A Product Market Fit Show | Startup Podcast for Founders
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.
00:31:23 · Pablo Srugo, Aaron Schumm
[00:31:23] S1: Your boring 401(k)s. [00:31:26] S0: Right? That was largely the definition of Fintech and I was like, well, we're not crypto, we're not payment. So that's your definition of fintech, we're not it, right? I was like, this is us. There were so many conversations I had where people would look at this business like, this is such a great business. I have no idea how to think about it. They're like, way too complicated for me to wrap my head around it and I got a million other things that I can just throw cash at in the crypto space. So they were all cheese and all the investors were chasing things that I'm like, that's not even a real business. And you're throwing cash. And I'm like, we have a real business. It maybe is less obvious and more complicated than most businesses, but this is a real business, right? Fast forward, right? Sitting here today, I can't tell you how many calls and emails, and conference conversations I've had with people. They're like, God, we miss that one, like. [00:32:10] S1: Of course, of course, yes. [00:32:12] S0: But, you know, you just got to do what you do and say, hey, I'm going to focus on what we do and I can't go chase these other things.
00:32:12 · Aaron Schumm, Pablo Srugo
[00:32:12] S0: But, you know, you just got to do what you do and say, hey, I'm going to focus on what we do and I can't go chase these other things. [00:32:18] S1: Well, let me ask you one specific question about fundraising, whether it's the A, the B, the C. Size of the opportunity, this is where I see a lot of founders struggling. Some founders are way better than others at this, right? Your revenue is what it is. Your team is what it is. Your ability to take something and say, here's why this is clearly a $5 to $10 billion outcome versus here's why this is a hundred million dollar outcome. That's, it's really the story and the way you present it. How did you do it for Vestwell? I mean, on the one hand, you say, well, every business has 401(k)s. We'll sell to everybody, but then it's kind of like not believable. So I'm curious how you crafted that.
00:32:54 · Aaron Schumm
[00:32:54] S0: And I would say I've gotten better at it, right? I definitely wasn't great when I started. I mean, if you asked me back in 2016, how big this business would be. I'd be like, oh, it probably has an enterprise value of a couple hundred million dollars, right? I mean, that's literally how I thought about it when I was starting the business. Now, the TAM is huge, right? There's $50 trillion. At that point, I think there was a little less than $40 trillion that had been amassed and you still had half the market. Over half the market wasn't participating at all, right? So let's say today you got about $50 trillion. You got a little over half participating, right? So we're making a dent in it and if you tack on the other $50 trillion that's not created, you've got a $100 trillion TAM you're going after. The only thing in that kind of stratosphere is health care, right? If you go that route. So that's the how I look at it today. But back in 2016, I didn't look at it. I looked at it in just a 401(k) landscape, which was about $10 to $8 trillion, I think at the time. So it has definitely grown and what we could service, and how we do, and how we present it. But now I kind of look at it like it's endless. Not only the core markets that we service today, where there's so many tangential markets that we can also expand into and we're obviously not doing today. But if we wanted to, at some point we could probably double that $100 trillion.