A Product Market Fit Show | Startup Podcast for Founders
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.
00:28:21 · Aaron Schumm
[00:28:21] S0: Yeah, so I was pretty methodical about who I wanted around the cap table and how I wanted them to participate. So I spent a lot of time curating investors that didn't necessarily have to be experts in the space. But they brought an attribute to the table that either I didn't have, or it was a strong signal that they were very in tentful and very bullish on the space. So when we did our A, right? Or you go back to the seed even. So FinTech Collective led it, and I wanted them to lead it because that was where they were focused at the time. And they were obviously focused on FinTech as the namesake. And they knew a lot of advisors, and RAs in the world that maybe I didn't have a direct reach into. So I remember going up to a wedding in Massachusetts and I was like, hey, I'm heading up to a wedding in Massachusetts. Oh, great, when are you going to be up there? I was like, I'm going Friday morning. It's like, great and they would just stack my calendar with meetings, right? You know, before you even got to the wedding, I had a whole slate of meetings. I was running around Boston doing and then I was like, great, did the meetings then bounce out to the wedding and that was fantastic, right? So you had that almost like a biz dev kind of motion and then also around the cap table, I had the primary guys here in New York. Primary Venture Partners, and they were Brad Svrluga and those guys were really focused on what I call seed stage enterprise technology. So they brought a wider lens of how to think through the enterprise landscape because you had to put multiple irons in the fire. Because one was going to go faster. So the RAs were going to go faster and the enterprise stuff was going to go slower. But you had to start them simultaneously knowing that one of these enterprise deals would hit at some point in a year or two and then the other name I brought in was F Prime, who led our A. Because they were part of the Fidelity family and obviously knew this whole network really well. And Fidelity is one of the dominant forces in the large market retirement space. So I was like, OK, I got people on the table, like Commerce was the other one that was a fintech.
00:30:27 · Pablo Srugo, Aaron Schumm
[00:30:27] S1: But did you nurture these over time? Well, before they happen, methodically? [00:30:32] S0: Well, so I wouldn't say I nurtured them over time. I met them in early 2016, and then was continuing to build. Then they got out of the cap table in 2016, and then it was just continuing to prove it out, right? And they were in the boardroom. They knew what was happening and how the platform was developing. So when I did my A, I didn't really have to go and educate a bunch of people, right? I already had people around. I had someone who could write the check. They just needed someone to price it and I had the expertise. So that was it. Actually, our Series C during COVID was the hardest round we did and that was very difficult. Because everyone's remote, everyone had ADD, and Zoom, and doing a thousand pitches a day. [00:31:12] S1: That's mid '21. That was peak heat of the market, no? [00:31:16] S0: It was, but not for us. [00:31:18] S1: OK. [00:31:19] S0: It was because we weren't crypto, right? [00:31:21] S1: Yes. [00:31:22] S0: And we weren't payments. Yeah, this is not hot. [00:31:23] S1: Your boring 401(k)s.