Raising Series B is no easy feat for any startup. Liz Fleming at Adara Ventures talks about the current state of Series B and interviews CEO at UserZoom, Alfonso de la Nuez, on his journey. UserZoom bootstrapped to 12M ARR and later raised a $34M round in 2015. Hear his story and some lessons he has learned along the way.

Also, if you didn’t attend SaaStr Europa, we’re doing it bigger and better in June 2019.  Grab your tickets! 🙂


Liz Fleming – Principal at Adara Ventures
Alfonso de la Nuez – Co-Founder & CEO at UserZoom

Liz Fleming: So we’re going to talk about the hardest round to raise the risky business of a Series B. And so this is actually how difficult it is to raise a Series B this is data particularly looking at Europe. So less than 10 percent of deals done in Europe over the last 10 years are rounds of over 10 million. And so it’s certainly not an easy feat. And that’s about eighty two deals out of almost 3000 deals done last year. That’s including Israel as well. So they obviously are contributing to that but it’s pretty pretty challenging endeavor. Here is some data room data that is looking at data that is looking at these cohorts since 2011 of how companies are raising funds. And here we’ll see that only 13 percent of companies that are seeded are actually going on to raise a Series B. And so it’s definitely not an easy task. And we’ve started looking our portfolio we’re Series A investors. So once we actually go in on the initial round and you know prove out the proof points that were necessary for the Series A we are thinking about how do we help our portfolio get to Series B that we would be heavily involved in that process a lot of our founders would not have done that before.

Liz Fleming: And it’s certainly a challenging issue. So why is that. And essentially from the twelve years experience we have investing in different companies about 40 percent of our portfolio have already raised Series B 400 million plus between them and the reason we see Series B is so challenging is because it’s essentially it’s an in-between round so Series A is a little bit more obvious the north a lot of the fundraising is built on your vision on on the team and the capability and the execution. We have a product idea. We have some early reference customers. We think this can go big and we are looking for capital to prove it out. That is Series A and is really an awful lot of due diligence going into the teams in the market potential there but Series B it’s not like you have everything sorted on the later rounds maybe it’s a series C or series D they’re really looking at the financial models you have significant metrics that are showing how this is a money making machine and you put more fuel to the fire you’re getting more return. But usually you’re not quite there yet at Series B right. You’ve built this level of momentum to actually get this far. You have a lot of data behind the company already in terms of interesting reference customers interesting acquisition models. The team is quite strong. You’ve actually built out the team obviously wider than the founding team and brought on maybe some interesting executives but there’s still some talent missing there’s still different models that haven’t been tested maybe new geographies and verticals that you planning to go into that are unproven at the point of Series B.

Liz Fleming: So how do you get to the other side how do you actually bridge that gap and bring on that round and we believe that it really is a combination of the momentum that you’ve already built in the company and your vision as the founding executive team of how are you going to realize the full potential value of that company. And it’s really about these two things the momentum which is entirely driven by data and that’s your metrics and that’s your traction and that’s your model. But not exclusively the data typically won’t show the full potential of the company at this point. You actually need to sell them your story as well. So the vision you have for the company of where the market is going. Of how you can continue to be a significant player in that market you’re really talking about taking the company from 10 million ARR to 100 million ARR. The vision changes significantly from series to series B. And what we’ve seen in the most successful fundraisers within our portfolio are teams that can combine these two elements in a really cohesive manner. So you can’t be selling a vision that’s not really matching the historic data that you already have.

Liz Fleming: But likewise the historic data in isolation is not enough to actually get you across that gap to the other side of Series B. And so they’re just kind of broad observations that we’ve seen from our investments and now what I’d love to do is get to the far more exciting part which is understanding the story of UserZoom and how they’ve actually managed to finance and their growth strategy. So. In case you haven’t heard of UserZoom this is an incredible company whose story should be much more widely told and thrilled that they’re able to tell it here it at SaaStr. UserZoom is the SaaS company which is a category leader in the area of user experience research so it’s a platform where large companies and enterprises can monitor test and react on the user experiences of their websites and online digital assets and they’re already working with a significant number of Fortune 500 companies originally out of Barcelona now based in the valley bootstrapped to up to almost 12 million annual recurring revenue I believe. And then finally decided to make a leap and raise a significant V.C. round of 34 million just back in 2015 so an incredible story Alfonso and delighted to hear more about it from the horse’s mouth. So can you just take us back a little bit to the beginning and tell us a little bit about how and why you set up this company and its trajectory today.

Alfonso de la Nuez: Sure thing. So thank you very much. First of all I have to apologize because I ran into a voice this week so hopefully you can you can hear me. I asked for the biggest microphone they had. Thank you so much for that introduction and super excited to be here. We started the business because there was a gap in the markets you know websites and apps were being built without any regard to the end user. And I hated that. So we got together and we initially started our consulting business to help the enterprises. Like you said do the research and the testing to optimize user experience. And after a while we realized that consulting or services work was not a scalable business. And we started looking at how we how we could prototype the research and that service. So UserZoom was born out of that need and that domain expertise that we gained through the consulting years. We bootstrapped it out of Barcelona. I’m from Madrid but I don’t have much of a rivalry with Barcelona. It’s OK. I like them too. I like to beat them at the Champions League. But anyway. Quickly after we launched we realized that the biggest market for user experience testing was Silicon Valley. And so we basically took money from friends family and a whole bunch of fools and we went to the U.S. to the valley. I moved there with my family to initially test waters and see if there was a market or if we could scale this business. It turns out that we were able to get to go from pretty much zero to 12 million in ARR in about six years. And. You know at that point we raised money and we kind of we kind of were born again so to speak. And so that’s kind of what we were talking about here.

Liz Fleming: Cool so what now. I suppose in reflection what are the pros and cons that you’ve seen through that bootstrapping period. I mean relocating to the Valley is a very expensive cost base I can imagine acquiring you know really high end customers their shirt certainly wasn’t an easy feat. And what do you see now we’re kind of the pros and cons of the advantages and disadvantages to bootstrapping.

Alfonso de la Nuez: Well the pros obviously are you know the dilution that Jason was talking about right. So we had the three co-founders we had the majority of the company. We had total control and we basically were able to to make our own decisions and all that. I think that if you raise too early into Alex’s presentation earlier to much for early growth. You know it may sound fantastic. It may sound sexy, but the fact is it’s all about momentum and it’s all about the market opportunity. So for us. We didn’t know and actually we never thought this market would get big. That’s why we didn’t raise. We had some great brands and great customers and you know fairly good growth. But when I was in the valley I basically rejected anybody that was telling me that I should go talk to VCs because I was like I’m not I’m not a fundable business for you. You want to get one hundred thousand you know million or a billion dollars in return. It wasn’t big enough a market. It changed later. So the cons is well. I’ve got scars all over the place. You can’t see them but. MAN Is it tough. You know. I mean we like especially if you go to the valley like I did you know I had a low salary for a long time. I had my life. Before I went to the valley I had my great life in Madrid and I know how you know how great life is in Madrid because you live there. And I basically gave it all up. You know personally you feel you don’t have your family anymore because are nine hours distance and all that stuff. And from a professional from a business perspective you actually may lose opportunities because you don’t have the capital. So you know. So that’s the pros and cons. Looking back I would have probably raised a little earlier I would have taken a little bit of more chance because it was really really hard. And also because once we raised one of the first things we did is we started professionalizing the business. And that and that we should have done a little earlier.

Liz Fleming: Ok sure. So certainly a hard slog a lot of resilience involved there I imagine and making it happen but a super interesting case and kind of unique growth trajectory.

Liz Fleming: And so you came up exactly against the dilemma that Alex was talking about in terms of we’ve busted our asses we’ve put 7 years into this company it’s starting to show the fruits of that we’re building a solid business you probably could have taken that decision to do make a lifestyle choice and maybe exit that company or just let it continue to grow and live a maybe more comfortable life or go to big leagues. So is suddenly I mean back don’t know when you started fundraising you did the round in 2015 why at that point did you decide OK. It’s big leagues. We’re gonna fundraise. We’re gonna go for a much more aggressive growth trajectory I guess.

Alfonso de la Nuez: So the key is market opportunity honestly. I mean in momentum like you had on the slide. See I think this is why entrepreneurship and growing a business scaling a business is an art and science. If we all knew that there’s a huge market opportunity out there to go after everybody should raise right. We didn’t know this would get big. We didn’t know that we actually had a lifestyle business. We thought it was a lifestyle business. Now past 12 million or at the time we got to 12 million. We were also profitable by the way. I will tell you honestly VCs pitched to us. We didn’t pitch to VCs. I feel very very proud about this and I don’t want to sound cocky but I raised thirty four million without a single pitch. All we had to do is tell the story and show the numbers and look at that and really analyze the market opportunity. Now the good news is that when you’re in the valley you know companies somehow know about you. They know they’ve heard it somewhere or they have this incredible intelligence so they knew about us. And I’ve followed your trajectory in the last few years. Oh my goodness. I can’t believe this. So they were pitching to us you know because at that point there was a clear opportunity that we could turn this into a major business and scale to 50 or 100 million. And that’s what we ultimately decided to fully Americanized the business by the way. By that time we were a Barcelona company and I was in the US trying to make it. But you know with the money we Americanize the company we set the headquarters in California in Silicon Valley. I got my green card. And at that point you know my co-founders who were still in Barcelona understood that they had to give up. Control for the better of the company. And I was the best news. And so that’s what we did. We ended up going for a large round that you know was just a fantastic dream come true.

Liz Fleming: That’s amazing it’s actually almost the reverse to what you usually see because very often what we’re seeing is founders pitching a massive market opportunity and seduced by this opportunity that they see and then the challenges around can they execute execute on that opportunity. Can they get the right positioning. Can they build the market. But you were almost dragged into that scenario where the market was pulling you which is quite curious. And so you kind of already proven I suppose this product market fit in your ability to execute. So then it was far more obvious I guess. So I can understand why it was so attractive for the VCs to come in at that point.

Alfonso de la Nuez: If I may say the thing is here we were in Paris and we were in Europe you know one of the things we have to do in Europe is think bigger. We have to think bigger. We were not thinking that big. And yes the V.C. and kind of the markets back then was clearly telling us think bigger everybody is a software company every company is a software company. Everybody should be worried about the user experience of their product. You know today doesn’t matter if you’re a software business or a hardware business and it doesn’t really matter what industry the consumer is going to interact with you through some sort of UI mobile or desktop or iPod or whatever. And so. Yeah we were not thinking that big and the V.C. convinced us the market convinced us. And I think that I really believe that if we had. Thought a look like if we were if we had thought. Bigger we would have raised maybe a little earlier and today we would be more like a 50 million dollar business rather than a 25 million dollar business.

Liz Fleming: Yeah. So and just to be controversial about it and do you think any of that would have happened if you had stayed in Barcelona. I mean they ran this change in the chip of thinking big.

Alfonso de la Nuez: Absolutely not. Things are changing today. Barcelona is becoming a fantastic hub and there’s a lot of great companies in Spain as well as you know. But back then no way. I mean the valley is this is what I like about the Valley is about the people. It’s about the network it’s about the spirit of entrepreneurship. That’s not something it’s cultural. So it is not something you can bring in just because we have an office in Barcelona and you call it the Silicon Valley of Europe whatever it’s all about people in the mentality. So I think that we changed. In fact I’ll tell you honestly. If my co-founders heard me say this you know maybe they would be upset with me but I got the virus I got the Silicon Valley thinking big virus because I moved there. But my board in Barcelona were like Oh come on Alfonso don’t don’t don’t you know what are you thinking about. You know you’re going to be another billion dollar company. Yeah. I think we got to change our mind in Europe and think bigger. Yeah certainly also an excellent round of applause for that

Liz Fleming: Love ir. And it’s it’s a huge issue. I think that’s a whole separate session to be done on that and we focus on bringing European technology to the US. And it’s you know a lot more challenging than you would think particularly from a cultural perspective even that within the team. So it’s curious to hear about that kind of. Friction I guess that that happens and is inevitable. And so how’s life since your life surely changed dramatically. What you know what’s the difference between before the round after the round how things. How were things changed. Are you dealing or even a personal level with that transition.

Alfonso de la Nuez: Yeah so. So this is the first company I scaled and so I’m super humble. I’m learning every single day. That’s why I come to this conference. I’ve been following Jason and SaaStr for many many years. I love it. I absolutely love it. What I’ve learned before we raise. I think I was I felt like I I mean I was learning to be an entrepreneur. And it’s extremely hard as you all know now. After a year or so after we raised you know we had to find talent and we had to change a lot of processes and the companies changed so much. So I feel like I’ve learned to be a CEO. You know it’s kind of a I guess a funny way of saying it but is you know when you’re launching a company and you’re maybe up to 10 million maybe 20 million you’re learning to be an entrepreneur and that’s already hard enough. But boy it doesn’t get easier. So I’m learning to be a CEO and to me a CEO of a bigger company. You know you completely change the role completely changes obviously as many of the other panelists and speakers have said you have to be a people person for sure because people are number one asset for sure.

Alfonso de la Nuez: You know H.R. is huge. Process is huge. Every single functional area in this company and our company UserZoom has changed dramatically in the last two years. I mean product marketing of course sales. I actually have hired really expensive and experienced VPs. Were talking about VPs earlier and I’ve let them go too. And boy it got really really hard. I’ve promoted people inside the organization that initially were not ready but now they are and I’ve also let go of people that were ready to or we’re actually really really good at getting us to 10 million and they absolutely sucked after that because they wanted to keep control of everything and they wouldn’t let go of two major employees that I actually loved. And that happened you know it just wasn’t a fit. So anyway I guess it’s a long answer too. You know you’re an entrepreneur and then you do Series B you’ve got to change your game and learn to be a CEO. Yes

Liz Fleming: Excellent. And in terms of alluding to this growth pressure that Alex talked about earlier I mean are you are you feeling that you have a lot more responsibility now in terms of the outcome. There is you but you’re now building this company firm you know more than the immediate team and yourselves I guess.

Alfonso de la Nuez: So one of the things that when I was listening to Alex came to mind is you have to pick the right investor. He was right. I mean there are there are investors out there who want you know to really really large exits. But I will tell you that there’s also investors even in the Silicon Valley area that are OK with a an exit of 2 300 400 500 million. Yeah I guess it sounds that sounds like an amazing outcome but for Silicon Valley standards two hundred three hundred. So it’s a pretty good one but not that great. So what you have to do as an entrepreneur is you have to pick the right fit with your investor is it worse than a marriage. Okay. With a marriage you can get divorced with an investor. No you can’t. It is there forever. Okay until you sell the company or whatever. So make no mistake you want to find the right fit culturally. So. So in terms of pressure you were asking about the growth pressure our investor is a very special investor. And I to be honest I like him a lot even after two years because we know it was all about expectations. They said you know we want we want growth but they weren’t they weren’t looking for a hundred percent growth. They were looking for a long term sustained sustainability in a business that can grow in the next five to seven years you know and if we exit at you know 200 300 400 we’re all going to make good money. So I feel the pressure for sure but it’s a pressure that to be honest I put it to myself because I think now we have a great opportunity. And if somebody has trusted us you know my company that I started with zip with 34 million dollars with a 34 million dollar check I kind of feel a responsibility to pay them back you know. So I don’t know I don’t have that much pressure to be honest.

Liz Fleming: Excellent. Cool I mean it sounds like it’s been pretty conservative approach and a lot of momentum already there in the business. So interesting trajectory ahead of you.

Liz Fleming: So just to wrap up we’re running at a time there. But finally how are you. And you know what is now driving you what are you most excited about. Most passionate about what’s next for UserZoom you know. How was your vision changed in terms of doing this. Well you know what are you super excited – What are the challenges that you’re excited about right now at this stage of the company.

Alfonso de la Nuez: A lot of things come to mind. I. We still have a lot of the early employees. So the first thing that comes to mind honestly is I would love a great exit for my employees. I I think. You know. I think of my employees sometimes as as my kids and I also appreciate so much that they’ve joined me in the journey they’ve taken a whole lot of risks. And it’s not easy right. I mean there’s just like this. So I really want to do this for. For the employees. Second I want to do this for the investor. Again I’m just so appreciative that somebody would write a 34 million dollar check at a point in the company when things were not certain you know so. So I would like to pay them back big time. And then last but not least it’s a journey for me. I’ll be honest. You know part of that round was used for secondary so you know I was able to get some nice money to sanitize my my my financials. But you know money and having money that kind of goes quickly the next day. You want to go back at it you know and you want to. You’re thinking 50 million and the next 100 million. Because it’s a journey. And so what drives me is that journey of going in different stages meeting different people having different challenges. That that’s the third thing that drives me.

Liz Fleming: Yeah. So I’m enjoying the journey even more than the outcome now. Amazing. Excellent folks. That’s all we have time for. Please join us in this big round of applause for Alfonso. Thank you so much for sharing your story. Thank you. Thank you very much.

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