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A web show where Poornima Vijayashanker, the founder of Femgineer, interviews guests on topics related to startups, entrepreneurship, software engineering, design, product management, and marketing. Sponsored by Pivotal Tracker.
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Now displaying: January, 2018
Jan 30, 2018

All this month we’ve been exploring how startup fundraising is changing and why it’s going to continue to change in 2018.

 

We started off by talking about why you don’t want to reach out to an investor when you just have an idea, how to evaluate if seeking investment make sense for your business, and in the last episode why no matter how great your idea or business is you’re still going to receive a lot of NOs.

 

After what might seem like endless reality checks, I’ve saved the best episode for last, we’re going to be talking about what it’s going to take to get a yes from an investor. Ooshma Garg and Danielle Morrill are back. Ooshma is the CEO and Founder of Gobble, and Danielle is the CEO and Founder of Mattermark. They've both recently become investment partners at XFactor Ventures, an investment firm that's focused on investing in female founders and mixed-gender teams.

 

You’ll learn:

 

  • Some of the uncomfortable activities you’re going to have to do find that first investor
  • How to approach the topic of check size
  • How to leverage that first check and attract additional investors who may have been on the fence
  • What the investment partners at XFactor Ventures are looking for and the types of startups they have already invested in

 

Finally, if you are a female founder or are on a mixed-gender founding team and want to pitch your startup to the partners are XFactor you can check out their website here and follow up with them via email: hello@xfactor.ventures.

 

Build is produced as a partnership between Femgineer and Pivotal Tracker. San Francisco video production by StartMotionMEDIA.

 

## What It’s Going To Take To Get That First Check From An Investor Transcript

 

Poornima:         In the last *Build* episode, we explored all the reasons an investor may say “no” to your big idea. If you missed the episode, I've included a link to it below this video. In today's episode, we're gonna dive into what it's gonna take to get that yes from an investor. So stay tuned.

 

Welcome to *Build*, brought to you by Pivotal Tracker. I'm your host, Poornima Vijayashanker. In each episode, innovators and I debunk a number of myths and misconceptions related to building products, companies, and your career in tech. Now, it can be very disheartening to hear no after no from investors, and make you wonder whether you're eventually gonna hear a yes. But it is possible, and in today's episode we'll talk about what it's gonna take to get that yes.

Today we're back with Ooshma Garg, who is the CEO and Founder of Gobble, and Danielle Morrill, who is the CEO and Founder of Mattermark. And they are both investment partners at XFactor, a new investment firm focused on funding female founders and mixed-gender teams.

             

So thanks for coming back, ladies. I know last time we talked about all the many reasons that we've received a no. This time let's turn it around and talk about what it's gonna take to get a yes and let's start by reveling in that moment where we each got our first yes. Danielle, when was the first time you got a yes?



Danielle:            I got my first yes from Dave McClure. We were sitting on the curb in front of their new office they had just opened in Mountain View. It was my birthday and it was the “you can quit your job now” check.

 

Poornima:         Awesome.

 

Danielle:            So it was extremely exciting to kind of put that milestone.

 

Poornima:         Yeah. What about for you, Ooshma?

 

Ooshma:            I got my first yes from Ben Ling and Keith Rabois. I remember going to get a physical check from Ben. He was at Google at the time. Now he's a partner at Khosla Ventures. And so we had been meeting and going back and forth and then I showed up there and he just wrote this check that was more money than I had ever seen in my entire life. He's like, "Here you go." I felt like I was this bodyguard...like I needed an armored truck. I felt like anybody who looked at me could see that I was carrying tens of thousands of dollars in my hand. It was really funny. I remember just being so excited, but also funny enough, just so careful and so nervous carrying that check literally all the way to the bank.

 

Poornima:         Nice. You weren't like Serena Williams, who just hopped into the ATM and tried to put it in the machine or something like that? She did a drive-by with one of her first—

 

Ooshma:            Oh yeah?

 

Poornima:         Yeah. With one of her first grand slam winnings. It was like—

 

Danielle:            I didn't even have a bank account.

 

Poornima:         There you go.

 

Danielle:            That sounds awesome.

 

Poornima:         That's awesome. All right. And then what did you do right after you got that first yes...after you deposited the money in the bank?

 

Danielle:            I don't think I deposited it for a while. There's all this stuff that has to happen actually, so we also incorporated on that day, just luck of timing. But yeah, I think it's really weird. You get this check and it's like this life-changing thing and then you have to go back to your crappy one bedroom apartment with no windows in San Francisco and it's like, "Get back to work."

 

Poornima:         Yeah.

 

Ooshma:            Yes.

 

Danielle:            Keep coding, so it's bizarre and this thing happens and you wanna shout from the rooftops, like, "Ah!"

 

Ooshma:            Yes.

 

Danielle:            But on some level you feel like, "Oh shit, this is real."

 

Ooshma:            Yes.

 

Danielle:            Does that resonate for you?

 

Ooshma:            Absolutely. I think with every great success there's just great responsibility. And so now you have this amazing check and certainly it's time to crack a bottle of champagne and celebrate for a moment.

 

Danielle:            Yes.

 

Ooshma:            But with that comes everything that you were planning to do when you told the person you would do with it. And not only that. It's just the first check. Typically you're raising some kind of round and it takes 10 to 15 angel investors to get it all together. So it's a huge milestone that I think people can take a sigh of relief, but still have to carry it to the finish line.

 

Poornima:         Now, one of my first investors was somebody who understood my niche market. I know we talked about this in the last episode, but once I found him, actually fundraising became super easy because he went out and kind of rallied the other folks who were kind of on the fence, right? It was, "I believe in this market, I believe in this founder, I believe in this idea, I'm gonna write this check and you all would be stupid to not follow." Have you had that experience as well?

 

Danielle:            Yeah, I think different investors take different approaches. Sometimes they go and create the syndicate and sometimes you do and then they come back you up by adding a voice. But I think they're pretty networked so most investors here talk to each other or they're only one degree of separation away.

 

Ooshma:            Yes.

 

Danielle:            So you almost feel like when you're beginning to fundraise, you can kind of feel the Valley talking about your company. There's no trace of it on the internet, but they definitely are asking each other questions and saying, "Have you looked at the deal? What do you think of the price? What do you think of this person? Do you know anything about them? Have you heard anything negative?" Just all those questions. Because there is no diligence tool, and I'm laughing because Mattermark is part of that story—

 

Poornima:         Right.

 

Danielle:            —but when we were really early stage, it's really a reputational thing.

 

Ooshma:            Yes.

 

Danielle:            And so I think part of it is going out and beating the drum for you and part of it is also they're fielding questions. So as soon as you say, as soon as I said, "Hey, Dave invested in us." Then I should expect Dave is gonna get hit up with people saying, "What do you think of Danielle? Why did you invest?" etc., etc.

 

Ooshma:            Yeah.

 

Poornima:         Right.

 

Ooshma:            But I do think it's important to make sure that when you get some of those first checks that you ask the person who else they would recommend join the round. That would be leaving a lot of value in introductions and referrals on the table if you didn't do that. Because this person has just expressed huge conviction in your vision. And so they'll typically or should be able to bring along at least a handful of introductions.

 

Danielle:            And also, I've gotta add, I did not know to do that when I first started out. And I think it's because you think you're inconveniencing this person who's just written you a check.

 

Ooshma:            Yeah.

 

Danielle:            But actually they just wrote you a check because they wanna make you successful. And so you should ask and ask and ask. They will tell you if you've crossed the line, but you probably never will cross the line. And it's really easy, as an investor now, to just move on to the next thing and get busy. And it's not that I don't want to help, but I kind of assume if you're not asking, you're all right.

 

Poornima:         Right.

 

Danielle:            So ask. Because I think it's totally true. And I think I did leave a lot of that on the table and probably made it harder on myself than it had to be at first.

 

Ooshma:            Yup.

 

Poornima:         Yeah. They're also protecting their investment by getting their fellow investors to invest, right?

 

Ooshma:            Yes.

 

Poornima:         Yeah. So last time we talked a little bit about the stage that investors are at and oftentimes that makes a difference. And Ooshma, you sort of alluded to this. Now there's a lot of different types of investors out there in the market today. There's VC's, angels, super angels, micro funds, and so on. So let's talk through what makes sense at each stage, and let's start with accelerators because both of you have been involved with YC. So when does it make sense to approach an accelerator before or maybe after funding, and what did it take to get in?

 

Ooshma:            Wow. You know, one secret that a lot of people don't discuss is that many folks that got into something like a YC got in on their third or fourth try. So I did not know that until I started talking to a lot of founders. And YC might've given them feedback, maybe they kept working on their idea and they got to a certain stage. So I think that you might apply but you shouldn't just quit based on getting a no that we talked about. Even getting in to accelerators at an early stage sometimes takes a few tries.

 

Poornima:         And why would you even recommend people apply? Why does it make sense to do that?

 

Danielle:            So I think it really comes down to helping you set up the company for success down the road. So what an accelerator or incubator program is gonna do is help you with your go to market, and that doesn't just mean your product go to market. It's also the marketplace they create for financing your company.

 

So they're gonna help you validate that you've got a venture-backable business and they're gonna help set you up with the relationships and the communication pattern that you need to have in order to be a viable option for those investors. And that's really valuable, especially if you're coming to the Bay Area from somewhere else and you can't really build that network in a few weeks.

 

Poornima:         Sure.

 

Danielle:            You really need to be here. And so you're gonna be able to get a lot of time back. Of course, they take equity for this. But I think it's probably one of the best trades you're gonna make because in the beginning it's just so binary. You're either gonna raise that round or your company's probably not going to exist and so early on that's probably one of the best ways to de-risk financing and then you can focus on the product.

 

Poornima:         So you mentioned that marketplace pulling in intros for you. For the two of you, how did YC facilitate those intros to angels or super angels?

 

Ooshma:            Well, in my case we were very unconventional. I started the company without YC and I just wanted to build this idea and I felt that there was a problem that needed a solution. So I started prototyping it, I asked my friends for introductions. I was luckily already here for three years after college building a network. So I could just start my own process and seed round and ask for introductions, start raising money, and we didn't need Y Combinator for the first couple years of the company.

 

Then, it takes a while. First your company has to get funded so you can explore it, all right? And then you have to find product-market fit and you get to a stage of scale. So it took us a while to find product-market fit and I did YC in the middle of our company's story, at a time when we were changing models. Solving the same problem, but with different solutions, and when the fundraising environment was really tough.

 

So I had to make the decision of, “If it's worth working on, I'm gonna take what I can get.” And at the time that was joining an accelerator. So I think that that's a good example because it shows that you might've been working on something for five years and if YC can help you, or an accelerator can help you, you should still apply and use that as a catalyst for whatever next funding round or whatever growth metric you're—or awareness you're really looking for. But I would also say that you can't let anything like that stop you from building your company.

 

Poornima:         Right.

 

Ooshma:            So any investor saying “no” or any accelerator saying “no,” you should be building something because you see a way for the world to be better with something. And you have to decide to just do that and do it anyway, regardless of how you get there.

 

Poornima:         So let's talk about the mechanics behind this now. So there's obviously angels, there's super angels, there's micro funds, there's VCs. Walk us through what the check size is or who makes sense at what stage.

 

Danielle:            Right, so, there's a lot of flavors. Generally, if you're talking pre-VC, then there's very few private individuals who are gonna write more than a $50,000 to $100,000 check. Generally, if you think about someone's net worth, they've got some chunk of their net worth set aside for investing, and it's probably like 5% or 10%, so you can kind of begin to understand what's going on there.

 

But the easiest thing for anyone who's not a VC is just to ask them. What's your check size and how much risk do you wanna take? Will you invest pre-product or no, is question one. And then post-product, it's like what do you need to see from me to invest? There's so many investors now in that pre-Series A stage that I think it would be hard to give a blanket answer. But the most important thing is to just ask them, "Tell me about the last two or three deals you did. How big were they and what stage?" And I would try to not worry about getting them to do something exceptional. People kind of have their comfort zone with their personal money. And what they're doing is probably gonna continue to be the same because they're anchored on their last check.

 

Poornima:         Yeah.

Danielle:            So if they've been writing a lot of $10K checks, that's probably the check size that they're writing unless they come into a huge amount of money and it changes their world.

 

Ooshma:            Right.

 

Danielle:            And then the other thing is you're gonna have these weird institutional investors who will invest before Series A. I guess this is super common now. When I started fundraising this was a lot less the case. So these are kind of these super angels, micro VCs, I don't really know what they're called today. Pre...what is it, pre-seed?

 

Poornima:         Pre-Series A.

 

Danielle:            They call it all these different things.

 

Poornima:         Yeah.

 

Danielle:            But fundamentally no, those check sizes could be anywhere up to, let's say, $500,000. They're generally not leading or pricing a round. No one has to lead a round if you don't have a equity round, so that's—a big part of it is just, again, what size check are you normally writing, do you need control in some way, do you add a board seat, all those things. The good news is once you get to Series A, it's a lot more standardized in terms of ownership. So there's some rules of thumb and I'm gonna say these and then you tell me if you think they're different because I feel like maybe they're not all the same. One big piece of advice is don't sell more than 25% of your company before your Series A. So fully diluted, when you run your own cap table out. You don't wanna be in a position where you've already sold half your company, because what happens is a Series A investor probably needs to have 20% ownership just for them when they come in. So if you've already sold half your company, on top of that, it starts to be pretty demotivating. That can be a little higher or lower, just depending on what's going on with your business. And then you of course have your other investors that might come in. So maybe you sell 25% to 30% of your company total in that round.

 

And then the B and C and so on. The way to think about it is the better you're doing, the more leverage you have.

 

Poornima:         Sure.

 

Danielle:            People generally sell 15% to 20% of their company in the B. And then at the C, D, and onward, it's kind of a sliding scale downwards from there in terms of ownership percentage. And you might be thinking, "Well, doesn't this add up to more than 100%?" And the thing is that you're diluting everybody else as you go. So you're selling a chunk of the whole company at that moment in time. So these investors, it's generally gonna come down to...fund size will line up with check size. And they're gonna say something like, "We raised $150 million fund, we're planning to write $5 million to $10 million checks, and then we're holding on to $5 million to $10 million per company for follow-on." Something like that, and you can just do the math.

 

Poornima:         Right.

 

Ooshma:            Or like, in our case with Xfactor, we have a $3 million fund and we're putting $100K in 30 companies. And that's the rubric. So I think to Danielle's point, it's your job to understand everyone's rubrics and appetites so that you are not wasting your time and not wasting their time. And at each stage—and let's take the seed stage for example, because it's one of the only stages where there's so many investors involved—fitting all those puzzle pieces together to get to how much money you need for the next 18 months and a specific material milestone. So I think you start out with calculating that money and you get your friends or blogs or whatever advisors to help you. And then look for people in that stage and then fit those pieces together and ask them to make introductions until you fill the amount.

 

Poornima:         Yeah, so let's talk about that. How do you actually get these intros? If I'm outside of Silicon Valley, I'm coming in, or even if I'm here and I've been an engineer all my life or a designer or something and then I recently made the switch to a founder, I might not have that network. How do I get those intros?

 

Danielle:            So, the truth is you're just gonna have to get out there and talk to people.

 

Ooshma:            Yeah.

 

Danielle:            And I think the thing is you probably know people who can help you that you might not realize. It's pretty rare, if you live here, even if you just moved here, not to know somebody who works at a startup. So you just have to start asking. And the truth is you're gonna have to give away information to get information.

 

Poornima:         Sure.

 

Danielle:            "Hey, I have a startup." OK, everybody has a startup.

 

Poornima:         Yeah.

 

Danielle:            "Hey, we're raising." OK, "It's really hard."

 

Poornima:         Right.

 

Danielle:            A lot of people immediately are like, "Oh, OK, interesting." "Do you know anybody who invests in startups?" And the thing is you're gonna have to do this at scale. So you're gonna need to go to events.

 

Poornima:         Right.

 

Danielle:            You're gonna need to ask the people that you worked with in the past and you're gonna need to do things that you might not enjoy doing, like going on LinkedIn and just doing a ton of research. Nothing is better than a warm intro. So even though this feels really weird and painful to ask, these are gonna generate the introductions that are gonna be the best

possible. The next thing is cold after that.

 

Poornima:         Right.

 

Danielle:            So anything you can do to get something warm, even if it's many degrees of separation, is gonna help you more. And so that might also mean cold outbounding someone that you wanna then get an intro through.

 

Poornima:         Yeah.

 

Danielle:            So portfolio founders are probably the best people to cold outbound rather than the VC themself or the investor themself. So if someone cold contacts me and says, "Hey, I'd love to get to know you and Mattermark, yadda yadda," and maybe their plan is that they'd like to get introduced to Brad Feld, the reality is if they can tell that we didn't click, they're not gonna ask for that intro. And that sounds really, I dunno.

 

Poornima:         Transactional?

 

Danielle:            Mercenary? Transactional?

 

Poornima:         Yeah, yeah.

 

Danielle:            But it's business, so that's what business networking is.

 

Poornima:         Of course.

 

Danielle:            And I think the truth is I wanna send Brad great companies.

 

Poornima:         Yeah.

 

Ooshma:            Yeah.

 

Danielle:            So if you're an interesting company and you pitch me and I get excited, one, I might angel invest in you, which is the absolute best way for me to introduce you to one of my investors.

 

Ooshma:            Yeah.

Danielle:            But the other thing is we all got helped in the same way.

 

Poornima:         Yeah.

 

Danielle:            So it sounds transactional, but it's also just kind of how it works.

 

Poornima:         Yeah.

 

Ooshma:            It's the culture of paying it forward.

 

Poornima:         Right.

 

Ooshma:            Everyone does that. And if they can't...they'll be honest. If they can't give you that introduction and you do click, maybe they'll give you some advice. And then we go back to that whole idea of listening and staying in touch and sending people updates. But I would say leave no stone unturned. If you just landed here, there's Techstars or 500 or Founder Institute or Y Combinator or TechCrunch Disrupt or Golden Seeds or who knows. There's all these things you can apply to. And of course, if you are an island and you don't know anyone, you have to start out cold. But cold will soon become warm.

 

Poornima:         Yeah.

 

Ooshma:            And you have to play the numbers game in the beginning.

 

Poornima:         Sure.

 

Ooshma:            And so just go to all the meetups, email everybody, send links and product demos. Just be creative. Oh! One hack that I had which actually led to me meeting you is that I would go to talks and sit in the front and come up with really good questions. And I'd strategically go to talks where I really wanted to meet the person and I knew they'd be a great investor or advisor. I would wait until the very end. They would give a talk and then all these people would be crowding around someone like Reid Hoffman. In this case it was Aaron Patzer from Mint. And so people were talking to him for 30 minutes. And I waited until the very end and he was like, "Oh my gosh. Who's this person waiting?" I said, "Hey, I'll just walk you to your car. I have a quick question." And then he became a very early on startup advisor and advocate for me. So there's all these unconventional things I think that you can do to get out there. And they might be uncomfortable but that's how we all did it.

 

Poornima:         Yeah. It's funny. I actually mentioned this hack to a bunch of people whenever they want my time. I tell them I'm gonna be at this event speaking. Some people take me up, some people don't. Some people have gone so far as to say, "I'll pick you up from the airport." I love those people. Because I'm like, "Great! I don't have to worry about how I'm gonna get from Point A to Point B," right? Or "I'll buy you dinner" or whatever, but yeah, I think it's definitely going out of your way to get that interest and build that network.

So let's talk about what you guys are working on now. You are working on XFactor. So let's dive into that. Why did you even think this was important? Ooshma, you just rattled off 10 seed opportunities. So why XFactor?

 

Ooshma:            Yeah.

 

Poornima:         Why do you want to put another one in there?

 

Ooshma:            You know, there was not one female investor in our seed round. And I think...I firmly believe that diversity creates innovation, diversity of thought. And America in and of itself is this diverse nation and considered to be the best in the world. And it's because of all the different perspectives and kinds of people that we have here.

 

I like to emulate that in the company and I would like that in our investors. I don't think that one perspective is gonna make us this breakout, worldwide innovative company.

 

So, I think that XFactor is unique and necessary because it's brought together a partnership of nine people and it's all women and we are all operators, founders, CEOs, and active companies. We're not retired. We're extremely current. All these things...fundraising, hiring, strategy, growth, it's all on top of mind. We can add so much value to early stage companies. And we're just approaching it in this very kind of operators helping operators, allowing for bad-ass women to help other women in a space where there just aren't as many.

 

Poornima:         Yeah.

 

Ooshma:            And really just adding some more diversity to both the founder pool and the investor pool to build more breakout companies.

 

Poornima:         So you mentioned you were able to raise capital without having a woman founder. So why is that...why do you think that's important? Right? You did it, you proved it. You did it, you proved it. And I know I've...in my last company I raised from all men, so why is that important?

 

Danielle:            I think that it's important because it's hard and the reality is we want these products to exist in the world. It's not really that these companies can't get funded. It is harder, but the best ones get funded. And it's just what are we missing?

 

Poornima:         Yeah.

 

Danielle:            What are we missing out on in the world that could exist tomorrow?

 

Ooshma:            Yup.

Danielle:            There's so many creative, amazing people who are not getting funded for reasons that have nothing to do with what the company is about. And the bad thing is that this kind of poisons the well too, so there's people who aren't even trying.

 

Poornima:         Yeah.

 

Danielle:            And so I think we wanna send this message that, "Look, we shouldn't have to exist." XFactor shouldn't need to exist and if we do a really good job and we make a bunch of money, people are gonna realize that investing in women, investing in men, we wanna invest in the best no matter what. So down the road, hopefully we can't exist.

 

Poornima:         Nice. Yeah.

 

Danielle:            But until that happens I think we need to...the only way to change it is to actually create competition.

 

Ooshma:            Yup.

 

Poornima:         Yeah.

 

Danielle:            So we are in competitive deals and we are sending this deal flow, we're creating market for each of these founders because we're gonna need to see a lot more female role models at the top. Ooshma's company is progressing, Mattermark is progressing, but we're still very early stage and there's not a ton of examples of huge exits run by women.

 

Poornima:         Right.

 

Danielle:            So I think we're really great examples here, but it's very early days and the best chance we have of seeing those results at the end is to put as much as possible at the top of the funnel. And I wanna say I also think it's just an incredible investment opportunity because it's under-invested so dramatically. Frankly, we should be able to see incredible returns partly because there's just so many opportunities that haven't been taken.

 

Poornima:         Yeah.

 

Danielle:            So I feel like not only is it awesome for founders, and I'm so stoked about them, it's awesome for our LPs and it’s gonna prove to LPs that female fund managers can return awesome results as well. And you know what? There's more asymmetrical opportunities like this to take. There's room to create tons more funds focused on women. You can create the exact approach with any minority group.

 

Poornima:         Yeah.

Danielle:            So it's...it shouldn't have to exist, but while it does, we should try to create wealth for all the people involved and then long term, I think create competition in the market.

 

Poornima:         Yeah.

 

Ooshma:            And it's so...this is not a not-for-profit.

 

Poornima:         Yeah.

 

Ooshma:            It is not a charity. We are looking at people who are the grittiest of entrepreneurs and are in it for the long haul and ready to build multibillion dollar companies, and can answer all the hard questions. And we've got—

 

Poornima:         So what are some of those?

 

Ooshma:            Yeah. Well, first of all, we've gotten hundreds of pitches.

 

Poornima:         Yeah.

 

Ooshma:            And we've only made about nine or so investments.

 

Poornima:         OK.

 

Ooshma:            Since July. So in just the last three months we've looked at so many companies, and I think people assume, "Oh my gosh, there's a female investor, she's gonna invest in a woman." But I think it's out of respect to founders that you...that investors ensure that they are looking for and helping you build huge companies and use your time in the best way possible.

 

Poornima:         OK. So what are you guys looking for in your...and what's kind of...you said that your check size is $100K, so we're looking at early deals. And what else are you looking for? What's it gonna take to get a yes?

 

Danielle:            Well, the first thing is that we are definitely looking for a return that's pretty impressive. So even at the early stage if we invest, let's say $100,000 in a $1-million round, I would say the average post-money valuation is $8 million to $10 million.

 

Ooshma:            Yup.

 

Danielle:            So right away, to get to a 10x outcome, we need to see a company with really meaningful revenue. The good news is we don't technically need to find the billion-dollar companies to have a really successful fund, but I think the reality is we wanna find those outliers.

Poornima:         Sure.

 

Danielle:            So we're just like any other venture firm at the early stage looking for the most impressive opportunities to deploy their capital. We've got 30 bullets in the gun. So we're also thinking, "OK, we're gonna invest this money over the next two or three years. Is this the best deal that I can do this year for each partner?" Each partner is thinking about this constantly. So you're looking at the entire field and you're saying, "Of all the possible ways to deploy this money, what do we think can get the best return?"

 

Ooshma:            Right.

 

Danielle:            And that's what we're focused on.

 

Ooshma:            And the partners hold each other to a very high bar. We're all CEOs of our own companies and we hotly debate every deal.

 

Poornima:         OK.

 

Ooshma:            And it's incredibly smart, active people around the table. So it helps us make great investments. And it helps us keep the bar high because we have a lot to prove to each other and I think we have a lot to prove as a fund. And that we want to. Because this is...it's about the great returns, but it's also, like Danielle said, about setting an example and about proving a point and hopefully making ourselves obsolete.

 

Danielle:            So I think we should give some specific things for the viewers in terms of what we wanna see because, people listening, we want you to pitch us. So, you gotta have a product. You pretty much have to have revenue I would say for our group, although we would still talk to you, help you get there, stay in touch. We wanna some amount of revenue or customers. I would like to see high margin businesses. I'm looking for software scale. I don't think that that's true for all of my partners, but I struggle because I think we're looking for companies that take advantage of innovations to get the advantage in the market.

 

Ooshma:            Yes.

 

Danielle:            I'm looking for people who have some special passion. Ooshma talked about being mission driven. It's really hard. I think we really wanna find founders who are in it for the long haul, so if they're just an arbitrage deal, I don't know that we're quite as excited about that.

 

Poornima:         Right.

 

Danielle:            Again, I don't wanna speak for all my partners, but I personally would prefer to talk to somebody who's like, "This is the only thing I wanna do."

 

Poornima:         Yeah.

 

Danielle:            I'm looking for patents and technology innovation. I'm looking for stuff that solves problems in the enterprise space and software space for developers, just because I actually think there are a lot of women in those fields and I think there's more bias for women pitching those ideas than any other idea, and I think they—I wanna give them that check so they have the confidence to go do all the rest of the pitches.

 

Poornima:         OK.

 

Danielle:            I wanna write the quit-your-job check. That's the number one thing. So if you're watching this video and you're like, "I would have to quit my job and work on this full-time and I need $100,000," we wanna talk to you.

 

Poornima:         Yeah.

 

Danielle:            Because the quit-your-job check for me was life-changing. I think we would like to write that, so, sorry I'll let you tell them what you want.

 

Ooshma:            I mean, man. Yeah, Danielle really covered a lot of it. And I think just the founder DNA and passion and willingness, of course plays a huge role. But the interesting thing is that our partnership is so diverse that we have folks coming at it from retail, from consumer, from enterprise, from hardware. We've assembled this...and from the finance companies and healthcare, finance, SAS, etc., so it's really neat because no matter what your company is doing, there's probably an expert in our partnership that can talk with you, consider the deal, and at least give you feedback, if not invest.

 

So I think that we are looking for breakout companies in all of those industries. But your...yeah, we—

 

Danielle:            Our portfolio already has quite a range.

 

Ooshma:            It has quite a range. I mean, we've invested in fashion, in hardware, in AI—

 

Danielle:            Developer tools and machine learning and ag tech—

 

Ooshma:            Yes.

 

Danielle:            Huge range already.

 

Poornima:         Well I can't wait to hear when they come out.

Ooshma:            Yes.

 

Poornima:         So, for our audience out there who's eager to get their idea out in front of you, how can they get in touch with you?

 

Danielle:            An email to hello@xfactorventures is perfect. Xfactor.ventures is the domain.

 

Ooshma:            Yes.

 

Poornima:         OK, what should they send you?

 

Danielle:            You can send us a pitch or you can send us a hello and we can set up a phone call. Either one is great.

 

Poornima:         Cool.

 

Ooshma:            Yup.

 

Poornima:         All right, well, be sure to take them up on their opportunity.

 

Ooshma:            Looking forward to it.

 

Poornima:         That's it for this episode of*Build*. Be sure to subscribe to our YouTube channel to receive many more episodes like today's and great *Build* tips. Ciao for now.

 

Announcer:      This episode of *Build* is brought to you by our sponsor, Pivotal Tracker.

Jan 24, 2018

Think you’re onto something BIG, and surprised you’re receiving so many NO’s from investors?

It can really make you second guess yourself, and shake your confidence...

… but it shouldn’t!

Receiving a LOT of NO’s is natural.

You may be tempted to listen to the feedback after receiving some NO’s and think you just need to launch your product, change your business model, or grow your customer base, and then you’ll be more attractive to investors.

Guess again.

The reason you receive for the NO and the feedback you get may not be aligned.

Why?

Because at the end of the day, investors are human. They don’t want to hurt the feeling of a first time founder, and don’t want to seem rude in case they want to invest later.

Yes they just might invest later.

So how can you tell what is really going on?

Well that’s what we’re going to debunk in today’s episode of Build! To help us out I’ve invited Ooshma Garg who is the CEO and Founder of Gobble, and Danielle Morrill who is the CEO and Founder of Mattermark. They've both recently become investment partners at XFactor Ventures, an investment firm that's focused on investing in female founders and mixed-gender teams.

We’re going to help get comfortable with receiving NOs and deciphering what they really mean.

You’ll learn:

  • How Danielle and Ooshma learned to keep their spirits up despite all the NOs they received
  • How to be politely persistent with investors who won’t bother taking a meeting with you
  • The various tests investors put first time founder through
  • How to maintain a relationship with an investors even after they say NO

--

Build is produced as a partnership between Femgineer and Pivotal Tracker. San Francisco video production by StartMotionMEDIA.

--

## Why Investors Keep Saying NO To Your BIG Idea Transcript

 

Poornima Vijayashanker: In the previous two episodes of *Build*, we talked about why, even if you have an idea, you might not get investment from it, and it needs to be a big idea in order to even attract interest. But even if it's a big idea, chances are investors aren't going to say “yes.” In today's *Build* episode, we're gonna uncover all the reasons an investor may say “no” to your big idea, so stay tuned.

 

Welcome to *Build*, brought to you by Pivotal Tracker. I'm your host, Poornima Vijayashanker. In each episode, innovators and I debunk a number of myths and misconceptions related to building products, companies, and your career in tech. Now, one misconception that a lot of first-time founders fall prey to is if they have a big idea, some investor's gonna want to put capital and fund it.

 

The truth is that a lot of funders face nos, and just because they face nos doesn't mean that someone won't eventually invest in them. In today's *Build* episode, we're gonna explore all the reasons that investors may say “no” to your big idea. And to help us out, I've invited both Ooshma Garg and Danielle Morrill.

 

Ooshma is CEO and Founder of Gobble, and Danielle is CEO and Founder of Mattermark. They've both recently become investment partners at XFactor, an investment firm that's focused on investing in female founders and mixed-gender teams. Thanks a lot for joining me today.

 

Danielle Morrill: Absolutely.

 

Ooshma Garg: Thanks for having us.

 

Poornima Vijayashanker: We've come a lot way since that first South by Southwest where we all shared a hotel room in 2010, and all of us have gone out and fundraised a number of times. I want to start by asking the two of you, what was that first no like that you got from an investor?

 

Danielle Morrill: I was bummed. I mean, I think the first 10 investment meetings were just nos back to back. First, you're like, "I guess that it would happen. I would get a no," but I'm like, kind of the straight-A's type kid. I keep thinking, “Of course I would get a yes every time," and then after you get them over and over, you're like, "Oh, maybe this just happens. Maybe this is true that you get way more nos than yeses." What do you think?

 

Ooshma Garg: Man, you know, your company is like your baby. It's a reflection of yourself, so the first no, and even ongoing nos, they're always so personal. I think you get a little bit used to it because you just build some armor and build some strength every day and every year as an entrepreneur, but especially in the very beginning, it's kind of like a survival-of-the-fittest process. You have to be able to psychologically get through the nos, take some feedback, and develop that never-quit attitude early on if you're going to be successful ultimately.

 

How To Get Over Rejection When Fundraising And Keep Going

 

Poornima Vijayashanker: Yeah. So, how did you get over that? How do you even know that you should just take the feedback, deal with the rejection, and keep going?

 

Danielle Morrill: I made a fundraising playlist on Spotify.

 

Poornima Vijayashanker: OK.

 

Danielle Morrill: I think it's Jay-Z who says, "On to the next one." I used to blast that song, like after every pitch, actually after the good ones, too. But honestly, you kind of just have to keep living, and I think part of it is just putting it in context with the rest of your life. Having a playlist for me was sort of a reminder of, “Oh, life just kind of goes on.” It's fun with your team too, I think, to just be...I guess not everyone does this, but with my team at the very early stage, it's not like you can hide the fact you got turned down.

 

Later on when you're raising, maybe you don't tell everybody that you're raising a series A, but when you're raising early stage money, you get your team to cheer you up. They buy you beers. You do silly things. You kind of have to let life keep happening so that it doesn't get too serious.

 

Ooshma Garg: Yeah, I agree. What's funny is my fundraising song is "Survivor," by Destiny's Child.

 

Danielle Morrill: How many people do you think have a fundraiser song?

 

Ooshma Garg: I don't know. This is the first time we're talking—

 

Danielle Morrill: We need to make a playlist.

 

Ooshma Garg: We need to make a playlist.

 

Danielle Morrill: That's a good idea.

 

Ooshma Garg: We need to make a playlist for our portfolio.

 

Poornima Vijayashanker: We'll link with the playlist to you guys. So, do you ever go back to the people that said “no?” Because you guys have done multiple rounds now, where you might have had to go back to those early investors who said “no” and ask for more.

 

Ooshma Garg: Absolutely. In our case, even our first check as a seed investment, it took me three different introductions, multiple follow-ups, to even get in the door before the no. After someone says “no,” it feels very final, but I think that the big secret is that you have to go back and that you should keep following up. Time and time again, I hear friends talk about series As, series Bs, and so on, where they got a no. They were...they kind of welcomed it and took all the feedback. They updated different investors every week for two months, three months, sometimes six months, and then they close that same investor. They might be a Sequoia, or Andreessen Horowitz, or what have you.

 

All those funds are looking for stamina and looking for breakout businesses. A breakout business has to have someone that's willing to listen, iterate, and improve. So, the funny thing is, you should see that as just the beginning of your relationship. For our venture financings, we had multiple failed fundraising attempts and then ultimately successful ones. Our funds that invest in us now, Andreessen Horowitz, Trinity Ventures, etc., absolutely said “no” once or twice before. But I maintained that relationship.

 

Poornima Vijayashanker: Yeah. What about—

 

Why It’s Valuable To Reconnect With People Who Said NO

 

Danielle Morrill: You have to think about it like sales. Like, would you have never contacted a lead again because they didn't convert at the end of the trial? No. If you are in my database, I am going to be talking to you for the rest of your life. If you're in this business, there's a certain set of investors that you really wanna work with. Frankly, they're looking for the people who don't take it so hard that they never come back, to your point about stamina.

 

I think also, once you go back to people a few times and kind of...you have that feeling of like, “This feels like it's against the rules to go back.” Then you realize that it's actually respected, and so it's a self-fulfilling thing, and you start to find yourself going back more and more.

 

How To Push For Specific Feedback

 

Poornima Vijayashanker: Well, it's great that you got feedback, but I think a lot of times, you get this generic feedback, where it's like, "I wanna see more traction," and you're like, "I'm already at, you know, 10k in monthly recurring revenue," or, "I'm already at, like, a million-dollar run rate," like, "How much more traction do you want to see," right? So, how can you kind of push an investor to give you more directed feedback in that note?

 

Danielle Morrill: Well, I mean, I think...We sit on both sides of the table now, so I think sometimes it's laziness that causes people to ask for these things. So, for example, the "I wanna see more traction." It's kind of like going into Macy's and being like, "Why isn't this a Dior dress?" It's like, OK, if you want a Dior dress, maybe you should go buy one. If you wanna find a company that has, like, $5 million a year of revenue, and you're at seed stage, sorry, this is what we have, and this is what I'm selling, and if it's not what you're interested in, it's fine for you to turn me down, but I'm not...this is not a buffet where you can come back anytime between 10 and 1. I'm trying to raise a round.

 

You kind of have to, at least inside, hold a certain amount of entitlement over your time. It's not that you need to be entitled to their money, but you're running a process, and I think that that is really important. So, for a lot of these unclear feedbacks, I think it's more important to say, like, "What do you think of what I'm selling now? And if it's not clear what I'm selling, let me remind you and redirect." Honestly, you have just as much a right to claim your time as they do.

 

Ooshma Garg: Absolutely. And you have to kind of draft or pick your draft, in a way, with your investors. There are ones that I really wanna follow up with, and I would love to work with, and it's not just from my side of the table. I think, just like with employees or anyone else, or with a relationship, you want it to be good with both sides. So, you might see something that they don't, but they've only known you for 30 minutes. You've done all your homework. You know what they've invested in. You know the other founders.

 

So, you don't just follow up with everyone. You hear the nos. Sometimes, it's not even worth following up. Sometimes it was an introduction, and you didn't really connect. A no is OK. Other times, it comes with something that says, "Our fund requires x, y, or z. Someone at this stage. We need this much ownership." It's important to know what's a BS no and what's actually a valid no. Sometimes...it took me a long time to learn that funds vary drastically in size, and that actually has a huge impact on who can invest in you at different times in your lifecycle. So, timing is important.

 

Poornima Vijayashanker: Yeah, hold that thought. We're gonna come back to that in a little bit, the whole fund size, and what makes sense and what doesn't. So, but let's go on to some of the more easy things that you hear and might get rejected. So, I don't know if either of you have faced this, but the whole, "You don't have a technical co-founder." And somehow that's like a gating factor to even get a dollar out of this investor, right? You hear things like this where you're just not meeting a certain checkbox. What's been your response to that sort of stuff?

 

Danielle Morrill: It depends on the checkbox. Basically, what I would say for technical co-founder or a lot of these is, they're like risk boxes. So, each one...it's almost like if it was a survey, and you added up enough points, then there's too much risk here. It's probably no one reason that's gonna knock you out, but they're trying to figure out where you fit. So, technical co-founder is not necessarily a problem if you nail everything else, but if you don't have a product, and there's no one to build it, then of course, that's gonna be expensive.

 

So, I think it's—sometimes the way it seems to be coming across to the investor is like it's a checkbox thing, but they're really trying to ask a bigger question. So, I think one thing I've found is that it's good to say, like, "Tell me more about why you're worried about that," rather than just answering the question, making them elucidate more. Cause I've been surprised by some of the answers that I get. The technical co-founder question, I think the assumption is, who's gonna build the product? And they might just be thinking, "Dang, we're gonna need to go raise a big round because you need to hire two or three engineers instead of building it yourself."

 

They're not actually worried about you not being technical. They don't care that you're not technical. They're more like, "OK, so now I have to assess fundraising risk cause this person's gonna need to go build a team." So, it's easy to think it's about you, and, "Oh, you can't code." And then you kinda like lock down and feel guilty, but I think that's not always the case. A lot of these things are not actually what they seem on the surface.

 

Poornima Vijayashanker: Right. Yeah, I think another one along those lines is also, "Why are you working on this idea?" Right? So it's, what puts you in that unique position to kind of own domain expertise? Have you guys ever gotten that question, like, "Why this? Why Gobble, Ooshma? Why help people with cooking at the end of their day?"

 

Ooshma Garg: Right. Well, Gobble is a lucky one for me because it's a mission-driven company, and it started out of my family. What we do is we help people cook home-cooked food in 15 minutes in one pan, and we bring this tradition, and ritual, and love of a household into the modern, busy life. That's something that's very near and dear to me. So, because of that, it shows that I'm just gonna give it my all and not quit.

 

I think some folks stumble on an opportunity sometimes. You are...you're just a inventor, and you want to tinker around, and you try finding what's gonna fit in today's zeitgeist. Just like founders come in different flavors, I think investors come in different flavors, too. There are investors who are great at investing in arbitrage opportunities. There's investors who really wanna back founders, or social good, or mission-drive folks. Or they wanna back moon-shoots. Or some people wanna back things that have a linear, direct, immediate path to growth.

 

So, I think having that context when you assess someone's response to you is really important because you kinda, just like with your friends, you have to find your tribe with your investors, as well.

 

Is The Market For Your Product Big Enough?

 

Poornima Vijayashanker: Yeah. So, there's definitely this sizing-up thing, and I think one of the early signals is, they don't feel like your market is big enough, maybe because they're not aware of that market, or maybe they don't get the space. Have either of you had that situation where you come in, you've already got traction, you've got the go-to market team, products in the hand of customers, and they're just kind of scratching their head, like, "Oh, is food...do people eat dinner still these days? Is that still a thing?" How do you deal—

 

Danielle Morrill: Oh my gosh. I actually don't think it's worthwhile to continue to have the conversation, and I have to shout out to Hunter Walk, who wrote an excellent post about this, I don't know if you guys saw, around a woman who was pitching, and someone said like, "Convince me this market's big enough." And she just said, "Look, I don't wanna work that hard. I've already got traction, people eat dinner, right?" I think there are times when you're looking at this investor, and you have to consider, if they don't get it at this point, especially if you're doing something where you have traction, and it's fairly obvious that the market is big...

 

I mean, most of us...if you're building breakthrough tech, you might find a situation where markets are unclear in terms of size, like Blockchain, for example. But in most cases, these are professional investors, and they may be testing you, and they might wanna know what you know, so it's worthwhile to at least give them a rough answer, but I would take it as serious data, if they need to be convinced that the market's big enough.

 

The other side is that, not all markets need to be big to be interesting. It's more about if you can create something that can grow. Obviously creating a market that doesn't exist is a really valuable thing. So, again, I think it goes back to flipping the script a little bit in terms of trying to make sure you understand what they're really getting at. Like, do they not know? Are they testing you? Are they gonna be a huge waste of your time?

 

How To Get To The Real Question They Are Asking

 

Poornima Vijayashanker: How can you kind of suss that out? Are there questions or techniques?

 

Danielle Morrill: I would just start getting curious, like, "How much do you know about the market? Have you invested in this space? Obviously you're interested in us. What do you think?" And it doesn't have to become combative. It's much more of just, like, how does this become a dialogue instead of playing 20 questions, where you're doing all the talking? I think about it kinda like a job interview, I think, in both parties are confused about who's interviewing who, and you really wanna make sure that you find a balance where it's not you, as the founder, talking 80% of the time.

 

Ooshma Garg: The framing is so important. So, if you're getting some feedback repetitively that, "I don't understand your market," or, "I don't understand your path forward, or your path to revenue, or how you're gonna hire," then you do have to take that feedback and try to iterate and improve your pitch itself. I think that every company...it's very hard that you meet a perfect de-risked company at an early stage. They all have some mini risks, and often times, one big risk. So, sometimes it's, "Wow, there isn't a market for this, but we see that being the future."

 

Other times, there's a really big market, but maybe it's crowded. So, the question is, how are you gonna be, for example, defensible in the food space? Other times, it's...you have something defensible and proprietary. It's a huge market, but no one's willing to pay for it. So, people aren't willing to pay for music, or TV, or whatever. So, how are you even gonna make money for something that everybody's using?

 

Whether it's revenue, market, defensibility, IP, every business typically gets stuck, I find, on one big discussion. The better you can hone your slide and your couple lines to make sure that your message is getting across properly, and that resonates, it's just to your advantage cause people have such limited time with you and attention span. You know what is gonna be the hot button in your pitch, so identifying that early and practicing that part the most would probably do you well.

 

How To Get At An Investors Hot Buttons

 

Poornima Vijayashanker: So, we previously had Marie Perruchet on the show, and she talked about taking your pitch and then seeing how other people reformulate it, or what are the pieces that they extract? That usually becomes these hot-buttons, or the thing that is most memorable that maybe you need to dive into. Are there other ways that you guys have found to extract that information?

 

Danielle Morrill: I think...reformulating, literally having someone pitch it back to you, is that what you mean?

 

Poornima Vijayashanker: Yeah. As one technique to, like...what's sticky, what is impactful, but then there's the other case of, yeah, what is the hot button that people are probably gonna step away from?

 

Danielle Morrill: I mean, I think one of the things that is really interesting is whenever you're opening the conversation with an investor, at the very beginning. If you can get them to tell you, like, "Hey, what do you know about my company?" Because that actually is gonna tell you a ton about what they've already decided you're doing, and it's sometimes really wrong, or it's like...you know, there's a lot there, and then you can kind of work from there. If you notice that, pretty consistently, people are having the wrong idea, I mean, kinda to your point about feedback, it's another way of getting—

 

The reality is, people act like you setup your pitch, and then you go out. But you actually create your pitch, start to go out, and then you're continuously iterating on the pitch. So, you have so many opportunities to make the pitch better. I actually look at the first 10 pitches or so. I kind of set up pitches with targets where I would be interested in working with them, but they're not my top picks, so that I'm actually running the pitch against those folks. That way, if the first three or four say that their first impression of you is different, then you can realize, “Oh, the market already knows who I am.” Very rarely do you get to just go pitch, and no one knows who you are. That's another tactic that I think can be really helpful.

 

Finding Investors Who Are a Fit

 

Poornima Vijayashanker: So, coming back to kind of Ooshma's point around finding investors who fit into one of many opportunities, like arbitrage, moon shots, love the space, etc., there's also people who really get beholden to certain stages, right? They're like, "Oh, come back and talk to me once you've figured out your customer acquisition cost, or your lifetime value," right? Are there ways in which you've been able to address that, even if you don't have those metrics yet?

 

Ooshma Garg: One concept I keep running back to is that MVP concept, or minimum viable product, or even like a prototype. So, with my first company, the vision was to make this recruiting platform for universities all around the country. I made...I started by making wireframes, and envisioning the product, and keeping it simple, but thinking through those wireframes. But then, an advisor kind of looked at that, told me to scrap the whole thing, and said, "Why can't you just start with a mailing list? You're making a recruiting platform. Why don't we just see if there's people interested in your concept, and can you get 10,000 people, or 50,000 people, or how ever many students on your mailing list?"

 

At first, I was offended because I thought, "Oh my gosh, a mailing list is not a tech company." But often times, you can think about some scrappy proxy or prototype to prove what the person is asking, even if you don't have that exact number or the software or resources to get what exactly they want.

 

Poornima Vijayashanker: So, what's an example...yeah, if somebody throws out, like, "Ooshma, early days, three years ago, what was your LTV?" And you're like, "I don't have an LTV because I don't know," what would your response be to that?

 

Ooshma Garg: You know, I probably do two things. So one is, I would look at comparables in the market, and so, just doing studies of the general food industry, in my case, like how often people order takeout, or how often...what are people paying for SAS for these particular products each day, or whatever's relevant to your market. I mean, I'm assuming that you're...that you have some prototype. Very few companies pitch pre-product, so whatever data you have for three months or six months, there has to be something there, some monthly active users, how many times people are logging in, how many purchases people have made.

 

So, you just have to...I mean, our seed round was raised off of two to three months of early prototype data. I think that's all you need. It's just some prototype that shows some user willingness to pay or engage for three months, and then you can extrapolate that into your vision.

 

How To Handle Disagreements

 

Poornima Vijayashanker: Now, there's obviously times where people may disagree, right? They may say something like, "You know what, Danielle, I don't like your distribution strategy. I really just don't think it's gonna work. So, you know, cause I think it's gonna be expensive. Come back when you've figured out something that's a little bit cheaper. Then let's have the conversation. But, for now, no."

 

Danielle Morrill: It seems like an opportunity for them to prove their value-add as an investor. You know, I think that's valid for people to challenge strategy, but I think, what I would wanna know in that situation is, "If you were my investor, what would you suggest that I do? I totally hear your concerns." Make sure to show them that you're listening, but I think that's their opportunity to step up and actually offer something constructive. I think if they're gonna be in an investor where they're gonna be critical without being constructive, that's actually data for you.

 

The truth is that strategy's tough. Strategy often breaks down, and we change strategy all the time in startups. That's a huge part of what you're testing. So, I think being gracious and not taking it personally is important, but also making sure that you're asking them to demonstrate their value. I actually think that's gonna make them want to work with you. If that goes well, that's actually gonna be a way to test out, what would this working relationship be? So, I think that's...see it as an opportunity.

 

Poornima Vijayashanker: I like that.

 

Ooshma Garg: Yeah. And most people kind of...they send you that no via email, and I'm sure that the large majority don't even ask further questions. Some may not even respond, and others might respond and say, "Thanks for your time. I'll move on." But some small percentage are asking follow-up questions, and I think that's just making them stand out and starting that relationship that we said is so important.

 

I think that if you really did like someone, and their no isn't tactical or directional enough for you, to ask for a 10-minute phone call just to get a little bit more detail or their advice on strategy towards de-risking that investor's concern, I think can go a really long way. So, I think folks should just practice embracing the no and getting that 10-minute call and feedback as much as possible because that will help give them building blocks for another three months, if they can, and not just sort of wander aimlessly, wondering what someone was saying, or worse, completely ignoring it.

 

Danielle Morrill: Right. If you're gonna go and worry a bunch about the feedback but not ask for the follow-up, go round and round in circles over three glasses of wine, it would be much less painful to just have that awkward 10-minute call and just know where you stand. I think I've seen founders go in circles over this stuff. Literally years later, they'll tell these stories. It's just not worth the energy. The investor's also probably super uncomfortable giving the rejection. We're gonna talk a little bit about saying no on the other side. So, they're kinda beholden to you to give you that 10 minutes, honestly, so you should take it.

 

How To Know When An Investor Isn’t A Fit

 

Poornima Vijayashanker: Now, there's a lot of times where it's very obvious, you know, they tell you, "Here's the no," but...aside from some of the ambiguous feedback around the traction, there are times, though, where they may see a signal. Maybe it's something that happened in a meeting between you and your co-founder, or something else. Maybe they did some back-channeling, right? How do you handle those situations where they might feel like, “Oh, there's no chemistry,” or “I'm not sure where this is going?”

 

Danielle Morrill: It's tough cause they usually don't tell you.

 

Ooshma Garg: Yeah, they usually don't tell you. I think that's quite rare, as well. I think the way...the best way to handle that or avoid that is actually to construct your own back-channeling. So, like I said, some of the biggest investors, they will only invest based upon referral. Then, when you get so, kind of, well-known and in high demand, they'll only invest based upon two or three referrals. So, every single step is just like hard work. You can't ask for one intro. You can't just take the no on face value. You have to ask for three intros. Then you have to ask for follow-ups. Then you go to the meeting. Then you follow up on the meeting, and if they say “no,” you follow up again. There's all those little, little, extra steps that other people are doing that I think more folks should know about.

 

Poornima Vijayashanker: Yeah, and invest their energy in that versus what Danielle said, around the drama in their heads. So, anything else you guys have heard from your experience? Any other nos that we maybe haven't covered? I know there was some of the stuff that Ooshma was talking about, like the type of investors. Maybe we can dive into that a little bit?

 

Ooshma Garg: Yeah. I think...Well, with regards to the nos that people give, one of the toughest ones is simply just environmental. There are times when you're starting a company, and it's just a rough funding environment where it's just rough for your market. There might be bigger companies who are...for whatever reason, they're not doing well on the public markets, and that's affecting you. So, like the stamina, managing your psychology, being frugal, focusing on just the minimum prototypes, all of that's so important because the main thing you need to get to yes and get funding is time. You can correct a lot of things in the nos overtime, but there's some environmental factors you just have to weather.

 

Poornima Vijayashanker: Yeah, let's dig into that a little bit more. What do you mean by like, public companies? "How does that impact me? I'm just a two-person start-up, why should I care what Google or Facebook is up to?"

 

Ooshma Garg: Yeah. Well, hopefully your aspiration is to be a big public company, or to just be a big organization in general, and to be, one day, going from wherever you are to making hundreds of millions, if not billions, of dollars of value for your shareholders, for your employees, for your customers, and so on. So, investors will look at the current state of the market, at the public market, to understand what's happening in your industry. How are those companies valued? What are your chances of getting there, of breaking out? What is it gonna look like when you IPO? That trickles all the way down and influences your valuation, even as early as at the seed stage. So, it's very well-advised to not be delusional and to take a look at the public markets of your industry—

 

Poornima Vijayashanker: The landscape, yeah.

 

Ooshma Garg: —and be able to speak to that. I think people will be very impressed.

 

Paying For A Previous Founder’s Mistakes

 

Poornima Vijayashanker: I think another situation is, often, we have to pay for previous mistakes. So, the investor might have invested in a space when it was too young, or maybe the founders that they invested in weren't that knowledgeable or were the first. You know, just a number of factors to where, now, they just aren't willing to look at the space, or even...no matter how amazing you are, they're like, "No, sorry, not interested in the space. You might be amazing, unicorn person, but I'm just gonna say ‘no.’"

 

Ooshma Garg: I would take that no. It's kinda like in relationships. Someone had some issues with another girl that looked like you, or whatever, like it is not your—

 

Danielle Morrill: He is never gonna stop saying that.

 

Ooshma Garg: That is not the best guy for you. So, there are many investor fish in the sea, and I think that's just when the numbers game comes into play, and you have to make sure that you're not just talking to five, you're not talking to 10, but you have a big target list that you're just setting up and rolling through.

 

Poornima Vijayashanker: Awesome.

 

Danielle Morrill: I think one other thing that is valid but complicated is, people might say to you, "This isn't venture-backable." I actually think that's very helpful feedback to hear. Whether you agree is sort of beside the point. Find out why they think that. Sometimes, investors know things about markets that you never...can't learn until you're in them for a long time, and they can save you years of your life.

 

So, part of why people get a bad taste in their mouth often has to do with, like, a poor-margin business that can never get better, or a business that caps out somewhere, and there's this trough of sorrow that seems to go on forever and ever, and you don't get to find out until you're a $50-million company, which is great, except for when you have a huge burn rate and expectations. So, especially if you're entering a market where you're fairly new, maybe you're a software-centric person, but you don't have domain expertise, those types of nos can tell you a ton about things that.

 

It's easy to say, "I don't care. If I get to $50 million of revenue, I'll deal with that then." And you can still make that decision, but I think the key is to actually make sure you understand that no because they are in the business of billion-dollar outcomes. They might know something that you don't, and they might be able to help you redirect towards something that is worth it.  

Poornima Vijayashanker: Alright, well thank you, Danielle and Ooshma, for walking us through all those nos. For all of you out there who are watching, if there was a no that you recently received that maybe we didn't unpack, feel free to share it with us in the comments below this video.

 

That's it for today's episode. Be sure to subscribe to our YouTube channel where we'll continue the conversation and talk about what it's gonna take to get that yes from an investor. Ciao for now!

Jan 17, 2018

Ready for more myth busting around startup funding? Let’s get to it then!

Last week I shared a number of reasons you should share care fundraising whether you’re a founder or startup employee. Here they are again, and in the Build episode we talked about why it’s a bad idea to reach out to investors when you have an idea.

This week we’re going to continue our theme and focus on what compels us to think we need to raise capital like competition heating up, the belief that the business will stop growing, or that the idea we’re pursuing isn’t really BIG enough. We’ll also be diving into the mechanics of investment talking about the nuances of an angel versus a venture capitalist, and why it’s important to look for investors that have knowledge of your marketing or industry.

Erica Brescia is back to help us out with this episode. Erica the COO and co-founder of Bitnami. Erica has also recently joined XFactor Ventures as an investment partner. XFactor is an early-stage investment firm that's looking to fund female founders as well as mix-gendered teams.

Erica is a founder and investor, and having sat on both sides of the table, she knows how to dispel fact from fiction!

As you listen to today’s episode you’ll learn:

  • Why Erica and her partners at XFactor are putting their money where their mouth is and starting a fund to invest in female founders and mix-gendered teams
  • What the XFactor investment partners and other angels look for versus venture capitalists, and how much they are willing to invest
  • Why competitors will come and go, and you cannot let their actions intimidate you or direct your business goals
  • Why only you as a founder, can decide when is the right time to raise for your business

In the next two episodes we’ll explore handling all the rejections you receive from investors, how to motivate yourself to keep going, and what it’s going to take to get that first check!

-- 

Build is produced as a partnership between Femgineer and Pivotal Tracker. San Francisco video production by StartMotionMEDIA.

 

## Startup Funding: When It Does And Doesn’t Make Sense To Fundraise For Your Startup Transcript

 

Poornima Vijayashanker:         Last time, we talked about how as a first-time founder, you don't necessarily need to immediately rush out and get investment to get your tech product off the ground. We discovered some alternate ways of funding your product development and company growth. If you missed that episode, I've included it in the link below this video.

 

In today's episode, we're going to dive in a little bit deeper, and talk about when it makes sense to go out for that angel investment, and then how do you transition from getting capital from angels to eventually getting it from venture capitalists, and what you need to do in the interim to make sure you're growing your company. So stick around.

 

Welcome to *Build*, brought to you by Pivotal Tracker. I'm your host, Poornima Vijayashanker. In each episode, I invite innovators, and together we debunk a number of myths and misconceptions related to building products, companies, and your career in tech.

 

What Compels Startup Founders To Fundraise

 

One myth a lot of founders fall prey to is the need to constantly fundraise. They're worried that if they don't, their competition is going to swoop right in and outpace them. Or their business is just going to stop growing, and even worse than that, people might not think that they are actually onto a big idea.

 

To debunk these myths and more, I've invited Erica Brescia, who is the COO and co-founder of Bitnami. Erica has also recently joined XFactor as an investment partner. For those of you who aren't familiar, XFactor is an early-stage investment firm that's looking to invest in female founders and mixed-gender teams. Thanks again for joining us.

 

Erica Brescia:      Thanks for having me!

 

Poornima Vijayashanker:         Yeah! I know we talked a little bit in the last segment, but let's just quickly do a refresher, tell us a little bit about your background and what you do at Bitnami.

 

Erica Brescia:      Sure. Bitnami automates the packaging and maintenance process for server software for containerized, cloud, and behind-the-firewall deployments. We're most known right now for the Bitnami Application Catalog, which contains over 150 different pieces of server software, ranging from business schools, like content management systems, more project management systems, to development tools like GitLab and Jenkins for building out your development processes and pipeline, to stacks of things for building applications, like Node, or Rails, or Django. We work with all of the major cloud providers, and have over a million deployments a month of the apps we package across all the platforms that we support.

 

Poornima Vijayashanker:         Awesome. In addition to Bitnami, you recently joined XFactor as an investment partner.

 

Erica Brescia:      I did, yes.

 

The Difference Between Angel Investors And Venture Capitalists

 

Poornima Vijayashanker:         Yeah! We talked a little bit about that last time, and I want to pick up the conversation from our last time and dive a little bit more into not only what does XFactor do, but this whole position between angels and venture capitalists. How do you guys think of XFactor? Are you considering yourselves as angels or VCs? Would it help to start with defining angels and VCs?

 

Erica Brescia:      Sure. I mean, I tend to think of angels as primarily investing their own capital, and VCs are investing other people's capital. We all actually have our own funds in the fund as well, so we're LPs in addition to being the investment partners.

 

Poornima Vijayashanker:         What does that mean?

 

Erica Brescia:      That means that we're the people who put money into the fund, as the limited partners, who just put money in the fund, and then they step away, and they entrust, basically, the team of investment partners to invest that capital in companies that will produce ventures that yield returns.

 

Poornima Vijayashanker:         Where is that money coming from? Is that your own hard-earned money, or is that from somewhere else?

 

Erica Brescia:      In the case of the LPs for the XFactor fund, it's from a range of different people. Some of them have just been very successful in business. Some may be managing endowments or trusts, or other investment vehicles, and they invest both in the stock market and in VC and angel funds as part of their diversification strategy.

 

Poornima Vijayashanker:         Got it. I think some of you have also contributed personal funds, right?

 

Erica Brescia:      Yes. We have put our own funds into the plan as well.

 

Poornima Vijayashanker:         That's important to note. Yeah.

 

Erica Brescia:      You've got to put your money where your mouth is, right?

 

Poornima Vijayashanker:         Great! No, I certainly appreciate you guys doing that.

 

Erica Brescia:      Plus, honestly, I think we're going to make money off of it! So why would you not do that?

 

Poornima Vijayashanker:         Exactly!

 

Erica Brescia:      That is the whole point.

 

Poornima Vijayashanker:         Yeah. You guys are operating a little bit like angels, but a little bit like VCs as well, but let's dive into more of a traditional VC model. What does that look like?

 

What Seed Stage Investors Are Really Looking For And The Size Of Check They Write

 

Erica Brescia:      Sure. The distinction there is interesting, because I would say there's seed-stage financing, which a lot of people think of as coming from angels a lot, but VC funds do as well. Those are typically much smaller rounds and much earlier stage. The company probably has something built, probably has some users, probably can show some traction, but they're usually not raising huge amounts of money, at least not by Silicon Valley standards, which are different than the rest of the world.

 

Poornima Vijayashanker:         Yeah. Let's get some ranges. Because I know some seeds can get crazy.

 

Erica Brescia:      Huge. Yes.

 

Poornima Vijayashanker:         So let's do a more middle-of-the-road seed. What would that look like?

 

Erica Brescia:      These days, I would say they're usually between $500K and $2 million. I know that's a wide range, sometimes it's smaller, sometimes it's bigger, but the fundraisings that we're participating in are usually somewhere around there. We have had some companies raise significantly more than that, and we've almost gone in more at like a Series A stage. But typically you're raising $1 million or $2million to get your idea off the ground and show a little bit more traction, before you go and raise at a Series A. Those used to be maybe $2 or $3 million. Now, most of the time, you're looking at maybe $6, $7, even $10 or $15 million as a Series A, which we certainly see in the cloud and container space in particular, which is where I'm focused with Bitnami.

 

Poornima Vijayashanker:         OK. That makes sense. Now, I'm not going to dive into microfunds and syndicates, and all that stuff. We're going to do that in a later episode. But let's go back to you, and let's talk a little bit about how you initially funded Bitnami.

 

How To Initially Fund Your Startup When You Cannot Attract Investment

 

Erica Brescia:      Customers.

 

Poornima Vijayashanker:        Customers!

 

Erica Brescia:     We sold stuff. Yeah.

 

Poornima Vijayashanker:         Yeah. When was this, by the way?

 

Erica Brescia:      We started with a company called BitRock over 10 years ago, and BitRock built some really interesting technology around application packaging and deployment, which has become the foundation of Bitnami. We're very unique, I would say, for a Silicon Valley company. We developed a package software product. We sold it to customers, and we generated money that way.

                   

Then we started providing a subscription service to a lot of software companies that needed us to build, we called them "stacks" of software, so their products could be installed and distributed very easily, and we worked with a lot of the biggest names in open source, in those days. So we had that money coming in—

 

Poornima Vijayashanker:         If you don't mind sharing, how big were some of those contracts?

 

Erica Brescia:      They were in the tens of thousands of dollars a year. So reasonably sized, but we now, in retrospect, we charged far too little. But that's one of the lessons that you learn as a founder, you're always underpricing yourself in the early days.

 

So we did that, and built up the company that way. Then we decided to evolve into Bitnami. We went through Y Combinator in 2013—

 

Poornima Vijayashanker:         So before you did that, you actually had revenue coming in?

 

Erica Brescia:      Yes.

 

Poornima Vijayashanker:         Give us a range of how big you were at that size?

 

Erica Brescia:      We had 12 people, and seven figures in revenue, when we—

 

Poornima Vijayashanker:         Oh! That's fabulous!

 

Erica Brescia:      —went through Y Combinator.

 

Poornima Vijayashanker:         Yeah. OK. So why even bother going to—

 

Erica Brescia:      That's a great question! It was a subject of much debate, but again, interesting story, I suppose. My co-founder's wife had gone through Y Combinator with her own company, and had a great experience with it. And we knew that we wanted to send the company on a different trajectory—

 

Poornima Vijayashanker:         Which was?

 

Erica Brescia:      Growth.

 

Poornima Vijayashanker:         OK. OK!

 

Erica Brescia:      We wanted to build a huge business, and the model that we'd had previously was really what we talked in the last episode about, more of a lifestyle business. Right? We built a solid business, but that's not what we were there to do. We wanted to build a huge and very meaningful company. And we felt like Y Combinator was the right way to do that.

                

It gave us a lot of focus, and helped us make some interesting and difficult decisions. It also helped us a lot with hiring in the early days, and bringing more folks to the team. We've been on a pretty healthy  trajectory since then. Over 75 people. I don't give out revenue numbers, but we're profitable and growing, and doing well.

                   

All of that money, except for a million dollars, which we still have sitting in the bank, has come in through customers. And that million dollars we raised after going through Y Combinator. We brought in some angel investors whom we really liked, for different reasons. Some of them have a lot of experience in building companies, specifically in our space, and we felt like they could help us a lot with that.

                   

A couple of them are VCs who invested personally in us, because we didn't want to raise a VC fund, and a few were overseas venture investors, but they make seed stage investments. One from Japan, and one from China. And that was purely because we plan on going into those markets, and we thought it would make sense to have some people over there with a vested interest in our success.

                   

Y Combinator served as a good catalyst to bring that round together-

 

Poornima Vijayashanker:         How big was that round?

 

Erica Brescia:      It was just a million dollars?

 

Poornima Vijayashanker:         Oh! OK. But you were already in the seven-figure revenue at that point, when you raised that million.

 

Erica Brescia:      Exactly.

 

Poornima Vijayashanker:         OK.

 

Erica Brescia:      And that money is still sitting in the bank, and we've added a healthy amount to it, and—

 

Poornima Vijayashanker:         That was what year?

 

Erica Brescia:      2013.

 

Poornima Vijayashanker:         Oh! It's been a while. It's been four years.

 

Erica Brescia:      Yep.

 

Poornima Vijayashanker:         Now, interestingly enough, you have that million, you're raising revenue, and you had grown without a lot of outside capital. I mean, you were already growing, so in that span of time, weren't you afraid that some competitor was just going to swoop right in and go out and raise $10 million or $100 million dollars, and put you out of business?

 

Don’t Let Competitors Intimidate You Into Fundraising For Your Startup

 

Erica Brescia:      What's actually funny about that question is we had a bunch of competitors do that, and they all went out of business..

 

Poornima Vijayashanker:         Oh, OK! Yeah!

 

Erica Brescia:      OK! Some spectacularly so. One raised $40 million, had huge names. One of the people on their board tried to come and intimidate me, and say I could never compete with—it was actually a woman running that company, too. But I won't name her, because that's not good for anyone.

                   

Yeah. We had a lot of companies come and raise money, but the model wasn't there yet. And that's why we didn't raise, either, right? There's a time, and we talked about this in the last episode. It's my belief that in most cases, you're better off raising when you have product-market fit. We had that at small scale, but we hadn't found what was really going to fuel exceptional growth of the company. It took us a while to get there, and a bunch of other companies tried to come in and do that, and they all went bust.

                   

I mean, there is a time and place when I think it does make sense, and when you do have to worry about competitors, because the truth is, once a big name competitor raises a big round, it's really hard to get anyone else to invest in you. I think Docker's a pretty good example of that in my space, right? They have tons of money. Nobody's going to invest in another container startup. Why would you do that? It doesn't make sense for investors.

                   

It is something to consider, but I think a lot of people spend way too much time worrying about their competitors, and not enough time worrying about their own business.

 

Poornima Vijayashanker:         Yeah. Or their customers.

 

Erica Brescia:      Yeah! Or their customers. Exactly. So, yeah, that matters, but you need to do what's right for you, and what's right for what you want out of your life and your business. You should ask yourself those questions. Taking on VC is taking on a lot of additional responsibility, too—

 

What Kind Of Return Venture Capitalists Look For

 

Poornima Vijayashanker:         Like what?

 

Erica Brescia:      Well, they're expecting a certain level of return, right? A $100 million exit is not something a VS wants, where it might be completely life changing for you, if you don't have venture capital in the company. If you're taking venture capital, you're committing to running the company for at least 5–10 years, providing they don't push you out, which happens sometimes, too, if you're not doing things the way they want.

                   

You're committing to managing a board, with outside parties who are going to have sometimes divergent interests from you. It could even be the case that the fund cycles are usually 10 years, and they have to return the capital to their limited partners, which we talked about earlier. They might need to get out, and want to push you to sell when you don't want to. They might want you to sell to somebody you don't want to.

                   

There are a lot of great things that come from venture capital, if you partner with the right people. Obviously, you get the capital you need to fuel the growth of your business, and that can be incredibly important, especially to support go-to-market activities, or SaaS business models, where customer acquisition costs might be high, but the LTV is huge. There are reasons to take money.

                  

I'm not against that. But you also need to understand what you're signing up for, and what it really means, and that there may be an alternative path for you if that's not the path that makes the sense for you. If you don't want to run this company for 5–10 years, and you don't expect to sell it for hundreds of millions, if not billions, of dollars, don't take venture capital.

Startups That Focused On Growing Their Business First

 

Poornima Vijayashanker:         Yeah. Some folks in our audience might be thinking, "Erica, that's fabulous for you and Bitnami, and all of the success, but I could never do that. I couldn't just sit and wait for my business to grow organically." Are there other examples of companies here in the Valley, that you're familiar with, who have done a similar approach? I know I can think of a couple, but I'm curious—

 

Erica Brescia:      Absolutely! Well, Atlassian, they're in the Valley now, but they came from Australia, and that's a spectacular story. They really couldn't raise, because they were in Australia, and especially back then, the VC climate in Australia was almost nonexistent. They raised very late, and a lot of it was secondary to the employees, and they've done spectacularly well. GitHub's another example. They raised very, very late in the process, in a very big round, and that gave them a lot of flexibility to do other things.

                   

We've seen that happen a lot. It really depends. Again, I think, going back to what I said before about product-market fit. It's my view that the best time to raise is when you just need fuel for the engine. You already know how the engine works, and it's already built, and the machine is there, and you know, "If I put X in, I'm going to get Y out." Right? That's when you can really take advantage of venture capital, and that's when it can really make a difference.

                  

I'm not saying take a long time to build your company like I did. I would certainly do a lot of things differently this time around, but a lot of it just has to do with where the business is, and what the capital's going to be used for.

 

Poornima Vijayashanker:         It's been a four-year period, right? Where you haven't taken outside investment. You took the initial million. But in that period of time, how has not taking capital, or not thinking about fundraising, how has that helped you and Bitnami?

 

Erica Brescia:      Well, several ways. I think the most important thing is focus. Not having $10 or $20 or $50 million in the bank makes you focus on what's really going to move the business forward. It's really easy, and I have seen this countless times with companies that I will not name. They raise a ton of money, and they go out and hire a ton of people, and everything falls apart.

                   

Because humans are humans, right? These are not just cogs in the machine, especially when you're trying to build a breakthrough or game-changing product. You need incredibly smart people. They're going to have strong personalities. They're going to have past experiences from other companies. And you need to be able to get those people to work well together. So many startups have failed in doing that, and it's led to their own demise, or at least slowed them down a lot, and really burned a lot of bridges with fantastic employees.

 

I'd say it's allowed us to build out the infrastructure to responsibly scale the team, and it's helped us to focus, again, on making the right investments in terms of where we're spending our time. It's also great for negotiating business deals, I will tell you. That doesn't come up a lot—

 

How To Compel Customers To Do Business With Your Startup

 

Poornima Vijayashanker:         How so?

 

Erica Brescia:      I was in meetings, even earlier this week, and these are quite big, multimillion-dollar-a-year deals, and they were asking some questions about what the business model looked like, and I could look at these people with a straight face and say like, "Look, we're not VC backed. My company needs to make money. You want me to be around. This needs to make sense for us, financially."

                   

That drives a lot of my decision making. I'm very, very involved in the corporate and business development stuff that we do. I need to do deals that make sense for my business. For some reason, it's a lot easier for people to get their heads around that when you don't have venture capital, which is kind of a funny thing, right?

 

Poornima Vijayashanker:         Well, people understand where you're coming from, and what resources you have at that level.

 

Erica Brescia:      Yeah! I'm not BSing them. "I have to pay people, and you're going to get a lot of value out of this, and you need to pay me, and I'm not going to do it on a bet that the relationship itself is going to benefit me enough, because that wouldn't be responsible business." That's what I go to all the time. It's not responsible business, you're not doing it. I think being bootstrapped and funding through customers really helps you think through that and make very good business decisions. We say no to all kinds of things, too. And I think that's easier, as a result of that.

                  

The one other aspect I'd say is, we don't have to manage investors. It takes a lot of time to build investor relationships, which I do do that anyway, because we may raise in the future. But also just to raise funding, to go through the diligence process, and then to manage a board of directors that involves VCs, again, who might have competing priorities, or other things going on.

                  

Again, we don't get some of the pixie dust you might get if you're VC funded, and sometimes we have to have interesting conversations with procurement departments, and show them our financials, to prove that we've got a great business, and that they can feel comfortable working with us, but it saves a lot of time and overhead.

 

Poornima Vijayashanker:         Yeah, that's interesting. So you feel, because you're in the B2B space, the enterprise space, some companies may feel like, "Oh, you're not VC backed, so you might go out of business sooner." But what you're saying is, "Actually, we've got customers. We're going to stick around because we've got real revenues coming in, so no need to worry about this."

 

Erica Brescia:      Yeah. And I can point to, we do business with Microsoft, Amazon, Oracle, Google. All these big companies. It's gotten a lot easier, now.

 

Poornima Vijayashanker:         Right. You've got the credibility.

 

Erica Brescia:      Exactly. And we've got a track record. We've not just been around for a year, and we have an established team of senior people, and we've proven that we can execute, and we can deliver. And what often happens is we'll start with a smaller relationship, and it grows over time. After you get your foot in the door, what they care about is do you deliver on your commitments, not whether or not you have a VC in the company.

 

Keeping Your Options Open When It Comes To Investment

 

Poornima Vijayashanker:         Awesome. Now, I know you said, "Never say never." So you are thinking about capital, and then your future. How are you thinking about attracting that VC capital?

 

Erica Brescia:      Let me be clear: we haven't decided to raise capital, but it's a discussion that we're having currently between my CFO, my co-founder, me, and some of the other people on the executive team, because we're launching this new enterprise business. We're incredibly lean as a company right now.

                   

I told you we have in the mid-70s in terms of employees. Over 50 of those are in engineering and product. So the business team is quite lean, and we have very, very little sales on the sales side. Building on an enterprise business means I need a whole new go-to-market plan that involves field people, inside sales, solutions architects, and support people, and a bunch of other folks. Account executives, all these things.

                  

That's very capital intensive to build. We can do it off of cash flow, actually. We're in that fortunate position, but at the same time, we might grow a little bit more slowly, and especially hire more slowly, than we would if we had, say, $15 or $20 million in the bank. So we're starting to think through the tradeoffs, and what might make sense there.

                   

I've been in the Valley now long enough, I know a lot of VCs. There's several whom I like and respect quite a bit, and I still develop relationships with them, and we talk about the industry in general, and Bitnami, and where we're going. I think it's a little bit different than a company that's just coming out of nowhere. We have people who know us, who know the business, who have said that they're interested. So when the time comes, it's more of a matter of sitting down with people who are already friendly and interested in the company, and talking through what makes the most sense.

 

Poornima Vijayashanker:         It's a partnership.

 

Erica Brescia:      Mm-hmm, absolutely.

 

Poornima Vijayashanker:         Yeah. Wonderful. Well, thank you for sharing your experience with us today, Erica. I know our audience is going to get a lot out of this episode.

 

Erica Brescia:      Thank you so much!

 

Poornima Vijayashanker:         That's it for today's episode of *Build*. Be sure to subscribe to our YouTube channel to receive the next episode, where we'll dive in deeper with some of Erica's co-investors and explore more topics around funding your startup. Ciao for now!

 

Voiceover:          This episode of *Build*is brought to you by our sponsor, Pivotal Tracker.

 

Jan 9, 2018

It’s the start of a new year, which is an exciting time all around. You’re probably excited about new opportunities, starting a company, or building product in 2018!

 

While I’m all for optimism, I’ve also gotta stay true to them theme of Build: debunking myths and misconceptions when it comes to building tech product, companies and your career in tech ;)

 

So we’re going to spend the next four episodes of Build debunking themes around fundraising for startups.

 

I know what you’re thinking: “Poornima, is this really necessary?! Can’t we just focus on product and engineering? How about some Build Tips with those friendly product managers, designers, and engineers from Pivotal Labs?”

 

Don’t worry we’ve got plenty of those in store for you! Before we dive back into the fun and friendly banter of Ronan and his team, I thought it was necessary to start 2018 debunking myths around fundraising.

 

Here are my reasons for doing this:

 

Reason #1: If you want to be a founder and start a startup in 2018, you need to know how to control your own destiny.

 

Gone are the days of a quick and easy seed deal. If you don’t believe me, then here are two posts from very active investors Fred Wilson and Jason Calacanis with compelling data spanning the past 5 years. They show you that investment in early-stage companies is indeed slowing down, and why the trend is going to continue. #byebyebubble

 

Reason #2: If you want to be a founder and fundraise, you need to know what it’s really going to take to get the first check that gives you the freedom to quit your day job.

 

I know I previously explored what it takes to raise capital from investors and how investors add value beyond the check. But times are changin’! As I went back and reviewed the episodes I realized that while much of the advice still applies, there are new challenges founders, especially first-time founders face.

 

If you’re going to be one of them, then you need to be aware of them as you build your startup. There are also going to be a lot of sacrifices that you will need to consider making. As you’re faced with them, you might feel like you’re doing things wrong, when others have had an easier time. But you cannot compare when the market is in flux.

 

Reason #3: Don’t want to be a founder? Even if being a founder is the furthest thing from your mind, you might be thinking about joining a startup as an employee at any stage — garage to growth.

 

Well you need to be able to tell fact from fiction. You don’t want to get lured into visions of billion-dollar exits, only to discover that they are going to be cutting health care benefits, won’t be able to make payroll next month, or all that equity won’t help you buy my 2005 Honda Civic!

 

You need to be able to ask tough questions to understand the real health of the company, and market opportunity, so that you can decide if it’s worth taking the risk.

 

Reason #4: As an employee at a startup, every quarter you are going to be tasked with challenging milestones.

 

Metrics matter more and more these days, and every department has a funnel.

 

For engineering, it’s making sure the team is continuing to build and ship a quality product, balancing out features with infrastructure and keeping an eye out for that pesky tech debt to avoid slowdowns.

 

For product, it’s making sure there is a good balance of attracting new customers, while engaging and monetizing existing ones. And holding the engineering team accountable to spending time on paying down product debt.

 

While marketing has to keep growing traffic no matter what!

 

Teams are also staying lean longer, and founders are looking for employees with generalist backgrounds who can #GSD.

 

Everyone’s contribution matters to achieving metrics, which makes you feel wanted as an employee. But it also means that you need to be good at prioritizing, understanding tradeoffs, and a fast learner!

 

At the end of the day, you need to know and understand that what you are doing is actually moving the needle and going to help attract investment and customers.

 

There is no point in building product or marketing just for the sake of it.

 

Hopefully my reasons have convinced you why learning about fundraising is integral to your own success at a startup, and we can move on to the first episode of the year! In it, we’re going to tackle the first misconception a lot of first-time founders fall prey: thinking they need to reach out to investors the moment they have an idea.

 

It turns out you actually don't need to reach out to investors and you can get started by funding your idea on your own. You’ve probably heard this a lot already…

 

Quite frankly, investors won’t even take meetings if you do reach out. I can count on two hands the number of investors who I had successfully raised from in previous years that wouldn’t even return my emails recently! Why? Because it’s getting really competitive out there and they want to make sure startups have substantial progress before they are willing to take time to meet.

 

To help us out, I've invited Erica Brescia, who is the COO and co-founder of Bitnami. Erica has also recently joined XFactor as an investment partner. XFactor is an early-stage investment firm that's looking to fund female founders as well as mix-gendered teams.

 

I choose Erica and her peers to come on the show because they are ALL founders first and investors second. Meaning they have sat on both sides of the table.

 

As you watch today’s episode you’ll learn:

 

  • Why investment may not be applicable to the type of business you are building and alternate approaches to funding your startup
  • The questions investors ask themselves before they will respond to a meeting request or write a startup a check
  • When startups are “too early” to fundraise and why the definition of “too early” is inconsistent — who really gets funded early and why
  • The work that startup founders and teams must do, if they are keen on attracting investment

In future episodes we’ll dive into topics like why raising capital won’t help you outdo competition, how to get over the constant rejection, and what it’s going to take to get that first check.

Build is produced as a partnership between Femgineer and Pivotal Tracker. San Francisco video production by StartMotionMEDIA.

Episode Transcript

Poornima Vijayashanker:           Got an idea for a tech product that you want to scale into a big business? You probably think that you need to go out and raise capital from an investor, right? Well, it turns out that you may not need to. In today's *Build* episode, we're going to explore when it makes sense to reach out to investors.

                   

Welcome to *Build*, brought to you by Pivotal Tracker. I'm your host, Poornima Vijayashanker. In each *Build* episode, I invite innovators and together we debunk myths and misconceptions related to building products, companies, and your career in tech. One misconception a lot of first-time founders fall prey to is thinking they need to reach out to investors the moment they have an idea. It turns out you actually don't need to reach out to investors and you can get started by funding your idea on your own. In today's episode, we're going to dive in deep to understand some of the mistakes that first-time founders make when it comes to funding their idea. We'll also talk about what investors are looking for and when it makes sense to reach out to them. To help us out, I've invited Erica Brescia, who is the COO and co-founder of Bitnami. Erica has also recently joined XFactor as an investment partner. XFactor is an early-stage investment firm that's looking to fund female founders as well as mix-gendered teens. Thanks for joining us today, Erica.

 

Erica Brescia:              Thanks for having me. It's great to be here.

 

Poornima Vijayashanker:           This is the first time that you and I are meeting. Thanks for being here. I want to know a little bit more about you. Let's start with your background. What got you interested in tech?

 

Erica Brescia:              I've always been very interested in gadgets. It started out actually with mobile phones way back in the day, but I've always been curious about learning more about technology and gadgets and how things work. I really wanted to understand how mobile phone networks worked back in the day. Don't ask me why. I went on to study investment finance. A different path than a lot of people in Silicon Valley take. My father is an entrepreneur and I always had it in the back of my mind I wanted to start my own company. I got introduced to my co-founder and decided I was just going to help him work out a few kinks in the business and get it off the ground. Here I am now running a software company. It's really a case of being open to new opportunities, but also just having this lifelong interest in understanding how things work and learning new things.

 

Poornima Vijayashanker:           Let's talk about Bitnami, your current company. What exactly does Bitnami do and what inspired you to start it?

 

Erica Brescia:              Bitnami is a catalog of open-source applications that you can deploy on servers. It's primarily like B2B software. Things like maybe Moodle or Druple or WordPress, if you're familiar with that. We also package up a lot of development environments and development tools, things like Jenkins and Get Lab or Anode or Rails or Django Development environment. We have over a million deployments a month of the applications that we package. We publish them both through Bitnami.com as well as on all of the major cloud bender platforms. Users choose Bitnami because they know everything is going to work right out of the box every time, and they get a consistent experience wherever they deploy the software. If I can just add one more thing to that, one thing I'm particularly excited about is up until now we've been bootstrapping through our relationships with cloud vendors, but we're about to launch a new product for the enterprise. We're essentially taking the next step in the company's evolution by productizing all of the automation that we've built to deliver this catalog of applications so that others can take advantage of it, too.

 

Poornima Vijayashanker:           It sounds like Bitnami has been going strong for a long time. How long have you guys been around?

 

Erica Brescia:              We've been working on the Bitnami part of the business since 2013, but the technology dates back about ten years to when we started Bitrock, which is the predecessor. We do have several years in now.

 

A Day In The Life of a Startup COO

 

Poornima Vijayashanker:           That's great. As a COO, what's your day to day like?

 

Erica Brescia:              It was funny, when I thought through that question, there's no day to day. I spent Monday and Tuesday in some really key BD meetings. In Seattle yesterday, I was in LA for an open-source conference. I'm obviously here today. The way that we have our leadership roles between my co-founder and I might be different than a lot of other companies. I run everything except for product and engineering. That means that marketing, sales, BD, legal, finance, everything rolls up to me. That basically keeps things running and make sure that the company is growing and bringing on the right people and has revenue coming in and all those good things. Obviously as a quickly growing startup that's very, very tech heavy, I'm still involved in everything including product and engineering, too. There's never a typical day. It varies a lot and the days are long, but a lot of fun.

 

Poornima Vijayashanker:           Very good. Now you have actually taken on another role. If Bitnami isn't enough, you decided to join XFactor as an investment partner. Tell us a little bit about XFactor and why the decision to go into investment.

 

Erica Brescia:              Absolutely. I'll start with XFactor and tell you about the fund. Then I'll talk about why I joined. XFactor is a $3 million seed fund. We're making $100K investments in 30 companies. Pretty easy math. The genesis was really a woman named Anna and a guy named Chip. Chip is a partner with Fly Bridge. They got together and wanted to find a way to fund more women in technology because they had read some of the statistics about how difficult it can be for women to raise funding. The truth is, it's really an untapped opportunity. There's a ton of brilliant women building some very interesting companies. They were having problems in some cases getting through the traditional VC process because of some of the biases that we've all read about. We probably don't need to go through that. The idea was that they were going to get together a group of operating female founders. I think that's really the key is we're all women who have built and scaled our own businesses across a variety of sectors. I have a lot of experience in B2B and closing very big BD deals.

                   

I've acquired companies and things like that. Some of the other women are very heavy on the consumer side and they're great at branding and rolling out new products. We got a really diverse team of women, but who are actually still on the ground running businesses, very in touch with the problems that founders have in getting new companies off the ground. We think we have a pretty unique perspective and also an edge in terms of what we can offer founders because we're so close to the challenges that they're experiencing. We're very focused obviously with that check size on pretty early-stage companies and helping set those founders up for success. We do expect most of them will go on to raise for their venture capital. We're there to support them in doing that. I actually haven't raised VC for my company, but all the other women have. We have a good diversity of experiences and opinions around that too.

 

Being A Startup Founder And Angel Investor

 

Poornima Vijayashanker:           Why'd you join?

 

Erica Brescia:              It took a lot of thought. They came to me. At first, I thought they just wanted to run the idea by me back in February. Then I get an email a few days later saying, “We'd love to have you join us.” I really did spend some time thinking about it and talking to my co-founder and my husband about whether or not I'd be able to balance everything, because it is a big commitment. If I make a commitment, I want to come through on it and make sure that I'm not letting the founders and my fellow investment partners down. It really came down to the opportunity both for personal growth for me and to give back. There's a financial opportunity, too, which is fantastic. I really saw that we have a pretty unique angle into both deal flow. Several of us are YC founders as well. We have access to the YC network and obviously just good networks in Silicon Valley and outside as well. I felt like we could do something really interesting. I could meet a lot more women in technology. Also, I really do think there's a huge untapped opportunity there. I think we'll be able to produce above-average returns. It really came down to me asking the question, “Do I have time for this?” I'm going to get less sleep for sure. That's definitely been the case.

 

Poornima Vijayashanker:           Sure. You can make time.

 

Erica Brescia:              It was just too good to pass up. This is one of those things that I just couldn't say “no” to because the opportunity is so big and it's something that I'm enjoying doing so much.

 

Poornima Vijayashanker:           Wonderful. As soon as I saw the news, I wanted to reach out to you guys because I thought it was fabulous and needed to be spread to everyone else. Let's talk about your investments then. I know everyone has probably got different things that they want to invest in. We're going to talk to some of your partners later on. Let's talk about what you like to invest in.

 

Why Angel Investors Focus On Making Investments In Markets and Business Models They Are Familiar With

 

Erica Brescia:              Sure. I right now am very focused on things that I am passionate about. I think about whether or not the company keeps me up at night thinking about it later. I am usually receiving on the deal flow that it's on B2B and enterprise sales in particular because that's where my expertise and experience is. I found myself drawn to some other things, too. One of the investments that'll be announced soon, I wish I could name some of them.

 

Poornima Vijayashanker:           That's OK.

 

Erica Brescia:              I think we're about to announce that we've made eight investments in the first two months.

 

Poornima Vijayashanker:           Oh, awesome.

 

Erica Brescia:              We've been very busy and we've met some amazing women. One of the investments that I've led so far is very much a technology, cloud-focused company, which is absolutely my bailiwick. The other one is a fin-tech company. I was really drawn. I loved the founder. Was very impressed by her and the team that she's put together. Also, it was just the problem that they were solving, I could see it so clearly. It was palpable and I was staying up at night and I was talking to my husband about what they were doing and why I thought it was exciting. When I start thinking about how they can make the business successful and what they should be thinking about, that's a very good sign to me. I know it's not direct answer. I invest in this list of companies, but that's really not the way that it's worked out so far. I've looked at a variety of med-tech companies, fin-tech companies, more women in technology and sourcing and recruiting companies. Some people doing interesting stuff with NLP. It's really been a very diverse range of companies.

 

Why Women Founded Tech Companies Are Broader Than Gets Portrayed

                   

One of the things that I think you'll see us talking about more, which is very cool, is a lot of these companies are not what you would typically think of as the women-in-tech companies. A lot of people think all we want to work on is beauty. I like makeup and clothes and everything as much as the next person, but I don't know anything about those businesses. A lot of the deal flow that we've had, it's coming from all kinds of very hardcore tech, a lot of VR stuff, too, and AR. We've seen a broad range. Right now we're looking for the next billion-dollar businesses really. Any other VC it's, “Is this something I'm passionate about and can it be huge and can I add value in helping them make it so?”

 

Poornima Vijayashanker:           Actually, that's a good segue into talking about I think one of the things that confuses some folks in our audience and even first-time founders is, what qualifies as a tech product and then what—let's start there and then we can talk about maybe what a big idea is.

 

Understanding If Your Startup Is A Tech Enabled Business Or A Tech Product

 

Erica Brescia:              Sure. Almost anything these days is tech enabled. If it's not, you might have a scalability problem. I don't think we have very strict definitions as to what is tech or not. If excelling in technology and in the technical underpinnings of the product is going to give people an advantage, that's probably a tech company or something that we would think of as such. Some of the subscription businesses or there's a food device I can't talk too much about, but that we're looking at. A really novel subscription business around it. Another two companies have come through that are working on breast pumps for women. They're hardware companies but there's a lot of technology obviously that goes into the hardware. Obviously a lot of tech powering how they're approaching the businesses. It's really a pretty loose definition of what a tech company is. Even some of them are physical spaces now that we're looking at. It's a pretty broad range. It's not like we're only investing in software or we're only investing in sass or something like that.

 

Poornima Vijayashanker:           That's good to know. Tech enabled but there's probably some conversation that needs to be had around, “Are you really just selling water online or is there a distribution model that is tech enabled and it's cool if you sell water online.”

 

Erica Brescia:              Exactly.

 

Why Finding An Investor Isn’t Good Enough — You Need To Find THE Investor Who Understand Your Market and Business Model

 

Poornima Vijayashanker:           Got it. Then let's talk about I think another area, though, which is—you've already started talking about you enjoy the deals that are B2B, more enterprise, and maybe a little bit more saas heavy. I think one of the concerns that a lot of first-time founders have is, “I just need to find an investor.” I just need to find one investor, but they may not necessarily find that right investor. It's interesting because it's not just limited to tech. I was reading Barbara Lynch's memoir, who's a restaurateur, and she talked about going and finding the investors who invested in restaurants for her nine restaurants. Talk to me a little bit about what it means to be vertical focused as an investor.

 

Erica Brescia:              You want investors who understand your business or at least have the capacity and time to learn about it and who are upfront if they don't understand things, too. There's several things that make people good investors. One is, don't be an asshole, if I can say that on your show.

 

Poornima Vijayashanker:           Sure. Of course.

 

Erica Brescia:              I just don't want to work with people who are not good people. To me, some people don't care about...I've actually had people come to me and say, “It doesn't matter. All VCs are going to be assholes, you just need to accept that and move on.” I'm like, “Uh, uh. No. No, I don't. There's a lot of great VCs out there.”

 

Poornima Vijayashanker:           That's the normal assumption.

 

Erica Brescia:              There are a lot of good people out there, men and women in venture capital. I do think it's important that you understand somebody who understands your business and the cycles. Before, example, we've had a lot of very hardware-centric businesses come through. Those are difficult to invest in. In particular, if you don't have experience in hardware because you don't have a really good understanding of how long it's going to take and what the development cycle should look like and how capital intensive that you're going to be. It's harder to make good investment decisions. It's harder to be helpful for the founder, because if you have unrealistic expectations for the type of business they're building, nobody wins. It's the same, we've seen a lot of robotics companies doing super cool stuff, but I've told them, “Look, I'm not an expert in robotics. I'm going to have to go out.” We do have an associate who does some work for us, but we have to go out and be willing to invest our time to get up to speed in those industries in order to feel comfortable making an investment.

                   

It's good advice. I think what you're alluding to is, find an investor that actually knows what they're talking about in your space because otherwise they could really do damage by slowing you down, refusing to fund a second round or something like that. A follow on or just inundating you with questions all the time. The last thing you want to be doing is just educating your investors on the market when you have a company to build.

 

The Sacrifices Founders Have To Make To Get Their Startup Off The Ground

 

Poornima Vijayashanker:           Exactly. No, that's a good point. Let's talk about the other side of this, which is also, it's very tempting, as a first-time founder or somebody who’s green, to have an idea, whether it's hardware or anything that we feel is capital intensive or sometimes we just don't even have the capital as a founder. We haven't quite got to the financial point of our life. It's tempting to immediately say, “Oh my gosh, to get this thing off the ground I need to go and get investment. That might not be the right time.” Let's talk about what time horizon makes sense. I know it's going to be product specific, but I think it would be helpful to just—

 

Erica Brescia:              It really depends on so many different variables. One of them I think is important is to be realistic about where you are in your life and what kind of sacrifices you're willing to make. The reality is, if you have a family and a mortgage, it's a heck of a lot harder to stop taking a salary—particularly if you were to work in Silicon Valley because the salaries are quite high here right now—and go and start something from scratch. If you're 22 and right out of college and have none of those financial responsibilities, you might have more flexibility. My vote is do as much as you can before raising funding. Build as much as you can. First of all, there's so many good investment opportunities right now that I think most investors, they want to see...first they want to see that you're committed. If you just go out with a pitch deck—like I took two weeks of holiday for my job to put together a pitch deck and if you fund me, I'll go do this—you're never going to get funded because we want to see conviction.

 

We want to see that you quit your job, you're committed, you've been working on this with somebody else preferably for six months. You have the personality and the skills and the charm or whatever it may be, the conviction to actually get other people to join you. That's important, too. Unless you absolutely can not do it without raising money up front, I would say get at least to a prototype or as far as you can to be able to go show people and prove to people that you're there for the long haul and that you're willing to make sacrifices to make something happen. I will also plug incubators, like Y Combinator. Obviously I'm biased because we went through the program. That was a great experience for us in terms of helping us just build some momentum and we did rebranding of the company and accomplished a lot during that period. It's not about the funding necessarily, but it can give people who are cash wrapped a bit of cash to fund those first few months. It really helps you to accelerate that initial process and sets you up very well to raise from VCs after the fact.

                   

We've certainly sourced a lot of our deal flow from YC. We try at XFactor to be very broad and we've had people from all over the world, in fact, contacting us. Of course, we're going to look to YC because they've already been through that filter. They've achieved something during the period that they're in Y Combinator. It's a three-month sprint. We've found that looking at people that have at least gotten to the point where you would be if you've gone through a Y Combinator or similar. They've got something to show. That's when it makes sense. I will say, this is really the approach that we've taken with Bitnami is try to find money from customers. Let's not undervalue the fact that people will pay you for what you're building. Hopefully if you're building something valuable, and you're much better off going through that experience, learning what it takes to sell to people and collect their money—there's a lot of details there—and try to build your business that way. You don't need to go for VC right away. There are great examples of companies that have been hugely successful doing that like GitHub and Atlassian.

 

Why It’s OK To Build A Lifestyle Business

 

Poornima Vijayashanker:           I'm going to have you hold that thought because we are going to talk about that in a little bit. Now, the other thing I want to point out because you said customers, but I think also bootstrapping with a pay check to get off the ground. A lot of times people are worried about quitting their job and having a source of income, so using that especially for businesses that a little bit more capital intensive early on. Want to throw that out there. I want to dive a little bit deeper into this whole idea of, “I do want to get investment eventually.” Let's say I have gotten to a point, maybe I've gone to an incubator or I've gotten it off the ground, I have some customers. Then there comes that period where you're talking to an investor and they may not really understand how big your idea is. It's oftentimes that thing that people nitpick over and over again that, is this a big idea? Is this a big market? Or sadly people like to say, it's a lifestyle business. There's a stigma here in Silicon Valley against that. Let's talk about what exactly defines a big idea—if we can even define it because I know it's a little amorphous—versus a lifestyle businesses and maybe even break that stigma of that lifestyle business.

 

Erica Brescia:              Sure. First I'll say I don't think there's anything wrong with a “lifestyle” business. There have been a lot of deals that we looked at. There was this one amazing woman, I won't name the company, but she came through my network actually. She developed some really interesting technology. It was my belief after talking to a lot of people that she's going to sell the company for somewhere between $30–50 million within two years. Awesome for her. Not a great VC investment?

 

Why Venture Capitalist Don’t Invest In Lifestyle Businesses

 

Poornima Vijayashanker:           Why?

 

Erica Brescia:              Because we can't produce the kind of returns that we're looking for. We have LPs just like any other VC fund. We have a responsibility to them to generate returns. I told this woman I want to help her in any way I can. She's incredibly bright. I just couldn't see a path to them building a billion-dollar business. That's really what it needs to be. There needs to be a path that you can understand for how this can be huge. It's going to be very risky. I should say we always know that businesses are going to change and evolve and you're very much betting on the founders. That's absolutely true, but at the same time, if they have conviction around a specific idea and we don't see how it can get to be a huge business, and some of the great hardware companies we're looking at are like that. I think they will have fantastic businesses and fantastic exits. I certainly wouldn't call them lifestyle businesses because they're life changing in terms of the returns that they'll create for the founders. They may not be appropriate for a VC fund. I don't think there's anything wrong with that.

                   

You need to take a dispassionate look about what you're building, how big the market really is, how much of it you have an opportunity to grab, and be realistic about that. Then think about the kind of funding that makes sense. You might be able to find a family office or something or angel investors who are not looking for the same VC-style risk and returns. They'll be totally happy with the company selling for $10, $20, $30 million. In a couple years, they'll double their money and everybody's fine.

 

Where Do Venture Capitalist And Angel Investors Get Money To Fund Startups

 

Poornima Vijayashanker:           On that note, let's actually define what an LP is and why VC versus angels that people understand if they're not familiar.

 

Erica Brescia:              Sure. An LP is limited partner and they're the people that put money into the funds. They're often wealthy. They always have some money coming from somewhere. Often wealthy individuals, but depending on the fund, they might also be pension funds or endowments and things like that from universities or different trusts and things like that. Basically the people who put money into the hands of the venture capitalists who are the people who actually invest that money. In the case of angels, angels I think have evolved a lot. Now we have the super angels.

 

Poornima Vijayashanker:           We'll get into that in a future episode. I keep saying this, but it's gonna happen. It's gonna happen guys.

 

Erica Brescia:              I won't take us to off course then. There are a lot of different kinds of angels. I was an angel investor before joining XFactor. I mean, not at a huge scale, but I'd made a few investments myself.

 

Poornima Vijayashanker:           What's the scale?

 

Erica Brescia:              I was writing like $10,000 checks.

 

Poornima Vijayashanker:           Perfect.

 

Erica Brescia:              Smaller checks. Then there are people like—I'll take my father, who's one of my closest friends and heroes and has inspired me to do all of this. He built a brick and mortar contracting business that did quite well. He's been making tons of angel investments and all kinds of different things. Some tech, some very, very nontech. You have people like that. Then you have people like Eric Han for example. My company did raise a bit of angel funding primarily to get some really great folks involved with the company. Some of these people were like Eli Gillin, Eric Han. Eric Han was the CTO of Netscape. He went on to be a very early investor in Red Hat. Since then, has been one of the first checks into a ton of companies that have IPO'd. He was on the board of Red Hat after they IPO'd. Eli Gillin is running his own company now, but he started and sold a company to Twitter and ran a bunch of stuff there. These are people who have done well in their career, typically understand tech. They make a lot more investments than somebody like maybe me or my father who might've written a couple of checks a year. These people are doing several key deals a year, usually only investing their own funds. That's one of the big differences. They don't have LPs. It's their own money. They might be doing it more at scale. We call them usually professional angels or super angels.

 

Poornima Vijayashanker:           Business angels.

 

Erica Brescia:              Exactly. Who are making a lot of investments, but they don't have LPs to answer to.

 

When Does It Make Sense To Approach An Investor With Your Startup Idea — First Know What You Are Going To Do With It!

 

Poornima Vijayashanker:           Great. Let's end with this question. When does it make sense then when you think you have this big idea, to approach an investor? I know you guys said early, but what is maybe too early and what's a reasonable early to get a meeting?

 

Erica Brescia:              It depends on what you need. Let's start with why do you need the money? That's the first question you should be asking yourself. Where is this money going to get you? You better have a good answer before you go talk to VCs. What milestone are you going to hit with this? Then the second question you should ask is, could I get it from anywhere other than VCs? Do I have friends and family who might want to just give me some money? Could I even take out a loan? Sometimes these other things make sense. There are a bunch of diverse opinions on this, but my view is you don't take VC unless you absolutely need it. Until it's holding you back from scaling. In the particular case of Bitnami, for example, we've primarily bootstrapped. We've only taken a million dollars in outside funding in total. I have over 70 employees in 12 countries. We're cash-flow positive. We've built quite a stable and steady business. We are starting to talk about potentially raising venture capital because we're launching this enterprise product that I mentioned before.

                   

That involves building out an entirely new part of the business. I can do that off of cash flow, but I'll probably go a lot slower and we see that there's a limited window of opportunity here. I think it really depends on your specific case and whether you can do it any other way. Or if there's an investor that you can feel or that you feel can add a lot of value. There are certain investors who might have a ton of experience in your space. Maybe they started an earlier company and exited it and are just itching for the chance to do it better now that the technology is evolved or what have you. If you find people like that, I think they can be really helpful to building the business. Otherwise, it's like, you should raise when you need to raise. If you feel like you could run out of money in the near future and not be able to actually execute on your plan.

 

Yes There Is Such A Thing As Being Too Early To Fundraise For Your Startup And Yes It’s Inconsistent!

 

Poornima Vijayashanker:           Let's admit. There is a time that's too early.

 

Erica Brescia:              Oh yeah. There always is. It's funny. We funded a company that was quite early and quite a high evaluation. That's one of the deals I led actually. I knew the founder and he'd already built a successful company.

 

Poornima Vijayashanker:           There you go.

 

Erica Brescia:              You're much more willing then, almost eager, to get in because this is a male, female team. I happen to know the male better than the female. I told him I wanted into that deal because I think this guy has a ton of potential. Even though it was early, I would write him a check, but he's proven. That matters.

 

Poornima Vijayashanker:           Exactly. I think that's a big stigma, or rather a big misconception around who's getting a deal, who hasn't built a product yet, or it's not on the market. It's great that you mentioned that. I think for most other folks, they need to see something. They need to see product. They need to see at least a concierge-style minimal bible product or service, some cash flow, some customers. They really want to...those who don't have a track record need to step up their game and show a little bit more credibility.

 

Questions Investors Ask Before They Take A Meeting Or Write A Check To A Startup Founder

 

Erica Brescia:              Yeah. The things I look at is, are they committed is the number one thing. Starting a company is hard and a lot of people underestimate how hard and how many sacrifices you make. You can do a whole episode on what's involved in that. Are they committed? Can they build a team? I look at that a lot. That's one thing where people who want to move to Silicon Valley who have no connections there, that's one of my questions. How are you going to find people and convince them in a highly competitive job market to join your team? If you can do that, it also speaks pretty highly of you and your ability to convince people and help them see the vision. Then can they build the product? Is it something that people will pay for? Those are the checklist items that I have. The more that you can demonstrate, the easier the time you're going to have with fundraising.

                 

If you can't prove that people will pay for your product, if you can't prove that people will use it, especially if you can't prove that you can build it, that's when we're going to have a lot of challenges getting to the next step. That's when I try to give people a clean “yes” or “no.” Sometimes it's like, “You're just not there yet. If you do these things, then I might be interested. I'm sorry. I need to see more before I can make the call.”

 

Poornima Vijayashanker:           Yeah. I think that's fair. Thank you so much Erica for sharing all this information with us today.

 

Erica Brescia:              Thank you for having me.

 

Poornima Vijayashanker:           That's it for today's episode of *Build*. Be sure to subscribe to our YouTube channel to receive the next episode where we'll continue the conversation and talk about when it makes sense to transition from angel investment to seeking investment from venture capitalists and what you need to do in that interim period. Ciao for now.

 

This episode of *Build* is brought to you by our sponsor Pivotal Tracker.

 

Blog Post 2

Subject: When It Does And Doesn’t Make Sense To Fundraise For Your Startup

Title: Startup Funding: When It Does And Doesn’t Make Sense To Fundraise For Your Startup

Subtitle: Interview with Erica Brescia COO and Co-Founder of Bitnami and Investment Partner at XFactor Ventures

 

Ready for more myth busting around startup funding? Let’s get to it then!

 

Last week I shared a number of reasons you should share care fundraising whether you’re a founder or startup employee. Here’s they are again, and in the Build episode we talked about why it’s a bad idea to reach out to investors when you have an idea.

 

This week we’re going to continue our theme and focus on what compels us to think we need to raise capital like competition heating up, the belief that the business will stop growing, or that the idea we’re pursuing isn’t really BIG enough. We’ll also be diving into the mechanics of investment talking about the nuances of an angel versus a venture capitalist, and why it’s important to look for investors that have knowledge of your marketing or industry.

 

Erica Brescia is back to help us out with this episode. Erica the COO and co-founder of Bitnami. Erica has also recently joined XFactor Ventures as an investment partner. XFactor is an early-stage investment firm that's looking to fund female founders as well as mix-gendered teams.

 

Erica is a founder and investor, and having sat on both sides of the table, she knows how to dispel fact from fiction!

 

As you watch today’s episode you’ll learn:

 

  • Why Erica and her partners at XFactor are putting their money where their mouth is and starting a fund to invest in female founders and mix-gendered teams
  • What the XFactor investment partners and other angels look for versus venture capitalists, and how much they are willing to invest
  • Why competitors will come and go, and you cannot let their actions intimidate you or direct your business goals
  • Why only you as a founder, can decide when is the right time to raise for your business

 

<iframe width="560" height="315" src="https://www.youtube.com/embed/0gwGGGoHLcU" frameborder="0" gesture="media" allow="encrypted-media" allowfullscreen></iframe>

 

In the next two episodes we’ll explore handling all the rejections you receive from investors, how to motivate yourself to keep going, and what it’s going to take to get that first check!

 

Listen to the episode on iTunes!

You can listen to this episode of Build on iTunes.

 

Build is produced as a partnership between Femgineer and Pivotal Tracker. San Francisco video production by StartMotionMEDIA.

 

## Startup Funding: When It Does And Doesn’t Make Sense To Fundraise For Your Startup Transcript

 

Poornima Vijayashanker:         Last time, we talked about how as a first-time founder, you don't necessarily need to immediately rush out and get investment to get your tech product off the ground. We discovered some alternate ways of funding your product development and company growth. If you missed that episode, I've included it in the link below this video.

 

In today's episode, we're going to dive in a little bit deeper, and talk about when it makes sense to go out for that angel investment, and then how do you transition from getting capital from angels to eventually getting it from venture capitalists, and what you need to do in the interim to make sure you're growing your company. So stick around.

 

Welcome to *Build*, brought to you by Pivotal Tracker. I'm your host, Poornima Vijayashanker. In each episode, I invite innovators, and together we debunk a number of myths and misconceptions related to building products, companies, and your career in tech.

 

What Compels Startup Founders To Fundraise

 

One myth a lot of founders fall prey to is the need to constantly fundraise. They're worried that if they don't, their competition is going to swoop right in and outpace them. Or their business is just going to stop growing, and even worse than that, people might not think that they are actually onto a big idea.

 

To debunk these myths and more, I've invited Erica Brescia, who is the COO and co-founder of Bitnami. Erica has also recently joined XFactor as an investment partner. For those of you who aren't familiar, XFactor is an early-stage investment firm that's looking to invest in female founders and mixed-gender teams. Thanks again for joining us.

 

Erica Brescia:      Thanks for having me!

 

Poornima Vijayashanker:         Yeah! I know we talked a little bit in the last segment, but let's just quickly do a refresher, tell us a little bit about your background and what you do at Bitnami.

 

Erica Brescia:      Sure. Bitnami automates the packaging and maintenance process for server software for containerized, cloud, and behind-the-firewall deployments. We're most known right now for the Bitnami Application Catalog, which contains over 150 different pieces of server software, ranging from business schools, like content management systems, more project management systems, to development tools like GitLab and Jenkins for building out your development processes and pipeline, to stacks of things for building applications, like Node, or Rails, or Django. We work with all of the major cloud providers, and have over a million deployments a month of the apps we package across all the platforms that we support.

 

Poornima Vijayashanker:         Awesome. In addition to Bitnami, you recently joined XFactor as an investment partner.

 

Erica Brescia:      I did, yes.

 

The Difference Between Angel Investors And Venture Capitalists

 

Poornima Vijayashanker:         Yeah! We talked a little bit about that last time, and I want to pick up the conversation from our last time and dive a little bit more into not only what does XFactor do, but this whole position between angels and venture capitalists. How do you guys think of XFactor? Are you considering yourselves as angels or VCs? Would it help to start with defining angels and VCs?

 

Erica Brescia:      Sure. I mean, I tend to think of angels as primarily investing their own capital, and VCs are investing other people's capital. We all actually have our own funds in the fund as well, so we're LPs in addition to being the investment partners.

 

Poornima Vijayashanker:         What does that mean?

 

Erica Brescia:      That means that we're the people who put money into the fund, as the limited partners, who just put money in the fund, and then they step away, and they entrust, basically, the team of investment partners to invest that capital in companies that will produce ventures that yield returns.

 

Poornima Vijayashanker:         Where is that money coming from? Is that your own hard-earned money, or is that from somewhere else?

 

Erica Brescia:      In the case of the LPs for the XFactor fund, it's from a range of different people. Some of them have just been very successful in business. Some may be managing endowments or trusts, or other investment vehicles, and they invest both in the stock market and in VC and angel funds as part of their diversification strategy.

 

Poornima Vijayashanker:         Got it. I think some of you have also contributed personal funds, right?

 

Erica Brescia:      Yes. We have put our own funds into the plan as well.

 

Poornima Vijayashanker:         That's important to note. Yeah.

 

Erica Brescia:      You've got to put your money where your mouth is, right?

 

Poornima Vijayashanker:         Great! No, I certainly appreciate you guys doing that.

 

Erica Brescia:      Plus, honestly, I think we're going to make money off of it! So why would you not do that?

 

Poornima Vijayashanker:         Exactly!

 

Erica Brescia:      That is the whole point.

 

Poornima Vijayashanker:         Yeah. You guys are operating a little bit like angels, but a little bit like VCs as well, but let's dive into more of a traditional VC model. What does that look like?

 

What Seed Stage Investors Are Really Looking For And The Size Of Check They Write

 

Erica Brescia:      Sure. The distinction there is interesting, because I would say there's seed-stage financing, which a lot of people think of as coming from angels a lot, but VC funds do as well. Those are typically much smaller rounds and much earlier stage. The company probably has something built, probably has some users, probably can show some traction, but they're usually not raising huge amounts of money, at least not by Silicon Valley standards, which are different than the rest of the world.

 

Poornima Vijayashanker:         Yeah. Let's get some ranges. Because I know some seeds can get crazy.

 

Erica Brescia:      Huge. Yes.

 

Poornima Vijayashanker:         So let's do a more middle-of-the-road seed. What would that look like?

 

Erica Brescia:      These days, I would say they're usually between $500K and $2 million. I know that's a wide range, sometimes it's smaller, sometimes it's bigger, but the fundraisings that we're participating in are usually somewhere around there. We have had some companies raise significantly more than that, and we've almost gone in more at like a Series A stage. But typically you're raising $1 million or $2million to get your idea off the ground and show a little bit more traction, before you go and raise at a Series A. Those used to be maybe $2 or $3 million. Now, most of the time, you're looking at maybe $6, $7, even $10 or $15 million as a Series A, which we certainly see in the cloud and container space in particular, which is where I'm focused with Bitnami.

 

Poornima Vijayashanker:         OK. That makes sense. Now, I'm not going to dive into microfunds and syndicates, and all that stuff. We're going to do that in a later episode. But let's go back to you, and let's talk a little bit about how you initially funded Bitnami.

 

How To Initially Fund Your Startup When You Cannot Attract Investment

 

Erica Brescia:      Customers.

 

Poornima Vijayashanker:        Customers!

 

Erica Brescia:     We sold stuff. Yeah.

 

Poornima Vijayashanker:         Yeah. When was this, by the way?

 

Erica Brescia:      We started with a company called BitRock over 10 years ago, and BitRock built some really interesting technology around application packaging and deployment, which has become the foundation of Bitnami. We're very unique, I would say, for a Silicon Valley company. We developed a package software product. We sold it to customers, and we generated money that way.

                   

Then we started providing a subscription service to a lot of software companies that needed us to build, we called them "stacks" of software, so their products could be installed and distributed very easily, and we worked with a lot of the biggest names in open source, in those days. So we had that money coming in—

 

Poornima Vijayashanker:         If you don't mind sharing, how big were some of those contracts?

 

Erica Brescia:      They were in the tens of thousands of dollars a year. So reasonably sized, but we now, in retrospect, we charged far too little. But that's one of the lessons that you learn as a founder, you're always underpricing yourself in the early days.

 

So we did that, and built up the company that way. Then we decided to evolve into Bitnami. We went through Y Combinator in 2013—

 

Poornima Vijayashanker:         So before you did that, you actually had revenue coming in?

 

Erica Brescia:      Yes.

 

Poornima Vijayashanker:         Give us a range of how big you were at that size?

 

Erica Brescia:      We had 12 people, and seven figures in revenue, when we—

 

Poornima Vijayashanker:         Oh! That's fabulous!

 

Erica Brescia:      —went through Y Combinator.

 

Poornima Vijayashanker:         Yeah. OK. So why even bother going to—

 

Erica Brescia:      That's a great question! It was a subject of much debate, but again, interesting story, I suppose. My co-founder's wife had gone through Y Combinator with her own company, and had a great experience with it. And we knew that we wanted to send the company on a different trajectory—

 

Poornima Vijayashanker:         Which was?

 

Erica Brescia:      Growth.

 

Poornima Vijayashanker:         OK. OK!

 

Erica Brescia:      We wanted to build a huge business, and the model that we'd had previously was really what we talked in the last episode about, more of a lifestyle business. Right? We built a solid business, but that's not what we were there to do. We wanted to build a huge and very meaningful company. And we felt like Y Combinator was the right way to do that.

                

It gave us a lot of focus, and helped us make some interesting and difficult decisions. It also helped us a lot with hiring in the early days, and bringing more folks to the team. We've been on a pretty healthy  trajectory since then. Over 75 people. I don't give out revenue numbers, but we're profitable and growing, and doing well.

                   

All of that money, except for a million dollars, which we still have sitting in the bank, has come in through customers. And that million dollars we raised after going through Y Combinator. We brought in some angel investors whom we really liked, for different reasons. Some of them have a lot of experience in building companies, specifically in our space, and we felt like they could help us a lot with that.

                   

A couple of them are VCs who invested personally in us, because we didn't want to raise a VC fund, and a few were overseas venture investors, but they make seed stage investments. One from Japan, and one from China. And that was purely because we plan on going into those markets, and we thought it would make sense to have some people over there with a vested interest in our success.

                   

Y Combinator served as a good catalyst to bring that round together-

 

Poornima Vijayashanker:         How big was that round?

 

Erica Brescia:      It was just a million dollars?

 

Poornima Vijayashanker:         Oh! OK. But you were already in the seven-figure revenue at that point, when you raised that million.

 

Erica Brescia:      Exactly.

 

Poornima Vijayashanker:         OK.

 

Erica Brescia:      And that money is still sitting in the bank, and we've added a healthy amount to it, and—

 

Poornima Vijayashanker:         That was what year?

 

Erica Brescia:      2013.

 

Poornima Vijayashanker:         Oh! It's been a while. It's been four years.

 

Erica Brescia:      Yep.

 

Poornima Vijayashanker:         Now, interestingly enough, you have that million, you're raising revenue, and you had grown without a lot of outside capital. I mean, you were already growing, so in that span of time, weren't you afraid that some competitor was just going to swoop right in and go out and raise $10 million or $100 million dollars, and put you out of business?

 

Don’t Let Competitors Intimidate You Into Fundraising For Your Startup

 

Erica Brescia:      What's actually funny about that question is we had a bunch of competitors do that, and they all went out of business..

 

Poornima Vijayashanker:         Oh, OK! Yeah!

 

Erica Brescia:      OK! Some spectacularly so. One raised $40 million, had huge names. One of the people on their board tried to come and intimidate me, and say I could never compete with—it was actually a woman running that company, too. But I won't name her, because that's not good for anyone.

                   

Yeah. We had a lot of companies come and raise money, but the model wasn't there yet. And that's why we didn't raise, either, right? There's a time, and we talked about this in the last episode. It's my belief that in most cases, you're better off raising when you have product-market fit. We had that at small scale, but we hadn't found what was really going to fuel exceptional growth of the company. It took us a while to get there, and a bunch of other companies tried to come in and do that, and they all went bust.

                   

I mean, there is a time and place when I think it does make sense, and when you do have to worry about competitors, because the truth is, once a big name competitor raises a big round, it's really hard to get anyone else to invest in you. I think Docker's a pretty good example of that in my space, right? They have tons of money. Nobody's going to invest in another container startup. Why would you do that? It doesn't make sense for investors.

                   

It is something to consider, but I think a lot of people spend way too much time worrying about their competitors, and not enough time worrying about their own business.

 

Poornima Vijayashanker:         Yeah. Or their customers.

 

Erica Brescia:      Yeah! Or their customers. Exactly. So, yeah, that matters, but you need to do what's right for you, and what's right for what you want out of your life and your business. You should ask yourself those questions. Taking on VC is taking on a lot of additional responsibility, too—

 

What Kind Of Return Venture Capitalists Look For

 

Poornima Vijayashanker:         Like what?

 

Erica Brescia:      Well, they're expecting a certain level of return, right? A $100 million exit is not something a VS wants, where it might be completely life changing for you, if you don't have venture capital in the company. If you're taking venture capital, you're committing to running the company for at least 5–10 years, providing they don't push you out, which happens sometimes, too, if you're not doing things the way they want.

                   

You're committing to managing a board, with outside parties who are going to have sometimes divergent interests from you. It could even be the case that the fund cycles are usually 10 years, and they have to return the capital to their limited partners, which we talked about earlier. They might need to get out, and want to push you to sell when you don't want to. They might want you to sell to somebody you don't want to.

                   

There are a lot of great things that come from venture capital, if you partner with the right people. Obviously, you get the capital you need to fuel the growth of your business, and that can be incredibly important, especially to support go-to-market activities, or SaaS business models, where customer acquisition costs might be high, but the LTV is huge. There are reasons to take money.

                  

I'm not against that. But you also need to understand what you're signing up for, and what it really means, and that there may be an alternative path for you if that's not the path that makes the sense for you. If you don't want to run this company for 5–10 years, and you don't expect to sell it for hundreds of millions, if not billions, of dollars, don't take venture capital.

Startups That Focused On Growing Their Business First

 

Poornima Vijayashanker:         Yeah. Some folks in our audience might be thinking, "Erica, that's fabulous for you and Bitnami, and all of the success, but I could never do that. I couldn't just sit and wait for my business to grow organically." Are there other examples of companies here in the Valley, that you're familiar with, who have done a similar approach? I know I can think of a couple, but I'm curious—

 

Erica Brescia:      Absolutely! Well, Atlassian, they're in the Valley now, but they came from Australia, and that's a spectacular story. They really couldn't raise, because they were in Australia, and especially back then, the VC climate in Australia was almost nonexistent. They raised very late, and a lot of it was secondary to the employees, and they've done spectacularly well. GitHub's another example. They raised very, very late in the process, in a very big round, and that gave them a lot of flexibility to do other things.

                   

We've seen that happen a lot. It really depends. Again, I think, going back to what I said before about product-market fit. It's my view that the best time to raise is when you just need fuel for the engine. You already know how the engine works, and it's already built, and the machine is there, and you know, "If I put X in, I'm going to get Y out." Right? That's when you can really take advantage of venture capital, and that's when it can really make a difference.

                  

I'm not saying take a long time to build your company like I did. I would certainly do a lot of things differently this time around, but a lot of it just has to do with where the business is, and what the capital's going to be used for.

 

Poornima Vijayashanker:         It's been a four-year period, right? Where you haven't taken outside investment. You took the initial million. But in that period of time, how has not taking capital, or not thinking about fundraising, how has that helped you and Bitnami?

 

Erica Brescia:      Well, several ways. I think the most important thing is focus. Not having $10 or $20 or $50 million in the bank makes you focus on what's really going to move the business forward. It's really easy, and I have seen this countless times with companies that I will not name. They raise a ton of money, and they go out and hire a ton of people, and everything falls apart.

                   

Because humans are humans, right? These are not just cogs in the machine, especially when you're trying to build a breakthrough or game-changing product. You need incredibly smart people. They're going to have strong personalities. They're going to have past experiences from other companies. And you need to be able to get those people to work well together. So many startups have failed in doing that, and it's led to their own demise, or at least slowed them down a lot, and really burned a lot of bridges with fantastic employees.

 

I'd say it's allowed us to build out the infrastructure to responsibly scale the team, and it's helped us to focus, again, on making the right investments in terms of where we're spending our time. It's also great for negotiating business deals, I will tell you. That doesn't come up a lot—

 

How To Compel Customers To Do Business With Your Startup

 

Poornima Vijayashanker:         How so?

 

Erica Brescia:      I was in meetings, even earlier this week, and these are quite big, multimillion-dollar-a-year deals, and they were asking some questions about what the business model looked like, and I could look at these people with a straight face and say like, "Look, we're not VC backed. My company needs to make money. You want me to be around. This needs to make sense for us, financially."

                   

That drives a lot of my decision making. I'm very, very involved in the corporate and business development stuff that we do. I need to do deals that make sense for my business. For some reason, it's a lot easier for people to get their heads around that when you don't have venture capital, which is kind of a funny thing, right?

 

Poornima Vijayashanker:         Well, people understand where you're coming from, and what resources you have at that level.

 

Erica Brescia:      Yeah! I'm not BSing them. "I have to pay people, and you're going to get a lot of value out of this, and you need to pay me, and I'm not going to do it on a bet that the relationship itself is going to benefit me enough, because that wouldn't be responsible business." That's what I go to all the time. It's not responsible business, you're not doing it. I think being bootstrapped and funding through customers really helps you think through that and make very good business decisions. We say no to all kinds of things, too. And I think that's easier, as a result of that.

                  

The one other aspect I'd say is, we don't have to manage investors. It takes a lot of time to build investor relationships, which I do do that anyway, because we may raise in the future. But also just to raise funding, to go through the diligence process, and then to manage a board of directors that involves VCs, again, who might have competing priorities, or other things going on.

                  

Again, we don't get some of the pixie dust you might get if you're VC funded, and sometimes we have to have interesting conversations with procurement departments, and show them our financials, to prove that we've got a great business, and that they can feel comfortable working with us, but it saves a lot of time and overhead.

 

Poornima Vijayashanker:         Yeah, that's interesting. So you feel, because you're in the B2B space, the enterprise space, some companies may feel like, "Oh, you're not VC backed, so you might go out of business sooner." But what you're saying is, "Actually, we've got customers. We're going to stick around because we've got real revenues coming in, so no need to worry about this."

 

Erica Brescia:      Yeah. And I can point to, we do business with Microsoft, Amazon, Oracle, Google. All these big companies. It's gotten a lot easier, now.

 

Poornima Vijayashanker:         Right. You've got the credibility.

 

Erica Brescia:      Exactly. And we've got a track record. We've not just been around for a year, and we have an established team of senior people, and we've proven that we can execute, and we can deliver. And what often happens is we'll start with a smaller relationship, and it grows over time. After you get your foot in the door, what they care about is do you deliver on your commitments, not whether or not you have a VC in the company.

 

Keeping Your Options Open When It Comes To Investment

 

Poornima Vijayashanker:         Awesome. Now, I know you said, "Never say never." So you are thinking about capital, and then your future. How are you thinking about attracting that VC capital?

 

Erica Brescia:      Let me be clear: we haven't decided to raise capital, but it's a discussion that we're having currently between my CFO, my co-founder, me, and some of the other people on the executive team, because we're launching this new enterprise business. We're incredibly lean as a company right now.

                   

I told you we have in the mid-70s in terms of employees. Over 50 of those are in engineering and product. So the business team is quite lean, and we have very, very little sales on the sales side. Building on an enterprise business means I need a whole new go-to-market plan that involves field people, inside sales, solutions architects, and support people, and a bunch of other folks. Account executives, all these things.

                  

That's very capital intensive to build. We can do it off of cash flow, actually. We're in that fortunate position, but at the same time, we might grow a little bit more slowly, and especially hire more slowly, than we would if we had, say, $15 or $20 million in the bank. So we're starting to think through the tradeoffs, and what might make sense there.

                   

I've been in the Valley now long enough, I know a lot of VCs. There's several whom I like and respect quite a bit, and I still develop relationships with them, and we talk about the industry in general, and Bitnami, and where we're going. I think it's a little bit different than a company that's just coming out of nowhere. We have people who know us, who know the business, who have said that they're interested. So when the time comes, it's more of a matter of sitting down with people who are already friendly and interested in the company, and talking through what makes the most sense.

 

Poornima Vijayashanker:         It's a partnership.

 

Erica Brescia:      Mm-hmm, absolutely.

 

Poornima Vijayashanker:         Yeah. Wonderful. Well, thank you for sharing your experience with us today, Erica. I know our audience is going to get a lot out of this episode.

 

Erica Brescia:      Thank you so much!

 

Poornima Vijayashanker:         That's it for today's episode of *Build*. Be sure to subscribe to our YouTube channel to receive the next episode, where we'll dive in deeper with some of Erica's co-investors and explore more topics around funding your startup. Ciao for now!

 

Voiceover:          This episode of *Build*is brought to you by our sponsor, Pivotal Tracker.

 

 

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