A Product Market Fit Show | Startup Podcast for Founders
00:21:28 · Aaron Schumm
[00:21:28] S0: So it's kind of a funny story. So V1 was how do we create a, let's say, you get two or three flavors of a 401(k) solution for a micro or small business. So that would be some sort of box. It has a, you know, investment lineup that's already set up. It has all the fiduciary services and so on. And then, a business could walk and sign up, click a bunch of buttons. Think of it, I always think of it like a decision tree, right? You're just kind of like, okay, I want this option, I want this option, I want this option, I want this option. At the end of it, it's like, OK, great. Here's your document. Here's everything that's going to be submitted. There's a lot of other legal stuff that happens behind the scenes. But that was V1, right? So we went through that and people could sign up. Now, it's hard, right? You show up, it wasn't necessarily white labeled, right? When we started for everyone because we didn't really have anyone to white label for. We had a couple of clients, but they're like, who is this company? Who's his brand? Can I trust them, right? And this is a sensitive topic, right? You're asking someone for arguably the second most sensitive thing in their life outside of their family. You're saying, hey, give me your savings and let me take care of it for you. So, you know, you want to be a trusted, reliable source for that. So that was V1 that was funny. We quickly realized that we had boxed it too tight, right? That people didn't fit into those boxes all the time and they'd be like, oh, I don't really want that option. I want this option. Can you do this? And then, you start to open up the box and widen what you're doing. So we ended up sunsetting that kind of workflow. Because there were too many options that we wanted to offer. That we don't want to constrain people in that aspect. So we ended up not doing it because it got too messy. Now, fast forward last year, we rebuilt that same workflow from the ground up and it's one of our core things that flies off the shelf right now. So it was kind of like some of these early ideas that we were right with the idea. We were probably a little off with the exact structure of it. But those have kind of come full circle and now they're actually core to what we do day to day.
00:23:25 · Pablo Srugo, Aaron Schumm
[00:23:25] S1: And that would be the simplest version? In other words, the simplest version, which didn't really work back then. Now you're saying is really taking off. [00:23:30] S0: Yeah, it's really like a product led growth perspective. Where it's just like, hey, here's the link. Just go rip through it and get on board. And we do that all the time now, especially through our payroll partners and it works really well. But it took a lot of work and it took us, you know, we sunset the thing for eight years and then it came back to life. [00:23:46] S1: And then tell me a little bit, because this kind of helps context. Just on the fundraising side, like you started this in 2016. Do you raise money right away? How much? And then the Series A, the Series B, just walk me through how that played out. [00:23:57] S0: 2016, I started going out and raising angel funding. So I spun up a convertible note. It was just, you know, knocking on doors. People asking for, you know, $50,000, $100,000 checks. So I did that, I actually had a lot of success doing that. Was able to actually have an oversubscribed note on it. I actually ended up giving most of that cash back with interest, obviously. Because we did our seed round much faster than I anticipated. So I think it was September 9th or September 8th, 2016. We closed our seed round. We did $4.5 million on that in total. [00:24:35] S1: Which would have been, by the way. That's like median today, would have been top decile probably in 2016 is my guess.
00:24:35 · Pablo Srugo, Aaron Schumm
[00:24:35] S1: Which would have been, by the way. That's like median today, would have been top decile probably in 2016 is my guess. [00:24:41] S0: Yeah, it was. Yeah, it was on the larger side. It wasn't obnoxiously huge, but it was on the larger side. [00:24:48] S1: And that, I assume, with your background and the credibility, and all that. Obviously the idea as well, but that's probably what made that happen. [00:24:55] S0: Yeah, it helped, right? So I, you know, I'd just come off a successful exit. I was selling the last business. It was in a tangential space that, you know, I knew the network. So how to get things going. So, you know, obviously FinTech was the hottest thing at that moment. So you had a lot of things that all lined up and we were able to seed the business. Now, we didn't actually launch it until we started putting on test clients in November of that year, and then really didn't launch it until 2017. And then we did our Series A, I think it was in. I had to go back and look. I want to say it was probably a year and a half later-ish. And that was led by one of our investors who had wanted to lead the seed round. We ended up taking another term sheet. I was like, hey, if you want to come lead the A. I'll give you first crack at it. So went out, priced it and then said, hey, if you could hit this price, then you can lead it. So they ended up doing that.
00:24:55 · Aaron Schumm, Pablo Srugo
[00:24:55] S0: Yeah, it helped, right? So I, you know, I'd just come off a successful exit. I was selling the last business. It was in a tangential space that, you know, I knew the network. So how to get things going. So, you know, obviously FinTech was the hottest thing at that moment. So you had a lot of things that all lined up and we were able to seed the business. Now, we didn't actually launch it until we started putting on test clients in November of that year, and then really didn't launch it until 2017. And then we did our Series A, I think it was in. I had to go back and look. I want to say it was probably a year and a half later-ish. And that was led by one of our investors who had wanted to lead the seed round. We ended up taking another term sheet. I was like, hey, if you want to come lead the A. I'll give you first crack at it. So went out, priced it and then said, hey, if you could hit this price, then you can lead it. So they ended up doing that. [00:25:48] S1: We have tens of thousands of people who have followed the show. Are you one of those people? You want to be part of the group. You want to be a part of those tens of thousands of followers. So hit the follow button. And, where was the business? CrunchBase says October, 2017. Does that sound right? [00:26:03] S0: Yeah, that sounds, that's probably about right. Yeah, probably somewhere between a year and eighteen months. [00:26:07] S1: Where was the business at when you raised that A?
00:26:07 · Pablo Srugo, Aaron Schumm
[00:26:07] S1: Where was the business at when you raised that A? [00:26:09] S0: October '17, Oh God. It was probably a couple hundred thousand dollars in revenue, in ARR. We had, I don't know, probably ten employees-ish. I think it was probably about after our A, where we started really kind of some of the early partnerships. Some of the early RAs, we started to see some inklings that, okay, this flywheel is going to start moving. But even at the end of '18, I mean, we probably had maximum. Half a million dollars in ARR and now we do that stuff like in a day, right? It's wild to see, to go back and look. And I remember one of our investors, he's like, is this thing ever going to make money? And I'm like, it will, it will. I was like, just wait. I said, the wheels are moving and then once they start going, it's really going to take off. But it's going to take a while for them to start going and it did, right? It was a, it's a lot of trust. It's a lot of relationship building. It's about just kind of knowing the whole network and how this stuff works. So we showed up as these wide eyed kids in kind of a, in an old legacy world and we're like, hey, we can do this. And they're like, I hope so, but no one's ever been able to do this. And I was like, no, we're going to do it. And I think people really wanted it to work, but they didn't believe it was going to work. And then, we hit that breakout mode and people are like, oh, God, these guys are really doing it. And then everyone just kind of like got behind it. And now they're the wind in the sails that push us.
00:27:27 · Pablo Srugo
[00:27:27] S1: I find, you know, Series A is a particularly hard round to get. Later on, I mean, not to say that they get easier. It's just, it gets a little bit more predictive. If your numbers are in a certain spot, if you're growing by a certain rate, if your retention is whatever, Series C, Series D. They start to be more numbers driven. Pre seed and seed, you can kind of fake it till you make it. Obviously, if you've got an exited founder, it's a lot easier. But even if you don't, you tell a good story, you end up meeting the right person, right time. It kind of just happens. The Series A, I mean, the stats are probably forty percent of seed raised in A but it takes four to five years. Two years in, maybe twenty-ish percent, depending on which cohort raised in A. It's hard, in your case. When you meet, and I meet founders like this, oh yeah, I raised in A because I was going from $1 to $10 million in a year. OK, got it. That's, I get it. When you're doing a few hundred thousand dollars in revenue and you still raise an A. I'm curious, what do you think made that happen? Besides the team, which was solid and proven. What else do you think you got right when it came to the Series A fundraising? Just as advice of founders that are trying to raise an A.