A Product Market Fit Show | Startup Podcast for Founders
00:32:45 · Pablo Srugo, Rafael Broshi
[00:32:45] S2: I mean, I find it's almost guaranteed that you're either going to have to fight status quo and people just not wanting to change or move. Because they don't really have a burning need, or you're going to have to find competitive vendors. The odds of you being in a place where everybody wants to buy and you're the only one selling. I mean, you know, if you're there, that's awesome. But, I just don't know how you could manufacture that situation. [00:33:11] S0: Me too. If you're going for an area where there's a gaping demand right now and the demand is growing by 100x a year. There's going to be competition there. There was competition in the dot com era. There's competition now, there's going to be competition in the future and if you look at the dot com era versus now, information flow is so different than it was, right? You can't compare what you're seeing now in terms of competition, but you also cannot compare the level of exposure you can get as a startup as well, right? I can reach any company I want anywhere in the world pretty easily. I'm not saying I'll be able to sell to them, but everything is much easier now. So it's like everything works together, more competition, more market opens up, the market grows faster. But I agree, it's all the same. It's like human nature. The easiest thing is to build something that is so complicated and so amazing that you don't have to talk to any potential customer ever and just keep building it, right? That's what everyone would want. That's like the dream but unfortunately, that's.
00:33:11 · Rafael Broshi, Pablo Srugo
[00:33:11] S0: Me too. If you're going for an area where there's a gaping demand right now and the demand is growing by 100x a year. There's going to be competition there. There was competition in the dot com era. There's competition now, there's going to be competition in the future and if you look at the dot com era versus now, information flow is so different than it was, right? You can't compare what you're seeing now in terms of competition, but you also cannot compare the level of exposure you can get as a startup as well, right? I can reach any company I want anywhere in the world pretty easily. I'm not saying I'll be able to sell to them, but everything is much easier now. So it's like everything works together, more competition, more market opens up, the market grows faster. But I agree, it's all the same. It's like human nature. The easiest thing is to build something that is so complicated and so amazing that you don't have to talk to any potential customer ever and just keep building it, right? That's what everyone would want. That's like the dream but unfortunately, that's. [00:34:22] S2: Not life, yeah, not really. [00:34:23] S0: Yeah. [00:34:24] S2: What I'm curious, just on the fundraising side. How much had you raised by 2023? [00:34:29] S0: That was seven million dollars. [00:34:31] S2: Normally you raise, you do the crypto thing, and then you're probably running out of money. You need to raise again. What was your kind of situation?
00:34:31 · Pablo Srugo, Rafael Broshi
[00:34:31] S2: Normally you raise, you do the crypto thing, and then you're probably running out of money. You need to raise again. What was your kind of situation? [00:34:37] S0: Yeah, so when we decided to pivot, we had $2 million left. Fired almost everyone. We're left with one, two engineers. Built the product for a year and a half. We didn't hire anyone for a year. Then we got to a point that we're almost cash flow positive. We burned $10,000, $20,000 a month. [00:34:54] S2: This was when? Now, '20, late '24-ish. [00:34:57] S0: That was, yeah, end of 2024. Investors told us things were picking up and we had our first six figure contract. A few hundred thousand dollars and when you're four or five people team, and eating noodles all day. You don't burn a lot of money. It's possible to build a product without burning a lot of money. But then you get to a point where you say, OK, either I'm continuing like this bootstrapped. It's going to be slow and the market is exploding, or we're going to raise more. So then we raised an additional $7 million and then we started ramping up and then we simply, we raised the $30 million.
00:34:57 · Rafael Broshi, Pablo Srugo
[00:34:57] S0: That was, yeah, end of 2024. Investors told us things were picking up and we had our first six figure contract. A few hundred thousand dollars and when you're four or five people team, and eating noodles all day. You don't burn a lot of money. It's possible to build a product without burning a lot of money. But then you get to a point where you say, OK, either I'm continuing like this bootstrapped. It's going to be slow and the market is exploding, or we're going to raise more. So then we raised an additional $7 million and then we started ramping up and then we simply, we raised the $30 million. [00:35:30] S2: Did you find that that was any harder? One thing I do find with competition is, if you have a lot of competition, it might not affect the business. Your business might be growing really fast, but it does tend to affect fundraising, or at least I've seen it affect more fundraising. Because it's just such an easy. Frankly VCs are like finding reasons to say no because you need so many, you got to just filter quickly and so competition is an easy one, too competitive, too competitive. Did you find that was the case? Did you find it was a little bit harder to fundraise? At some point your numbers are so big, it just doesn't matter anymore. Clearly you're winning, but in that seed stage, you know.
00:36:02 · Rafael Broshi, Pablo Srugo
[00:36:02] S0: Yeah, always when you're in the extremes, everything doesn't matter, right? If you want to raise an A and you have a billion dollars in ARR, and you're growing five hundred percent. It's fine, you don't need a story. You don't need to meet anyone. You're going to get money. If you have $0, you're not going to get money. If you're in the few million dollars, that I get. VC space is business on steroids. I tell it to my parents that have businesses. This is nowhere like building a business. Maybe it's like that in the future, right? But it's extremely different. The KPIs are different. Working with VCs is different, and at the end of the day, a VC that invests in you and the seed round. All they need to really think about is will there be an investor that leads the A round, right? And the A round for B, and the B for C. Obviously building a business, it's important, we all know that. But it's gambling, right? It's building and putting money in a direction, and building a team of fifty people. Where your business warrants a team of five people and when you get there, building a team of five hundred. [00:37:01] S2: Needs to be somebody else to get to the next stage, that's right.
00:37:03 · Rafael Broshi
[00:37:03] S0: Exactly, this is just the way it is. So it's very reasonable for a VC to only want to back the number one in a category. No one wants to back number three, no one and I think in a competitive space. The story is extremely important, and the story is not enough to say AI for customer support. Because there are a lot of those, but then you're competing with all of the best players in the world and then you're seeing a player that has raised $500 million and you raised seven and you're competing. You're still competing because they said, well, they took over the market, and things like, well, this is a $200 billion market and they have $75 million of ARR. It's not really taking the market, but those things don't really help, right? You need to explain why you're going to be the number one or front runner in a specific box in the market and why. So I think that's the important part, and the more competitive your market is, the more you need to crystallize the story. And it's very easy to say, well, I don't want to do that just for investors, but it's not. Every time I see that and I say that, I say, well, look, if you cannot crystallize it for your investors, you won't be able to crystallize it for customers. And VCs are not necessarily forward indicators of the market, but they are some derivative of what your customers are seeing. Because if everyone wants to buy you, you're going to be number one. If you are saying you have an amazing product, but your growth rate is not good. It means that customers are not buying you and it means there's something wrong. So before starting Notch, I was two years at a hedge fund. All I did was analyze companies, and when you're at a hedge fund and you don't speak to the companies. Public companies that you invest in, at the end of the day, what do you look at? You look at growth rate and you look at market share. If I'm looking at a large company and I see their growth rate is above the market and they have pricing power. They raise their prices by five percent a year, I don't need to know much else in terms of what is their position in the market. They have a great product, people like them, they have pricing power, it means everything. The smaller the company is, the less signals you have, the stronger your story needs to be.