Raising a $10M Seed Round with Index Ventures Investors Mark Florentino and Georgia Stevenson

In this, there's been this new trend that we're seeing where there's blurred lines between seed and series A's and the valuation for each are converging. Check sizes are actually going up and I'm getting the questions more and more from founders, especially the seed stage. You know, should I raise more money if I'm offered it and you know, but why do I need that? So I think we want to kind of, if you leave here today with a framework around how to think about, you know, do I raise more of a 2 to 3 million dollars traditional seed? If I'm offered 6 million, should I just take it? Now we're going to kind of walk through a construct there. Not every piece is going to be relevant to your exact situation, but the idea is you have everything you need at your disposal in your arsenal to think about it. And that's kind of the point of today's conversation. So I'll start with a little bit about myself. I've been in index for about a year and a half. I focus on our pretty much everything, FinTech in the US and a little bit of B2B SaaS as well. I was at Stripe for about 4 and a half, 4 years or so before this. So hence the fintech angle. We worked across a bunch of different teams, kind of sales ops, enterprise sales and a little bit of customer support ops, risk infrastructure and then strategic finance near the tail end. Before that did kind of four years across banking and private equity and realized that kind of late stage private equity was very not for me. Hence jumping to at the time it was kind of 180 person startup called Stripe. Saster itself is actually pretty close to home for me. I'm on the board of a company called revenuecat and Jason Lemkin and Sasterfan actually led the seed back in 2018. So hopefully the first of many collaborations we have together. I'm going to hand it over to Georgia then to talk a little bit about herself before we dive into this.

Thanks, Mark. Hi guys, I'm Georgia, I work with Mark here on the Index investment team focusing predominantly on SME, SaaS, marketplaces and consumer. I'm normally based in London, so the other side of the pond, but spend quite a bit of time in New York. Right now I'm actually quarantining in Oxfordshire, so maybe two minutes on my background before going on to talk about Index. So I started out at Deliveroo, working in the commercial team there to launch the business across the uk. This started with everything like cold calling cold walk ins to restaurants, recruiting riders from the side of the road, hanging out flyers sort of everywhere and anywhere I could and it developed into managing different markets, sales teams and marketing budgets and really strategizing internal operations around sales and onboarding processes there. I definitely fell in love with the raw energy and atmosphere of being in an early stage startup where things change every day and every week feels like a milestone. So as a result I vowed to myself that I wanted to be in that kind of growth phase all the time and transitioned into the venture side of things. First for an angel network focusing on pre Seed and Seed. Secondly for North Zone which is a European based venture capital fund focusing predominantly on Series A. And finally for Index which is a global fund and focuses on multi stage. So some of you may have heard of Index before or spoken with us before, but thought it would be helpful to give a bit of context around sort of how we operate and also show you the sort of perspective that we're coming from. So index is a 25 year old fund born out of Europe and have been lucky enough to work with and invest in category defining businesses. We're relatively sector agnostic. However there are a couple of key themes it's worth noting from our portfolio. So on the fintech side which Mark focuses on, our portfolio include things like Agyen, Revolut, Plaid, Izettle. On the Future of work side everything from Dropbox and Slack to Figma and Notion. On the enterprise software side things like Datadog, Elastic, Libra and on the consumer side things like Candy Crush, Etsy, Glossier and Discord. Our most recent fund is $2 billion and roughly split between venture and growth, the venture being 800 million and the growth being 1.2 billion. So this means from a check size perspective we're very much multi stage and tend to see around 40% of our deals going to C stage businesses, 30% to Series A and the remaining 30% to Series B onwards. So a couple of things worth noting about us that at least we like to think make us unique. We're one of the few funds that despite being multi stage, have the same investment team working across seed to growth stage businesses. So on a pragmatic level this means one day we could be assessing a company purely based on a pitch deck and team references versus another day we're looking at a team of 105 years of trading. Why is this important? If you partner with us at Seed, you're partnering with us for the long term and don't need to jump through any more hoops or impress a new set of eyes further down the line within our firm. We'll go more into this during the presentation about how this could be a factor worth considering when you're looking to partner with a multi stage fund at seed. The second thing that makes us unique is that we're one of the only funds that are dual headquartered across Europe and the us and by that I mean it's the same team operating out of two locations and investing out of the same fund. Again, why does this matter? Firstly it means we don't invest in direct competitors across geographies, so when we back you, we're backing you as a full team globally. And secondly, it's therefore in the respective team's interest to help around expansion across the pond. And in the past we've been very proactive in supporting companies expand from Europe to the US as well as from the US to Europe. And crucially, support like this doesn't just come from the investment team or the person who sits on your board, but also from our strategy team, which we're really proud to have grown quite a bit over the last few years as capital is ultimately becoming a commodity and we should do more from the outset for our portfolio companies. So our strategy team is essentially made up of talent, PR and comms and network development. So on the talent side, helping you think about what roles to hire, when and who within our network could be relevant. On the PR and comms side, helping you to tell your story to the right people and on the network elements side, helping to sell your product into CTOs and CIOs of top FTSE 100 companies via long term close relationships with them. So I hope this gives you a little bit of a flavor around index. Feel free to ping us with any questions we haven't covered here, but if nothing comes up for now I'll hand over to Mark to talk about our topic today.

Great. Thanks Georgia. So let's get a lay of the land first here before we kind of dive into the frameworks themselves. So these two charts here, there's a lot to really unpack in just two bar charts, but some of the trends we're seeing, I think the growth is pretty crazy on the seed increase and we're going to call these mega seeds, avocado seeds, whatever you want to call your favorite term for a $5 million plus seed. But what's interesting is over the last five years the percentage of seeds that are above $5 million have tripled and I think from 2014 to 2018 the CAGR's north of 40% in that same kind of in the same vein. And if you cherry pick a bunch of even just the recent deals in the last maybe eight to nine months or so, I think you're seeing well above that 5, 6, $7 million mark. So, recent deal, $16 million raise from a company called Trove Poly raised $10 million from Stripe a few months ago. Tandem raised 8 to $9 million few IC batches ago, and another company called Pipe raised 6 million and then actually another $60 million seed after that. Granted, a lot of that 60 was actually debt, but you kind of get my point here. It's the list goes on. So what does that actually mean for people? You know, I think one takeaway for me is just nomenclature isn't as important anymore. So don't get hung up on seed seed plus Series A. @ the end of the day, it's just how much money do I need? What, what's the check size, what's the dilution to me as a founder and, and you know what, am I setting the watermark for my valuation too high, too low? What does it look like? And I think one problem, we'll get into this in a couple of the sections later, but if you're raising 6, 7, $8 million in a seed, you're often staring at 25%, if not even 30% dilution right off the bat. So that is something to be very cognizant of is don't just anchor on that check size. I think the key takeaway here is just ask the why. If you had to really tier out, what are my top priorities for the next six to 12 months before between now and an A, what's actually important to me? And is there a tier two and three of things I'm planning to just spend on because I have the money? And if that's your answer, then maybe that tells you you should probably taper back how much you're taking on. So that's the lay of the land. And then I think we're going to get into a little bit about what these frameworks look like from a high level. George is going to take us through framework number one and we're going to call this shots on goal. What this really means is every startup at the seed stage going from idea to product market fit to generating revenue, you're going to have some form of binary upstart risk. But for more complex businesses, think kind of B2B marketplaces, or I have a merchant network and a consumer network to curate. Maybe you want to raise a little bit more upfront because that binary risk is actually enhanced. So that's one thing to think about is how many shots on goal you might need. Second framework is going to be. What we're referring to is just think two rounds ahead. And think two rounds ahead just basically means a lot of founders might take more of a myopic view. Okay, here's how much I'm going to raise. Just the seed. Think about the A, think about the B. And what does your total aggregate dilution look like as a founder? If things go the way you think they will in the subsequent two rounds. So that's going to be kind of the second framework is don't just get caught up in current round. Third piece is going to be around. Who do you ask these questions to? I mean all this dilution math. How do you think about series A, series B. So think about, you're in the trenches partner and I think who you partner with at the seed stage, whether it's a consortium of seed only fund at a multi stage fund that's sort of in the trenches with you, just a seed only fund, you know, just a multi stage fund. How do you, how do you think about the partner and what's important to you there? George is going to walk through that framework and then the fourth piece is just going to be around this, the proliferation of the corporate VC world. So corporate VCs are not a new thing. I mean Google's had one for a very long time that ultimately branched out into its own fund. Salesforce have one for quite some time. Stripe is obviously one of the newer players. So you know, there's just, I get this question more and more often is how do I think about partnering with a corporate vc? When's the right time? Should I ever. And so we'll get into a little bit of the kind of pros cons frameworks to think about that piece. And yeah, that's our four frameworks. I'm going to hand it over to Georgia to talk about the shots on goal piece.

Thanks Mark. I think. Let's go. Yeah, perfect. Perfect. Yeah. So this is the shots on goal section. So happy to kick off here. No pun intended. What's interesting talking to seed stage companies is that very often founders don't tend to have a strong view on how much they want to raise. The story probably goes that they've just kind of changed their LinkedIn status and came out of stealth mode. They've just launched on product hunt and articles just come out about them. They're flooded with investor inbound and they're sort of seeing how conversations progress before coming up for air with a view on how much they want to raise. Of course, funding is ultimately a marketplace. You should absolutely see how the supply and demand dynamics work out over time. However, a useful exercise and one we recommend, is to really calibrate and think through where some of money gets you and how this aligns with what you're trying to prove out in the early stage. So for instance, all these proof points around team do you need to prove that you can recruit credible exec hires with industry or functional expertise that go beyond the if so, how will you find them? Where will you find them, how will you incentivize them? And what's the timeline for getting them to join versus Are there proof points around product you need in the ideal scenario? What you need to build out an mvp? How many engineers, how many months Runway of kind of heads down product mode do you require in order to get you there? Maybe you already have an mvp, but you want to prove out product market fit? If so, is there a user target or a mauow dao ratio that you're looking for? Do you have a couple of lighthouse clients you're wanting to land in a given timeframe? What's interesting here, and important to note because again it comes up quite a bit, is really take the time to think about what types of customers you're going for on the sort of SME to enterprise spectrum and therefore what kind of sales cycles you can expect to have as this will really feed into Runway assumptions. And we've seen a number of people who perhaps getting caught short of this before. And finally, is building first mover advantage important to you at this stage and how long do you need to prove that you're sort of out ahead for? This can vary with the types of business model. For example, a marketplace with multiple constituent types often needs more capital and more time to build up a moat. So when you're benchmarking yourself relative to other early stage seed rounds, make sure you're looking at comparable business models and products. Of course, only you know what makes best sense to your business, but we've seen scenarios where it's helpful to gather data points and perspectives during the fundraising process. Interestingly, some founders tend to be hesitant to talk to a fund that can also do later stage rounds with the idea that we'll talk to you when we get there. We're obviously biased, but it's worth noting that it can be super helpful to talk to later stage or multi stage funds who have insight across the fundraising spectrum. When you're thinking about these milestones, for instance, from our side, we often care less around revenue milestones in an early stage, but more focus on leading indicators around product, be that in retention, engagement and upsell. I'm sure other funds calibrate this differently, so worth really understanding how your goals align with others during the process. All in all, ultimately all this leads up to is a more informed opinion. When you receive your term sheets, it ensures you have a really strong idea of what 2 million gets you versus what 3 million gets you versus what 10 million gets you and enables you to calibrate the positive side of the coin, AKA capital and opportunity versus the negative side of the coin, AKA dilution, which Mark will go on to talk about now. Over to you Mark.

Thanks, Georgia. So as Georgia alluded to, there's thinking two rounds ahead. Easier said than done, obviously. Right? So you can predicting the future is nice. You know, you're not going to get it exactly right, but it helps to think about. So I'm going to sort of do this tale of Two cities things paint an avocado mega seed situation and a traditional seed situation, real companies and sort of how they played out between the seed and the bee. And we'll give you sort of the pros and cons of what ended up happening. And it's almost like we're doing a retrospective on both of these. So situation A and don't get too caught up in the I'm going to rattle off six sets of numbers here. Just kind of think about the starting point and that's the most important takeaway here. But let's say situation A is this avocado seed. So we'll say 5 million on 20 million post and we're going to say 25% dilution upfront and series A ends up being 15 million on fairly high $75 million post, another 20% dilution. So we're saying that's around 45% cumulatively. And then your series B is now $25,150,000,000 post. And that's another, let's just say, let's call it for the sake of math, 20%. It's a little bit less and you're looking at 63, 65% aggregate dilution at that point. So we'll get into that in a second on the pros con side. So in this situation, the reason the founder took more money up front was that there was this dynamic of this B2B marketplace thing where you had to sign up merchants, you had to sign up consumers. There's a lot of upstart risk. You potentially even had to discount certain users to get your first 10 to 20 that were influential and build a little bit of a moat there. So it made sense. I think if this all worked out as planned, a pro of this scenario of raising this larger seed is that you could go straight to the B and you could be under 50% dilution at that point. If you're raising, you call it a series A, but in reality you're raising like 15 to 20 million dollars, maybe 80 to 100 million dollars post, kind of like small series B. Obviously that didn't happen. So you kind of get into one of the cons here, which is now that you're taking more of a traditional path luck stepping from this large seed, you're now staring at greater than 60% dilution across the founder set two rounds later. So one thing to be very cognizant of, the next piece is going to be around. Let's hop back to the pros. So obviously with more money earlier, you have more room for multiple pivots. And this gets into the. I have to try a bunch of different things. My initial kind of product idea, product A might never even work. And probably B and C are where you need to go and you have time to prove out kind of, whether it's financial metrics or usage metrics, whatever ends up being most important for you. Between the C and the A, you have time to do all that. And, you know, there's this kind of adage around, you know, a lot of the successful companies we've seen, you know, take Slack, for example. It was a video game company in the early days. And, you know, you see this kind of flat initial growth curve before that initial, you know, before the next kind of inflection points hit. But when a company is successful five, ten years later, people forget that. So that's definitely something to keep in mind. Rounding out the cons piece, there's, you know, we touched on kind of the aggregate dilution, but let's also talk about check size, risk and sort of setting a high watermark or an artificially high watermark at the A and the B. So if you're raising a 5, 6, 7 million dollars seed and you to keep dilution even around 25%, you're often going to be looking at maybe 25 to even 30 million post money at times. And it works for people, but there is risk that you're setting a really high watermark now that your A has to be at least maybe 60 pre if you want to show positive signal then other pieces check size. So this is going to be a bit illogical, but it's worth saying because I have a lot of especially kind of technical friends that run this process. When they're thinking about joining a kind of early growth stage company, they'll, they'll go open up Crunchbase and say, okay, X company raised 7 million at seed, 15 million at A and 20 million at B. You know, oh, why did only, why they only raised 20 million at the B from a check size perspective, in reality that has nothing to do with whether or not the company's doing well or not. But to show kind of flat or a diminished check size could actually have implications on hiring. So it's worth thinking, despite the fact that from a financial standpoint it doesn't actually make a ton of sense. So that's kind of scenario A there. Scenario B. Let's talk about this more traditional $2 to $3 million seed path. So in this case, company with two technical co founders, one was very business minded as well. They raised let's say 2 million on 13 million posts. So something like 15% dilution, series A, 10 million on 50 posts, 20% dilution and then 20 million on, I think it was close to about 100 million post the series B. So in this case you're actually looking at closer to 45, 50% dilution. And that seems more reasonable for people at this point. And honestly we'll get into this near the end of the presentation, but I think a lot of folks, this works for them. Ton of Runway, you have time to test out product, market, fit. You don't really need to throw a ton of money at hiring right off the bat until you feel like you're in a place where go to market makes sense. And that's often a pro of this. You don't feel the need to deploy unnecessarily capital just because you have it and you're not setting that, you can have this more traditional path from seed A to B, where you're not setting too high of a watermark. And of course the major con here is pretty straightforward. If you're raising only 2 million bucks and you kind of use that Runway after a couple of different pivots that don't work out, then you're maybe looking at kind of an insider bridge round, which is obviously not what you want going into this. So that's something to think about. Happy to. I know I just threw a lot of numbers at you here, but this is kind of the framework to think through through each of these rounds and happy to kind of address this more in the Q and A after, but on this topic, this whole dilution math, how much do I raise now? Can be intimidating for a founder. So this is actually a good transition into what Jordan is going to talk about, which is who's your partner in the trenches to answer these types of questions because at the end of the day you want to build a business. So I'm going to hand this to Georgia to talk more about how to think about a partner in the trenches.

Thanks, Mark. Maybe it's worth taking a bit of a step back here, and I wanted to start off by saying that in some way there's there's never been a better time to be a founder from a fundraising perspective. The fundraising environment is highly competitive with more and more funds emerging, and as a result round construct and forming syndicates amongst investors is becoming increasingly common. So it's really worth taking the time to think about what different combinations could look like at this stage. And again, having an opinion on what your ideal scenario could be. Now we couldn't do a presentation about seed rounds as a multi stage fund and not talk about signaling risk. This is a conversation topic that has come up before and will likely come up again. And interestingly, although the lines are no doubt blurring between what constitutes a pre seed versus a seed versus a series A fundraise. Interestingly, the nomenclature around types of funds, AKA whether you're a seed fund or not, seem to be far more sticky. Now of course there's a totally valid argument sort of against or avoiding signaling risk. And by that I mean taking a multi stage fund's money at seed and risking them not following on in the A, thereby putting off other investors. As a result, optics are no doubt important in a fundraiser, so this shouldn't be, this shouldn't be dismissed. That said, arguably, if your future investor is put off based on what others are doing or how others are thinking, this arguably demonstrates a certain level of conviction they have in you and your company. Meanwhile, on the flip side, ironically, the underlying notion around signaling risk is that people really notice when a multi stage fund backs an early stage company. This isn't just prospective investors for the next round, but it's also prospective talent, journalists and clients. In fact, as the co founder of Loom said recently on a 20 minute VC podcast, and for context, he took General Catalyst, which is a multi Stage Fund, and 0.9 Capital, which is a seed fund at seed, he said, do not underestimate the halo effect of a multi stage fund and ultimately how it can add value to the perception of your business and the optics around your business. So for instance, kind of going back to this whole shot on call discussion, if the key milestone is hiring a multi stage fund with perhaps a larger talent network that kind of spreads across its portfolio could be useful here. If a key milestone is customers sort of building trust with prospective clients and having a brand rubber stamp of approval could also be helpful in terms of kind of getting smart people around the table, be that on angels or operators or advisors. I know a number of both multi stage funds and seed funds spend a lot of time and effort curating and engaging high caliber angel investment communities for deal flow, for advisory and for network purposes. So having a roster of smart co investors behind you and really leveraging the existing networks that funds have could be really helpful. This is definitely not to say that multi stage funds alone are the best option either. Anecdotally, we've partnered up with a number of seed funds at the seed stage, for instance, for companies such as Robinhood, Deliveroo and Figma, to name a few. And seed funds have been and are fantastic partners who offer complementary and different support roles over time relative to a multi stage fund strategy and perspective. So we, we love to partner with them and work together to kind of get you to the next stage. Another co investment partner that we're seeing kind of come up more frequently now, particularly within the fintech sector, is corporate VCs. So over to Mark, he's had a number of experiences with them.

Great. Thanks Georgia. And as kind of alluded to earlier, corporate VC is not a novel thing, but they are becoming more relevant I think in the VC space, whether it's the number of players or just more capital to deploy from interesting companies. And you know, there are obvious pros and cons to this, so maybe I'll start there. So major pros. I mean it's hard to argue with some of these things. You get a complimentary kind of mentor, advisor, partner that you're still kind of living the day to day as an operator. And you know, obviously on the VC side many of us do come from the operating world, but it's not the same as necessarily having someone that is still kind of living breathing building products. So you can't really discount that. And there's, there's a second piece of go to market. A lot of these corporate VCs usually invest in companies that have somewhat of a synergistic relationship to them. And there's great channel partnership opportunities potentially that corporate VC is actually a customer in and of themselves. So obvious pros. I think there is definitely a question around timing and when it's appropriate that I think is worth highlighting. So for a seed stage company, sometimes it can be tough on the corporate VC side because you the term sheets can be a little bit more restrictive depending on who you work with. That's one thing to be cognizant of is just what does this look like compared to an institutional VC's term sheet? Can I work with all the suppliers, vendors that I would have wanted to in a current state, or is this limiting me in a way that might be not beneficial right now and could be fine at the A or B? And we have great examples of how this progression worked. Fast is a company that we did the C and Stripe led a large Series A in the company and you know, it was the right time for someone like a Stripe to do that. And I think on the kind of other question side of the world is, you know, are you setting yourself up for more of an acqui hire and is that what you want or is there a world where you want to be a standalone business in the future and keep it that way? So these are all kind of things to waffle on when you're navigating the corporate VC environment. But at the end of the day, they prove to be great partners. We're in another company called Pilot with Stripe actually where we co led the Series B. So lots of great opportunities, lots of good corporate VC funds out there. But just think about timing and especially the seed stage. I think the biggest risk is you're signing up for product A if you have to go product B or C. And that term sheet you sign is kind of restrictive and doesn't allow you to do what B or C might look like. Just think about that and maybe wait till you get the product market fit before it's the right partnership. So all sorts of scenarios to kind of walk through in your own mind. So that's kind of on the corporate VC side, I think before we ultimately conclude and get to the Q and A, we've obviously given a lot of frameworks here, right? And we talked about small seed versus large seed. And I'll take kind of a stance on this. I do think there is a time and place for a 5, 6, 7, $8 million seed, but whether that should be the exception rather than the norm. And in a lot of cases, two, three, maybe $4 million are probably the right move because you get a lot of Runway if you have a pretty well rounded founding team and you don't need to hire another three, four people right off the bat that have co founder economics. Definitely play devil's advocate and think through why you really need to give up 25 to 30% of your company for $7 million unless you have a good case for it. Maybe you have a a longer enterprise sales cycle you need to build for. You need some money sitting on your balance sheet depending on if you're kind of working with a third party lender. So there are reasons but just make sure those reasons are real, tangible and necessary to hit your first 6 to 12 month goals. All Georgia give an opinion on this too and then we'll get into the Q and A part.

Thanks Mark. Yeah, I think maybe a point I'll end on here. Despite having kind of spent the last 25 minutes talking about different frameworks and pros and cons and different perspectives for kind of what's right for your business right now. Some to never lose sight of. And by the way we tell ourselves the same thing is ultimately we're investing in people and you're finding a long term partner. So when you're flipping through those multiple $10 million term sheets for your business, don't lose sight of who's behind them and who has the conviction and the rapport with you and the strategic thinking that you want on your team and in the trenches. For some you I think that that's it from our side. Thanks a lot for listening guys and happy to field questions for the next next 1020 minutes. Okay, q and a. So sorry we're now just absorbing the questions. Do you have similar data and examples for rounds raised in EU in Euro? Yes we do. So as we said we're dual headquartered in London and San Francisco so collect sort of data on both. I think with everything the U.S. i would say kind of ecosystem is probably a number of years ahead of the European. We're catching up, we're going to do it but it's a little bit behind. So when we're thinking about round sizes, maybe we're talking about a 6 million seed new seed in the US perhaps that's like a 3 to 5 million seed in the EU. So one that comes to mind is hopping which did a 5 million seed before raising I think it was like either 15 or 20 million series A that was in a virtual events business. But happy to share the data with you afterwards if that's helpful. And helps kind of calibrate where you're at.

Great. So let me take this one about sort of valuation being a function of amount raise. So it's a good question and I think if I'm kind of distilling down the example here, maybe another way to frame this question is do investors have sort of a line in the sand on percentage ownership and is it up to the founders to try to work around that as that being kind of the anchor point in case is yes. So I think the answer is definitively yes. There are times when an investor says this is a great idea, there's a lot of risk to it. So I prefer to own 20% of this upfront. Granted every investor is going to have sort of their different thresholds for different risk profiles. But at the end of the day you as a founder can kind of work through what you just remember it's your company and if the investor is truly interested there will be wiggle room. In some of these situations where you say I'd love this seed fund, only as a partner to you multistage fund are you willing to take 15% so they can have 5 to 8%. And there are scenarios that that happens all the time. So you can work through collectively to a conclusion. When the investor is interested there's always going to be a starting point and an anchor and oftentimes it is ownership there. So that's hopefully that answers the question, but it's, it's a good one. The answer is yes, but there's wiggle room.

Yeah, I'll take one from Aman. How do you. Oh, it's just. Oh, it's gone. How do you value a company in a seed round? It's a really good question. There's so many variables here. So firstly like looking at the sector and the kind of market size they're attacking because from our side we kind of work backwards when we think about valuation and look at sort of the sort of total opportunity and what that looks like from return. So that's the kind of top down sort of market analysis would do. Then there's a bottoms up around kind of where you're at in a business to our point around shots on goal, you know, are you sort of have a great idea and are passionate and a PowerPoint or do you have a MVP that's got a number of kind of live customers and are looking to scale up as well as obviously the team? You know, do you have relevant experience in the space? You know, have you built a business before? And of course Like I said, you know, it's, it is definitely a supply and demand. You know, if you've got term sheets for this amount and we're talking to you, to go. To go drastically lower would probably not be smart. So, yeah, a number of variables, both top down, bottom up, and then obviously depending on the fundraiser dynamics.

Let's see, I'm happy to take. I'm just going to try to tick from the top here. So let's see, this next one is, you know. Yeah. Should you rate, like, when's the appropriate time to raise this series? A question from Chuka. After raising kind of this traditional two, $3 million seed, Georgia kind of touched on this in, I think, her first framework. You know, the shots on goal piece. So every company is made differently, you know, but often, more often than not, like, there's the obviously easy answer. It's like, do I want to hit X amount of mrar? But oftentimes I think that's an overused answer. And, you know, it could just be what does usage look like? You know, like, what's my daily active to monthly active user ratio, I think is one that's actually pretty interesting for a lot of different business sides, especially on the kind of B2B SaaS side. There's an analytics tool component to it. You know, it's like if I have over half my users that are monthly active using this daily, that's a pretty good indicator. And I don't even care if you're making money yet on it. Eventually someone's going to pay for that if it's that sticky. So there are, you know, think through, like, what are your key product KPIs and if you want to get more into the logistical timing of it, make sure I always tell the founders I work with think about Maybe at least 2/4 of Runway ahead. So if you think, okay, I definitively need to raise my series A by, let's just say end of Q4, 2020. And we're, as of today, I'd say start thinking about your fundraising pitch now because more often not founders, I think underestimate how long it takes to gear up that narrative and make sure those discussions happen. I mean, yes, there are scenarios where rounds are getting done in 48 hours, but that's still the exception, not the norm. So make sure you plan in advance for these types of things.

Great. I'll answer a quick one from. From Sean. Do you prefer a cold email, LinkedIn outreach or other? I think probably a cold email because it's easier to keep track of than LinkedIn. I don't know about you.

The sorry, the cold email piece. I mean I always look at cold emails actually like I try to make a point of it especially when they're written. You know I actually love when people sort of like customize it in some way shape or form and I will always respond to that if it is because if I saw the person took an extra 5, 10 minutes to say something meaningful then I think it's I will always give them the time of day to the question on LinkedIn I actually rarely am answer LinkedIn messages mainly just because there's a lot of noise and it's just too hard to navigate and it's a trade off in time of day but I try to prioritize this stuff in the inbox.

Cool. Will you invest in other Geos Latam? Yes we have an unannounced investment in Latam but I think Mark works quite closely with so yeah predominantly in the US and Europe but can definitely go beyond that a couple of companies in Australia as well.

So let's see the this is actually an interesting question here. This technical so Gon Kahlo, the technical founder, you know how do you think about spending on a sales team? This is actually probably one of the most common things I work with cause I think almost all of the founder 75% of the founders I'm working right now are all technical teams. So the sales team question actually comes up a lot. So I was actually on the phone two days ago dealing with this and I think the rules of thumb is interesting. I mean and I hearken back to the strike time is there a self serve component demand gen piece to your business or is this purely an enterprise sales cycle is kind of an easy but first question you should ask yourself and if you're creating and then you want to break that down into do I need outbound sales sooner rather than later, just inbound sales. Do I need SDRs? No SDRs kind of on the junior side or actually should I funnel more more into organic marketing and have more people funnel into me? So I think you you want to break down your your kind of like what do you need from the sales side and then you know maybe do you need a senior hire right off the bat? I think it's an interesting question. If you're more of this like self serve demand gen inbound sales muscle type business you don't always need a kind of like Croft you know year two or three if you're going to start selling more to mid market Enterprise early, definitely try to pay up for a good executive hire. So I think that's kind of a good framework to have on that. But it's definitely not one size fits all. But those are good sort of things to think about.

Yeah. And I'll take Hinal's question around. Could you talk about the risk attitude in the US versus Europe? He says, in the US equity is shared more widely across the team. Therefore, are founders more protective around dilution with investors than in Europe, or do they founders get diluted more so that the other employees get equity? So this is something that we've spent quite a bit of time, particularly on the European side, because you're right, the kind of concept of founders giving equity to the entire team is definitely more developed in the US than in Europe. However, we've been kind of waging a campaign against this across, I think, multiple years headed up by Wojtek, who kind of had their comms in Europe called not optional. Check it out, it's got a whole website and hashtag. Trying to encourage more European founders to make sure that they're kind of fairly recognizing early stage employees, and not just early stage, all employees and making sure they're incentivized to really build the business. So I think it's definitely changing. And to my point, I think we're somewhat, you know, almost like the teenager to the US adult in some ways. But yeah, we're definitely seeing it more and more now. Founders wanting to make sure that they're sort of adequately rewarding their employees and actually sort of constantly calibrating it. In fact, this afternoon, you know, it was on a board that we discussed exactly this and making sure that existing employees were given more. And, you know, we were obviously happy to take that dilution because if they're fantastic people, that's the most important thing.

Great. I'll take this next one. You know, changing pitch. When approaching a corporate VC versus regular vc, I think the short answer is actually you don't need to change a ton necessarily. But if you're, you know, maybe if you want to highlight one piece that you add a slide or, you know, an extra piece in your memo, however you're approaching it to, you know, why is this a synergistic relationship between you and the corporate fund? You know, are they giving you distribution and you're actually adding a very important feature to a product set that they just don't have the time or resources to build. I think that that hits home a lot, you know, in a future state. Here's where you know, I mean, it depends on how you want to position it for, you know, acquisition or non acquisition, how close you want to be on that front. But I mean that, that's an interesting discussion point that I've seen some people have. But I think at the end of the day it's just sort of why do you plug a gap in their current product suite week? And will they be able to sell more by distributing you through their own channels? That tends to be where it really boils down to. And I think that's a good sort of extra data point to add in when you're pitching them.

Yeah. I'll take Brett's question. How do you think about investment opportunities with a strong business, but the founders are more diluted than normal? Yeah. I'd actually be curious to get your thoughts on this, Mark. We've seen it. It's definitely, you know, relative to kind of the story of the business, whether it spun out of somewhere, whether there was a kind of backstory story, and to Mark's point, whether there was a bit of plateauing and figuring out product market fit and then things spiking and in which case the sort of people sort of running the ship now weren't necessarily running the ship then we try our best to kind of actually sort of fix that in our round and make sure that the person who's kind of responsible or the CEO or the co founder who's kind of heading it up has got a significant stake in the business. Otherwise, where's the incentive for them? So it's not definitely, what's it called, a deal killer or anything like that. And we do see it, and particularly if there's a kind of reasonable story behind it, it's something that we try and help with during the fundraise. I don't know whether that's what you'd say, Mark.

Yeah, I think, I think absolutely right. And the only thing I'll add to that is long before, when I'm looking at investment, before I look at the cap table, it's more of just, I guess what was once really like an in person sit down at this point is more so via Zoom. But it's just let me have the candid personal conversation of what drives this human inherently and are they in this for the long run and you have to open the cap table and they own 5% of the business or something like that, then maybe you have to open up a discussion around that. But usually you can tell is the passion there. Are they in this for the long run? And why? And those are the reasons that matter more so than, you know, pulling threads at 5 to 10% ownership. On the cap table.

There's a couple, there's quite a few questions around kind of how to send stuff. I think if our email's not, I can just put it in the chat. If my email's not in on the invite, let me just actually don't know how to do that.

Let's see. While George is doing that, I can take this question from Brian on corporate BCs hitching to your wagon. It's established player in the industry. So yeah, I mean this is a very good question and I think this is one of the kind of key anchor points that you need to ask yourself when you're deciding to potentially partner with one. You know, good examples are, you know, if I'm partnering with a corporate vc, even when I was in Stripe, it's like, do you want to work with other PSPs? And more often than not actually they're fine with that. So you just have to ask the questions like am I cutting myself off from other vendors? You know, if I'm working with a Google, can I work with an Apple in any case, if it's mobile related. So I think what's more important is just asking, you know, legally and just sort of like, you know, getting the verbal answer to like who can I work with and who are you restricted from working with is very important in these scenarios. And that's probably one of the key two or three questions that I definitely wanted to highlight when you're, when you're thinking about these rounds.

And I will take. So question is, if you have an early founder that has decided to step back but is still holding onto their equity, how do future seed investors perceive that? Would investors see that as debt equity? Would they be required to divest the new investor pool? So I think this is actually similar to the last question. I think obviously things happen within businesses and dynamics kind of work themselves out. I think a question would have at a seed stage is that already if there's like an early founder that's left kind of, you know, what was the kind of reasoning behind that and like what happened there to again really understand, like Mark was saying, sort of how the current founders or remaining founders think. But it's definitely again not a kind of huge red flag. It's more just trying to understand what happened and kind of how the remaining founders would put in sort of systems to make sure that they don't have sort of key members of the team leaving Again, so yeah, it's very much down to the individual. It's not a kind of strike through. But we definitely want to understand why.

So let's see. I'm happy to take this question around from Eric. I think it's basically saying, yeah, there's this kind of counterintuitive thought process here around higher risk in the business. But should you get more money? And of course like as a founder, you know, will you be able to get more money if you have a higher risk business? So I think the one point worth clarifying on this one is that, yeah, not every business that is, it's not necessarily a function of only risk because in theory that's just purely counterintuitive. But when the, you know, in VC we're in a very sort of like binary upside industry and like if there is a, it's more. So is there a massive ceiling in this thesis and does it make sense? Can you buy that Even in the 10 to 20% chance this may work out? You kind of see that vision, you dream the dream with the founder and even though there's the risk, you're still willing to take it because that upside is huge. So it's a coupling the ceiling with how risky it is equals maybe you should do more money to increase the likelihood that this works from. This is purely made up but 10% to 30%, you know, so that's, that's the thought process there. So you, you need to have the upside coupled with the risk. It can't just be a function of only risk.

Yeah, And I'll take, say you raised, oh, it's gone. Say you raised $1 million seed and now you'd like to raise 3 to 5 million. Now should that be a pre A instead of A. We're based in Sierra and in B2B SaaS mainly Mid Street. Okay. So I think that again, hard to kind of say whether it should be a pre or A without knowing more. We definitely see 1 million rounds being classed as pre seed rounds. So if someone said I'm raising a 3 to 5 million seed round, that would be fine. But again we have portfolio companies that have again positioned it as a sort of pre A or bigger seed. I think actually the point, and maybe what we're trying to get across is I think it's actually less like the sort of the nomenclature around what's a seed or what's an A is definitely kind of dissolving out and it's more around understanding actually what amount of money works for you. So if I Were you kind of go to your go to the investors that you're talking to and sort of see how they think about you in that spectrum. And then don't worry too much whether people call it a pre A or an A. And in fact you can kind of fluctuate between between those two names regardless of depending on sort of who you're talking to or how you want to position. You know, it's almost can be used and leveraged rather than something that you have to like categorically stick by.

Let's see. So it looks like we have time for one more question here. I'll actually this is a maybe a more tactical one, but I think it's actually it's a pretty good question around ESOP and how much you should you make that. So this one's basically saying latam investors think 8 to 10% but if we're trying to expand to the US market, do we need more? I think we need more. And it's interesting. 10% seems to be kind of the industry anchor point, but by no means should that be there's room to change. I mean I just did a seed to one of these seed investments we made earlier this year was 15% and the reason was for which in this case actually it was one of the ones that I alluded to that was not a technical co buying team. They needed to hire a really good designer and a really good sort of like technical co founder that needed co founder esque economics. In that case it makes total sense to maybe take 15%. And I think the second question you should ask in this case is whose pocket is that coming out of? I mean you can structure it 15%. Is that out of the founder's dilution or can that be from is there wiggle room on the investor side so you can kind of work out a way where you know, bump it up from 10 to 15 and just, just figure out if you can split that evenly. But very common to do that in certain cases. 10% is usually just the starting point.

Great. Well thank you Mark in Georgia and thank you all for watching. If you have any further questions for Index Ventures, make sure to check out the email in the chat. We put both their emails in there as a reminder. This video will be available on demand at the close of the event. And now please make your way to the next session and enjoy the rest of your time at Zaster Annual.

Thanks everyone.

Thanks guys.