Satya Patel | Partner @ Homebrew


That technology, as it’s getting cheaper, more flexible, more accessible is democratizing access and doing so most profoundly in industries and functions and for constituencies that haven’t been able to leverage technology in the past.

I’m here to talk to you today about raising capital in today’s environment, particularly at the seed stage, so we’ll touch on the Series A stage as well.

I wanted to start by just talking a little bit about something that all of you have been hearing about, which is PPP loans, the SBA program for getting capital to companies in need. The reality is is that if you’re a startup just getting off the ground, PPP isn’t a legitimate option for you.

So, I’m here to tell you exactly what you need, what PPP really means for you, and the difference between raising money in today’s environment versus not being able to do it. So, with that, let’s jump right in.

The world has certainly changed, there’s no question about that. Sheltering-in-place is just the most obvious impact; how people interact with each other, when and if customers buy, whether the rebound is a V-shape or a W-shape or a loop-de-loop, there’s definitely a lot of change in today’s world, and that’s the only thing that we know for certain.

The other thing that we know is that there’s a ton of confusion about what’s going on and how long this is going to persist. We don’t know very much about the virus, we don’t know the right way to approach fighting it, and we certainly don’t know how the economy is going to perform over the coming months. So, don’t count on anyone, I mean anyone, to give you the answers.

And you certainly shouldn’t expect answers from The Midas List or VCs that you know and respect. We’re just living in unprecedented times. Anyone who pretends to know this is going to play out is doing just that, they’re pretending.

As much as VCs spend time evaluating the markets, evaluating businesses, trying to predict the future, we don’t know any more than any of you in relation to what’s going to happen here over the next 12, 18, 24 months.

So, for you, as founders and entrepreneurs, the key is to focus on the things you can control, and one of the things you can control is how you tell your story to VCs. But, to do that effectively, you need to get in their heads, no matter how scary a place that might be.

So, what are VCs busy doing right now? That’s a good place to start, to understand the actual landscape in which you are trying to raise capital.

First, they’re focused on their current portfolios, which companies are in a world of hurt, which companies are benefiting from accelerating trends and new dynamics, which just need to bide their time?

Any VC worth his or her salt is focused on helping the founders and CEOs that they work with, take care of the physical and mental wellbeing of their teams, stabilizing their businesses and planning for the uncertainty over the next 18-24 months.

So, getting their attention right now for anything new is really tough and that’s something that you should just accept and know, going into any potential fundraising process.

The other thing that VCs are doing is one very important part of their jobs, and that’s meeting companies and studying markets to figure out where they might want to invest eventually. You’ve all probably gotten a cold email from a VC associate or partner asking about your business or wanting to understand your market.

Expect more of those because VCs trade on data and they all have the time available to them right now to spend hours talking to folks like you about what’s going on in the world and collecting that data.

But that’s only the beginning for them, collecting data is the thing that they can do right now. Unfortunately, the reality is most of them are just waiting and sitting on their hands.

The thing that most people don’t realize about venture capital is that VCs are always thinking about capacity, and most venture partners at Series A and later firms only make one to two investments per year, and so the opportunity cost of making an investment now, versus thinking about an investment later, is a real cost to them because it’s a cost of their time, not to mention what might be happening from a broader market perspective.

And, from that standpoint, there’s a huge disconnect between the public markets, unemployment rates, and what startups are experiencing on the ground right now with customers.

Until there’s more stability in those areas, you can expect that most VCs will be waiting for a time where they have more comfort with valuations, with customer behavior, and with knowing that there’s going to be another set of VCs down the road who are going to be willing to write a check to support their companies on an ongoing basis.

So, most investors, no matter what they say, are taking a wait-and-see approach. If an investor is telling you that they’re active or open for business, they probably are in the sense that they’re busy collecting data, but that doesn’t necessarily mean they’re in a position to write checks.

The good news for all of you is that seed is very different. I don’t want to be a complete downer, so this is hopefully a bright spot. There is a ton of capital committed to the seed asset class, and because we’re investing at the earliest stages of the market, there’s only so much price compression that investors can expect. As a result, what’s happening in the public markets isn’t necessarily impacting the very early stage of the private markets.

The other thing that’s important is that there are many types of investors at the seed stage. There are angel investors, super angels, pre-seed funds, micro funds, institutional micro funds.

The reality of their businesses, our business, is that we can’t afford to miss the next great company. We only get one bite at the apple, we are seed-stage investors. Unlike firms that are later, Series A and later, oftentimes those funds will invest at Series A and Series B, or Series B and Series C, so they have the opportunity to revisit companies that they may have missed. Not the case to the seed stage.

And, as a result, seed-stage investors are active in the market at this very moment. The other thing is that most seed investors tend to do more volume of investing than investors at the later stage, so the opportunity cost of investing in something right now isn’t the same as it might be for a later-stage investor. And so, for all of those reasons, seed right now is a very different beast than Series and later-stage investing.

It’s definitely an active market at the seed stage. Homebrew is only one data point, but we’ve made five investments since shelter-in-place started, and every one of those investments was a competitive situation, so there are many firms that are trying to write checks into some of the best companies, hopefully.

We’ve spoken to many of our peer funds and most of them have made at least one, and mostly more than one, investment during shelter-in-place.

And probably the even better news for all of you is that, given the competition, valuations at the seed stage haven’t declined dramatically, maybe 10-20% at the seed stage, and maybe up to 20 or 30% at the pre-seed stage, but given the world we live in, there are some realities about seed-stage investing and the amount of capital that’s being committed to the asset class.

That means that the amount of activity and the opportunity for you to go tell your story and raise capital is as strong as ever.

That said, there are some differences about the world we’re living in now. Obviously, as we’re seeing now, the most important one and probably the biggest difference is you’re going to be pitching over Zoom. And no matter what a VC says, they prefer to meet people in-person.

So, it remains true that lots of VCs still haven’t figured out if they can get comfortable making investments without having met someone in person. For you, the thing to do is ask the question: are they willing to and have they made an investment over Zoom? And then determine whether you want to continue the conversation.

It’s going to be tough to be the first investment that a partner at any VC makes without having met you in person. There’s so much subtle communication that gets lost over video, you need to make it up with energy.

You might feel like you’re exaggerating your expression or tone, but it’s going to be more effective. You really need to put your best foot forward and exude that passion and energy that maybe you take a step back from when you’re in the room, but over a video, there’s nothing more important than convincing people and demonstrating to them that you have the energy and the commitment to whatever idea that you’re pursuing.

A very tactical piece of advice: invest in good lighting. Do it now, before you pitch. Both subconsciously and consciously, it has an effect on whoever’s going to watch you. Ideally, another piece of advice is that you’re setting the camera on the video at eye level.

No one’s going to get a sense for who you are by looking at your chin or the top of your head, certainly if you’re going to have a glare off the top of your head, like I do, in many cases. So, invest in good lighting, set up your camera well, and exude energy if you’re going to be pitching over Zoom, which is the reality of how the next 12-18 months is likely to look like for founders and entrepreneurs who are trying to meet with VCs.

Another major difference is that you can expect that investors are going to want to do many more references than they might have in the past, both customer references and professional references. Have those ready.

Prep anyone you’ve asked to be a reference with the things that you want them to highlight, and make sure that they have the two or three questions in mind that they’re likely to be asked by any potential investors. Definitely have at least one person that you’ve worked with, recently, on the list.

Nothing’s more frustrating for a potential investor than getting a set of references where the most recent reference is from two jobs ago.

And if you don’t have any mutual contacts with the investor, where they can do backchannel referring on you, you’re going to need to go the extra mile in terms of that communication style that we talked about over video, and also the proof of your commitment to what you’re building, and maybe even evidence of product-market fit.

But, backchannel referencing and on-sheet referencing are critical at this moment, and being prepared to handle those requests well is going to be the difference between success and failure in your fundraising process.

Expect that investors are going to want more time with you. Because you’re not getting those soft cues that you get from meeting people in person, investors are going to want to have more time over Zoom with you and your team, and you should want that, too.

After all, you’re choosing an investor and making a commitment for the life of your company, and so take the time to get to know those investors over Zoom cocktails or virtual working sessions or whatever is going to give you a better sense of what it might be like to work with them and give them a better sense of what it might be to work with you.

Deal processes may take more time overall, but if you make yourself available, and you probably have some time, you’ll help speed things along. But know that there’s going to be a greater time commitment, more meetings, more conversations, to get over the bar and over the hump for closing your seed financing or any financing in this environment.

So, despite some of these changes, which are subtle in some ways, fundraising is mostly the same at the seed stage.

Seed investors are betting on a market that’s two to four years from now, and sometimes even longer, so they can’t afford to take a wait-and-see approach and wait until the economy straightens itself out or the government gives better advice around how we’re going to deal with all of this, they have to be investing now for the future.

And given the number of investors and the amount of capital that’s in the market, remember that it only takes one yes, that’s all you’re trying to get to, and that one yes will automatically create scarcity for you and get others to say yes, so put your best foot forward and try to get to that one yes.

So, how do you do that? My point of view would be there’s still only one way to get to yes at the seed stage. You’ve got to make them believe. Investing at the seed stage is an irrational act.

There’s no amount of data that is available about your company and about you, at the seed stage, that’s going to convince somebody based on cold, hard facts. Think about it: all there is is a few people and an idea, and that idea has all the odds in the world stacked against it, yet investors have to decide to give you hundreds of thousands or millions of dollars, despite all of that.

And that’s why your goal is not to win the argument with data, it’s to generate emotional resonance so that the investor irrationally believes in what it is that you’re pursuing and in you. And that’s where we get to what we believe PPP really means in today’s environment and in any environment when you’re raising capital at the seed stage.

This PPP doesn’t come from the SBA or any government entity, this PPP comes from the story that you weave when you deliver your pitch. It starts with you and the other people on your team.

VCs want to surround themselves with people who they can learn from and who they want to enjoy spending time with and working with. They want to support founders who deeply believe in something that should exist in the world, in founders who they feel deserve tremendous success, and who they want to see succeed.

Belief might spring from any number of things related to your team, any number of characteristics, including the founding story, the chemistry of your team, the unique insights that you have into the problem that you’re solving, but it’s important that you get across something special about your team.

Because this is an emotional decision more than a rational one, it’s very true when VCs say that they invest in people first. It’s the emotional connection to those people that leads to the investment because no rational thinking leads to saying yes at the seed stage when it’s an idea and a team and not much more. So, focus on the people and communicating what’s special about you and your team.

The second way of building an emotional connection is about the potential of your business.

The potential of your business might be captured by the mission or the market or the product, but somehow you need to leave the VC feeling that he or she absolutely wants the problem that you have identified to be solved, and the thing that you’re building to exist in the world, and that what you’re building is going to be enormous in scale and scope.

This is why VCs have a hard time investing in things that aren’t targeted towards them; if something’s not relatable, it’s hard to see the potential of it, but your job is to communicate the potential of it, whether it’s through the market opportunity or the product or the mission of the business. It’s the promise of the early-stage startup that can make VCs take that emotional leap and ignore the difficult reality of what it means to start a company that’s most likely to fail.

And the final P in the PPP that really matters is proof. Unfortunately, accept that you don’t have it at the seed stage.

Most companies don’t end up where they start and, if that’s the case, then the early signs of what you see as product-market fit aren’t real, for the most part, because the use case you’re addressing probably isn’t consistent across all the customers you have, the customers who are adopting don’t share enough common characteristics for you to have identified a singular customer type, long-term engagement isn’t proven, early customer acquisition costs are misleading, so there’s a bunch of reasons that the proof you think you have is probably not proof in the investor’s mind.

So, the thing to remember about that last P, proof, is that you can’t count on it at the seed stage. Nothing kills a good story like data. For most VCs, it’s easier to bet on the promise then the reality, especially at the seed stage, so you’re better off playing on emotion, and, again, people and potential are the emotional keys that you want to cue off of and drive your story around.

So, now that you know the keys to raising seed capital with PPP, it’s time to think about the A, and while the seed is all about emotion, the A is completely different, it’s about risk, and so we’re going to talk a little bit about how to think about risk in the context of your seed-stage company that’s in pursuit of a Series A.

The dirty little secret of investing of a business which is predicated on people who take risk is that VCs actually don’t like risk very much, they’re afraid of it, and that’s why the bar for Series A rounds and later keeps rising, and investors are generally willing to overpay for clear momentum as opposed to take an early risk when they could be getting a better price because, at the end of the day, most VCs don’t want to take a dramatic risk.

And they’re only willing to take risks when they know that the risk that they’re taking is less than what the prior investors took and, hence, the higher price. And so that’s the thing to keep in mind is you’re always being evaluated from a risk perspective, and VCs are trying to evaluate very specific areas of risk when it comes to your business.

We categorize the types of risks that investors are looking at into five buckets. The first is product, and that includes everything from technical risk, timing risk, those kinds of things related to establishing product-market fit.

The second major risk is team risk. Are you missing some key skillsets that are going to be critical to execute the plan that you have or to deliver against the mission that you’re pursuing?

Sometimes, that could be somebody from a sales perspective, somebody from a design perspective. Many founding teams have people who can build products, but they’re missing some other key areas that could be critical to reducing the perceived risk or executing against the potential of the company.

The third risk is market risk, which includes everything from size of the market, regulatory risk, geopolitical risk, all those kinds of risk that fall under the category of market.

The fourth major risk that investors are evaluating is go-to-market risk.

Is there a clear definition of an ideal customer? Is there a repeatable, scalable sales model? Is there somebody beyond the founder who’s been able to sell on a repeatable basis?

Those are the types of questions that are asking in the category of go-to-market risk.

And then, finally, fifth is financial risk. Can the capital be managed until the next financing? Can the company manage cash until the key milestones have been achieved or the risks have been addressed?

And will the business be attractive to future financers and future investors based on what it’s able to accomplish? So, those are the five risks that you need to think about because these are the risks that are in the heads of any investors that you’re going to be talking to.

Your job with seed capital is to reduce or eliminate those risks, but it’s unrealistic to tackle five of them. Pick the three that are the most significant and focus on those, and then tell the Series A investor why you chose those, what have you done to mitigate those risks, and why should they bet on you being able to eliminate the other risks in the business?

Oftentimes, at the seed stage, the most common risk to focus on are product risk, market risk, and go-to-market risk, but it’s going to really depend on the investor that you’re talking to and, more importantly, on your specific business.

So, with your seed investors, get on the same page in terms of what are the most critical risks to address, and then pick the three that you’re going to try to tackle during that seed phase of your company.

Finally, in addition to addressing the risks, you need to achieve some level of scale. The Series A investor is trying to bet on less risk, but also there’s clear scale to demonstrate that this can be a large and viable company.

Whether it’s customers or revenue or some reasonable trajectory of growth, or some absolute level of customer attraction or revenue traction, you’re going to have a hard time demonstrating that you’ve eliminated or reduced risks if you haven’t achieved some level of scale. And so combine reducing three risks with scale and you can unlock your Series A.

So, if you’re going to remember three things from today, start with the very first, which is don’t fear the world that we’re living in. Things have certainly changed, but more is the same than is different in the world of venture financing, especially at the seed stage.

Second, the only PPP you need to keep in mind is the ones that will help you make them believe: people, potential, and proof. Importantly, people and potential are the ones that you can control, proof is unlikely to amount to much, but it’s in my opinion for you to know that as you’re going into your seed fundraising process.

And then, finally, after your seed, pick the three risks to tackle and you’ll be set up for a successful Series A. So, with that, hopefully, you got some nuggets there that are useful and I’m happy to take it to questions.

“Do you invest in pre-revenue products at the intersection of AI and PropTech?”

And the answer is yes. Property or real estate technology is one of the areas where we feel technology is being leveraged for the very first time. We’ve made a number of investments in that category and we continue to look for opportunities, particularly where data is being aggregated where it hasn’t been aggregated before, or there’s data transparency being created to help drive down costs or help to democratize access.

Then there’s a question, “For proof, how important/good is a video of early-stage customer feedback interviews?”

As I told you, at the early stage, most people are going to say the early customers are interesting data points, but there’s not enough from the early customers, unless there’s a singular use case, unless the customs have very common characteristics, unless their buying behavior is similar to suggest that there’s proof.

So, I’d say video testimonials from customers are interesting data, but probably not going to demonstrate proof for you.

There’s a question, “Is there a directory for seed, pre-seed, VCs investing and enterprise SaaS?”

I don’t know of any that are comprehensive, but a couple of good ones: one, NFX has put out a product called Signal, and Signal has a very good way of sorting VCs by stage and by sector, so that’s something to check out.

And then, secondly, I believe there are some resources on the SaaStr website as well, around VCs active in the enterprise space.

Don asks “What’s the greatest difference between meetings that were conducted before and after COVID?”

The biggest differences is that we’re spending more time trying to suss out how the founders think about risk in this particular environment, meaning are there trends that they’re seeing driven by this environment that benefit them?

Or are there trends that they’re seeing that work against them, and if trends are working against them, how are they trying to adjust their businesses or buy time to get past this period? So, we’re spending a lot of time focused on today’s market environment, which we tend not to have done as much pre-COVID because the world operated differently and we were planning for well into the future.

“What would you personally look for in an early stage pre-seed company looking for funding?”

We’re always evaluating investments along three criteria, which tie somewhat to people and potential.

We’re looking at the founding team, the market opportunity, and the product vision. From a team perspective, we like to say we invest in mission-driven founders who almost want to solve the problem that they’re addressing more than they want to build a business.

We look for people who are insatiably focused on learning, who have a strong set of hypotheses about the world, but are flexible in their thinking, and who are able to draw people to the cause, whether it’s employees, investors, customers, they’re able to tell the story in a way that lets people come along with them.

From a market perspective, we’re not looking for the market today to be worth billions of dollars, we think about markets being defined by whether the pain that’s being addressed is large, meaning felt by a lot of people. Is it acute, meaning is it a hair-on-fire problem, a top-three problem that needs to be dealt with right now? And is it valuable?

At some point, can you extract some economic rent for addressing that problem? And so that’s what we’re trying to assess about the market.

And then, finally, from a product standpoint, and at the pre-seed or seed, we’re usually investing pre-product, we like to say that we want to see founders who have a very narrow near-term focus and a singular use case for a singular type of customer that’s addressed 10x better than the alternatives, but a broad, long-term vision and a set of hypotheses for the path for how to get from the narrow focus to that long-term, broader vision over the course of time. So, those are some of the things we think about when making an investment.

Chris asked, “For Series A, could you quantify some level of scale necessary for success?”

As I said during the presentation, it’s going to depend on the investor. There’s no absolute number that every investor thinks is important, it’s not a million dollars of ARR.

Some investors are okay looking at trajectory of growth, others are thinking about customer adoption engagement, others are thinking about revenue.

We’ve found, from our companies that have gone from seed to Series A, that it’s all over the board, and more important than trying to figure out what the right answer, in terms of scale, is being able to tell the story around why the scale you’ve achieved is demonstrative of having reduced or eliminated risk.

So, that’s the important thing is try not to cater your story and your pitch to any particular investor’s criteria. Do what you can to focus your story based on your business. A great story doesn’t come from something manufactured, it comes from the reality of your business and you telling the story of why your business is worth investing in that particular moment.

A question about “What is Homebrew’s target ownership and average check size at seed right now?”

We’re generally 10-15% owners of a company after we invest, and our average check nowadays is about a million dollars, but anywhere between half a million and two million is pretty typical for us.

“Do you invest outside the U.S., specifically Brazil?”

Unfortunately, we’re U.S. and Canada, investors. There’s plenty of entrepreneurship and opportunity outside of those markets, but we try to invest where we believe we can be the right partner and helpful partners, and if you’re focused on some of those other geographies, there are better investors than us that you could be talking to.

Ramon asked, “Do you invest in pre-revenue remote teams working on SaaS products?”

Absolutely. In fact, one of the investments we’ve made during sheltering-in-place is exactly that kind of company, a distributed team building a SaaS product that we met over Zoom, and so we’re certainly open to that.

There’s a question, also from Ramon, about “Do we invest in solo founders?”

We do invest in solo founders, but we think that solo founders have a much tougher journey ahead of them than founding teams, and so we’re certainly biased towards founding teams, for a whole host of reasons.

Starting companies is already incredibly difficult, it’s rare that any one person has the skills needed to tackle all the parts of early-stage company building, and it can be lonely as a CEO, to begin with, and when you’re the CEO and the only founder, it’s incredibly lonely, so we’re big fans of founding teams, although we do invest in and have supported solo founders before.

Revi asks, “How big an MVP needs to be in terms of revenue before it becomes attractive for investing?”

Again, that’s going to vary. We don’t think of MVPs as meeting revenue metrics, investors will vary from that standpoint, but we’re generally investing pre-product and, hence, pre-revenue for most of the companies that we invest in.

“How receptive are angels/super angels right now to SaaS enterprise IT tools?”

I think SaaS and enterprise IT tools have been a great category of investment and it seems to be true in this environment that that’s going to continue to be a good area, and we’ve certainly seen from the angels and C and VCs that we talk to that there’s plenty of interest in those areas right now.

“Is there some proof, pre-COVID, then a pivot, and now only promise versus proof? When does this become fundable in this climate, if there was some proof, pre-COVID?”

There wasn’t proof, pre-COVID. It’s exactly the same as it has been. I think if you’re counting on proof at the pre-seed or seed stage, you’re fooling yourself.

The decision to invest is an emotional one at this stage, and so you’ve got to determine what story you want to tell around people and potential because there’s probably no clear proof that what you’re working on is working at the pre-seed or seed stage.

“As a pre-revenue SaaS startup, any specific tips on fundraising I can use?”

Hopefully, you saw the presentation, but I think the key is: if you’re pre-revenue, then there’s very little proof that you can point to around the success of your company, and so you’ve really got to focus on telling the story around the people and the potential and getting an investor to believe in those two things.

Again, investing is an emotional act, emotional resonance is probably the most important factor in writing a check at the seed or the pre-seed stage, and so you’ve got to focus your story around that.

“Any advice for helping to build trust with investors and show a track record of the execution or what metrics to focus on?”

This is a question I really appreciate. In terms of building trust with investors, I think there’s nothing like telling your founding story and why you’ve hit on the particular insight that you have around the problem that you want to solve, and then also sharing what you don’t know about the business.

A lot of founders assume that you should be able to answer every question that a potential investor has or know every potential thing that could work with your business, and it’s just as important to admit what you don’t know and what you’re still trying to figure out.

And that’s why we say that we’re looking for founders who have a strong set of hypotheses about the world; that doesn’t mean answers, that means things that could potentially be true, but they’re willing to pursue the truth.

We’re always trying to invest in truth-seekers, and I’d recommend that if you want to establish trust with an investor, make clear that you are a truth-seeker by admitting what you don’t know and sharing how you think you might go about figuring those things out.

“What are the typical questions you ask customer references?”

It varies, obviously, between consumer and enterprise businesses, but for enterprise businesses, we start a lot by understanding the pain as the customer describes it, so really wanting to get in their heads in terms of why this is a problem that they want solved, trying to understand how urgent the problem is.

We often ask what other alternatives they looked at when trying to address the problem. We’re also trying to understand the purchase decision and why and how they decided to go in this particular direction.

And then, finally, we’re trying to understand how upset would they be if they were no longer able to use the product. That’s typically a good signal for the value of the product, and we want them to articulate the value of the ROI, but oftentimes it can be distilled into answering that one question: if this product went away, how would you react and what would you do?

“How different is SaaS seed from consumer seed? Is there any overlap?”

I would argue there’s a tremendous amount of overlap because, again, whether you’re a SaaS business or a consumer business at the seed stage, you probably don’t have a lot of proof, and so it’s all about the story that you’re telling, and keys to your story are the people and the potential, so whether that’s an enterprise business or a consumer business, those things tend to remain true.

So, I think those are the things for you to focus on. Obviously, you want to approach investors who are SaaS investors or consumer investors and are open-minded and have a prepared mind for what you’re doing, but I don’t think you have to think of those types of businesses very differently when raising capital for them at the seed stage.

“Do you invest in a team working a 9:00-5:00 job and working on the startup?”

The answer there is we’re always open to it, there are economic realities that people have, but our general point of view would be: if you have the means, you’ve got to be 100% committed to what you’re doing and we want to see people who are 100% committed to the difficult job of building companies.

We try to invest capital, but also sweat and reputation, and so if we’re going to put our sweat and reputation into supporting founders, we want them to be all in on what they’re building.

“When would be the best time to have a VC on board?”

That’s a good question. Raising capital is also a form of risk; as soon as you raise capital, you’ve got another stakeholder or set of stakeholders who you’re beholden to, and, oftentimes, those stakeholders have expectations.

And so we always tell founders that every time you raise capital, you’re taking on more risk, and so you’ve really got to determine when you feel like you’re ready to take that risk in the sense that when do you believe that you’ve got a business that you want to bet on and that you’re willing to take the risk of taking somebody along on that ride with you?

So, oftentimes, that could be at the outset, when you’ve got an idea and you have a plan for how you want to go tackle that idea; oftentimes, it can be after you’ve got a product in market because you’re unsure whether there’s really a market there or whether customers will really engage with the product. But think about bringing on a venture investor when you yourself feel like you’re ready to bet on the business.

“How scalable and repeatable do seed-stage business models need to be?”

To raise seed capital, they don’t need to be at all, but I think in the market in which we’re operating, and I would argue it’s even been true in the last couple of years, that to raise a Series A round, you need to get to the point where the go-to-market is scalable and repeatable in the sense that it’s not just the founders who are doing the selling.

If you’re doing enterprise selling, there’s got to be a salesperson or, ideally, two salespeople who have proven that they can generate leads and close customers, and if you’ve got a bottoms-up product, then you’ve got to be able to demonstrate that customer adoption is happening organically or from a self-serve standpoint at some modest growth rate.

But you don’t yet need to be at the point, we would argue, where you know that $1 invested is automatically going to translate into $5 in a machine-oriented sense, but you’ve got to have enough evidence that that’s possible, based on what is happening within the business at that particular moment.

“What should pre-seed stage B2B founders be spending their first 250k on?”

Building product. You should be hiring the team to go build the product. At the pre-seed stage, there are really only two things to be doing: one is building a product and the other is distributing products. But you’ve got to build the product first, so if you’re spending money on much more than your team and building the product, then you’re probably misallocating that capital.

“Does emotional connection overcome proof?”

Absolutely. Emotional connection, actually, I would argue, makes it such that proof isn’t necessary. And I would argue that without an emotional connection, you’re not going to get an investment because, at the pre-seed and seed stages, we’re betting on people, the idea may change, the market they go after may change, but we can’t change the people that we’re investing in, and so people can certainly overcome and potentially can certainly overcome any requirement for proof.

“What’s your advice on startups that got affected on the risk due to COVID situation while on wait of Series A?”

That’s a really good question. To the point of building trust with investors, you’ve got to be clear and forthright about what those risks are and communicate a plan for either how you mitigate them or how you get around them. It’s going to be really tough, frankly, to get a Series A if you’re operating in a market that has been hammered by COVID, like hospitality or travel, because I think most Series A investors are going to wait and see how those markets are going to evolve.

So, unless you’re able to talk about why, when the market does rebound, you have a product that is going to be an urgent need and that you can spend the next 8, 12, 15 months building product and demonstrating early product-market fit, you’re going to have a really hard time raising Series A money.

“What’s the fifth risk Series A focus?”

Product, team, go-to-market, and financial risk, that was the fifth risk. I think SaaStr will share slides after the fact.

“Are there any good books you recommend to further understand PPP and that may have also helped influence your ideas?”

In terms of books around fundraising, the best book around fundraising is a book written by Brad Feld, called Venture Deals, but that’s around the mechanics and structure of investments. Fundraising is a moving target, so, unfortunately, I can’t recommend a great book on that front.

There’s a lot of great books around founding companies and being a leader of companies. Peter Thiel’s Zero to One is a great example. Ben Horowitz’s book is a great example. So, those are good books to read as a founder, but nothing specific to raising capital, so to speak.

You’re probably better off reading blogs and content that’s more real-time based on the market in which you’re operating.

“Can you clearly define what you mean with people and what kind of skills you’re looking for?”

In terms of people, again, we’re really looking for people who are mission-driven, who have a unique insight about how the world should operate or what should exist in the world, who are truth-seekers and trying to figure out what the right answer is and don’t have it assumed, but have a set of hypotheses about how the world can evolve, who are incredible at telling their story because that’s what’s going to draw employees and customers and partners and investors.

We haven’t talked about integrity, but that’s an important essential as well. So, those are the types of things. We often say we’re invested in attitude as much as aptitude, so, of course, if you’re building a product, you need to be able to do that, but we think attitude matters a lot more. Aptitude is necessary, but insufficient, from our perspective; attitude is what wins the day.

“In the COVID area, what is a reasonable pre-money valuation for a pre-seed and seed deal?”

Good question. We continue to see pre-seeds anywhere from two million to four million pre-money; seed deals are anywhere from six to 10 million pre-money, and, again, those ranges haven’t changed dramatically, I would argue, since COVID.

There’s just not that much difference in pricing that can happen, given you’re starting at a low base and founders are only taking a certain amount of dilution at that stage, otherwise, it gets really hard to continue to build the business when they take too much dilution, so valuations have stayed fairly consistent, I would argue, at the pre-seed and seed stages.

“We are a revenue-generating company, continue to acquire customers in a large potential market. Would you recommend we wait or seek additional capital?”

I think it’s going to depend on what market you’re operating in. I mean if you continue to grow through this market, that’s a great story to be able to tell.

If things have flattened out, but your existing customers are highly engaged and/or buying more, that’s a great story to tell. If your pipeline is frozen and you’re not able to sell in this market, you might be better off waiting.

In general, if you don’t need to raise capital right now, don’t try; you’re going to be better off waiting until the Series A investors and later are not just collecting data anymore. So, that would be my recommendation.

“Can I test my product in one market, validate it and raise funds from another market and expand in that geography?”

It depends on whether you’re building a consumer product or an enterprise product. I’d argue, for a consumer product, probably not because consumer behavior varies so dramatically from geography to geography.

In an enterprise market, potentially. But I think if you’re going to try to tell that story, you’ll want to have more proof around the repeatable, scalable sales model than you might otherwise because investors will look at transitioning to a new geography where you don’t have any sales on the ground as risk, and so you’ve got to be able to tell a story of how you’re addressing that risk.

“What’s the best way to present market opportunity?”

We don’t hide, we’re publicly available, our email is on the website, at, so feel free to drop us a note.

“What’s your opinion on fintech SaaS startups?”

We’re big fans. We have been long-time fintech investors, starting with a company called Plaid, about seven years ago, and we continue to be very active; about a third of the work we do is in fintech, and so we think that’s going to continue to be a really good market for the next decade-plus.

“If it’s an industry-specific that your team doesn’t know a lot about, do you go through the process of validating the product and team, or you’d rather stick to the industries you know more?”

No, we are led into areas of innovation by founders, so if it’s not an industry we know well, we will work hard to try to get smart in that industry, and we want to learn from the founder, so we’re not opposed to investing in industries that we don’t know. The first time we invested in a number of different industries, we probably, and rightfully so, didn’t know it as well as the founders, so we’re anxious to learn from founders.

“How would you approach a VC in the COVID area? Does cold emailing work?”

While we respond to every cold email we get, I would argue that the vast majority of venture investors don’t, and so you’re always going to be better off getting a warm introduction in a COVID environment or not.

In a COVID environment, it’s going to be particularly true that a warm intro is the best way of getting the attention of investors, and a warm intro combined with a compelling story is really the best way of getting the attention of an investor.

You got to realize, in an email or a pitch that you’re sending somebody, you need something that stands out: what’s going to be the one thing that they remember that’s exceptional either about you, the product, or the opportunity that you’re addressing, that makes them want to take a meeting and have an additional conversation with you?

So, try to get across that one exceptional thing in the pitch or the email that you’re sending to someone.

Let’s see. I think we are out of time. I can take maybe one more question? No, we’re done. Thank you all for joining, hopefully, you got something out of that, and looking forward to hearing your pitches over the next little while.

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