time talent person here that will parachute into our companies as we make new investments and help them get their whole recruiting apparatus going and recruit— and actually recruit some of their, their people with them. Um, getting that, that group that, you know, the, the couple senior managers you're missing and the level of kind of managers and directors that are going to, you know, do a lot of the work. Getting those guys aboard is everything in the early years and hiring people that are mission-driven and really want to build this over the long term and are also going to be good at recruiting people under them is super important. So that's number one, you would say? Yeah, and then, and then, um, you know, moving quickly, just moving quickly. You don't have to do things perfectly, but you have to start getting your product out there and gathering feedback and, uh, and iterating along the way. Um, you know, there's, there's a limited window you have, right? There's like a big clock ticking when you raise a Series A for when you're going to run out of cash, and you have to be able to raise money well before that with plenty of cushion in case it takes longer. Right? So you have this, this little window, call it a year, where you have to prove your product will sell, you know, people will want it. The churn rate isn't out of control. The, you know, the pricing makes sense. If you're going to use channels, those are working. Whatever it is, whatever key metrics you have to prove, you have that limited window to prove it. So speed is crucial to us.

One year is not long because launching, selling, you know, that's a lot of work.

Right. So for the teams that tend to move slowly or can't quite recruit quickly enough, or, you know, it's a year later and they haven't been able to show a ton of progress since they raised the A, they're going to have a really hard time raising the B.

Do you— so maybe like, I know a lot of people come into raising the Series A and say they've essentially almost warehouse talent saying like, oh, we have, you know, so-and-so ready to go, but we haven't pulled the trigger because we're raising. Do you see that a lot? Or—

and that's not a bad thing. I think that's a good thing. I think, yeah, we'll talk to the people though. You know, if so-and-so VP of whatever from another company wants to join, then the second the round closes, he's going to quit his job and join the company. I think that's great. Right. I understand you can't afford to pay a salary that he's used to getting at this point. And until the— raise the round, the level of risk might be too high for him. But, but if we talk to that person and they are committed to joining, that's a great sign.

All right. Does anyone else have questions for Jed? Pop them in the chat. And I'd love to hear some. This was amazing, by the way. Thank you so much. He's right this moment that are at that point. Depending on definitionally some of the things you said earlier, is there any advice you would give them about a Series A, about fundraising in general?

Yeah. So a bunch of things. I'll just rattle these off if you can give me like a minute. Approach funds that make sense for you in terms of the fund size, right? If you're raising $5 million, you know, fine, go to a fund that has a $100 million fund size. But when you start to go to one that has a billion-dollar fund size, they're just is not going to care about you that much. Be able to prove that your market potential is in the billions, the market size, and that you can get to $100 million in revenue in a fairly reasonable amount of time. Scalability is important, is going to be very important. You know, we've talked about a lot of the things, recruiting, etc. Try and find the funds that are going to react well to this. You know, this is kind of in their wheelhouse. This is the type of deal they do. Really make sure that they haven't invested in competitive things. I get, I get deals sent to me all the time, you know, where they send me their whole deck and it's literally directly competitive to something in my portfolio. You know, I just delete those things. I don't even open them. But a lot of funds would open them and send them directly to the CEO of the competing company. So be really careful about that. What else? You know, you got to find your champion. So try and identify the partner that you want to approach and who's going to react best to that. And make sure you're ready to really go out and give a great presentation, get someone excited, the metrics look good, or whatever you have to show at that point looks good. Don't bring 10 people to the pitch, just bring 1 or 2. And, you know, should be a fun process if it's going well, even though it's kind of a slog, it should be fun because at the end of the day you are figuring out who's going to be your partner to build this business. And when it feels right, when you're enjoying the conversation and you're getting into a flow and that person's following up with a bunch of questions because they keep thinking about it, you know you're going down the right track.

That's amazing advice. Well, listen, thank you so much for your time. This was lovely. Jed Katz from Javelin Venture Partners, one of the top venture capitalists in the world doing Series A deals and certainly one you should talk to.

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