The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
01:02:32 · Harry Stebbings, Jack Zhang
[01:02:32] S2: Did that not strike you as alarming at the [01:02:35] S0: I kind of realized once we sort of reject the Stripe offer, and ultimately we're gonna compete, it kind of scares me that if I don't invest fast enough, ultimately, you know, we just don't have a role to play. [01:02:47] S2: So it was the right thing to make those investments? [01:02:49] S0: Well, we kind of did two things. We went all in to international expansion. So we started opening offices in The UK, in The US, and everywhere. And that kind of took me a disaster because we kind of didn't have product market fit in any of these places. And then that international expansion basically just failed. [01:03:05] S2: And that was because of product market fit? [01:03:07] S0: Yeah. We're not hiring fast enough. We're not building product enough. We don't have a real product in The UK, but we hired a bunch of teams here. [01:03:14] S2: How long does it take you to realize that the international expansion not working rollback? [01:03:19] S0: Pretty quick. I mean, you just don't have any revenue because nobody gonna buy your product. [01:03:23] S2: So six months later, were like, uh-uh. Cut. [01:03:25] S0: Yeah. I didn't cut. I basically keep going. And because we had an infrastructure here, we needed people to manage in the infrastructure, and we keep trying. And a lot of the people I hired, like, are my friends. [01:03:36] S2: So you just, like, persisted through Yeah. To product market fit in these geographies? [01:03:40] S0: Yeah. Took me three years to get PMF in The UK.
01:03:40 · Jack Zhang, Harry Stebbings
[01:03:40] S0: Yeah. Took me three years to get PMF in The UK. [01:03:42] S2: Wow. That's a lot of money. [01:03:44] S0: Well, I mean, it's a small team, and then we also churn a lot of people. So that was the mistake I made. [01:03:50] S2: When you say that was a mistake you made, what was that mistake? [01:03:53] S0: Just bad hiring? We also didn't have the product. I think we just hired too early, and also, like, we don't really know what sort of people to hire. It's kind of a combination of both. What do you mean [01:04:02] S2: you don't know what sort of people to hire? [01:04:04] S0: I'm a product engineer. I really have no idea how to build a commercial organization. And all we did is selling to large enterprises, right? But we have a lot of VC network in APAC. And when I come to UK, I don't have the VC network. I don't really know how to sell to large enterprises. I don't have any VC network here. No one opened a door for me. And we just couldn't really sell the product. The vision really evolved from a single product company to a multi product company. But that evolved to three and a half years to get the initial product market fit. Just during that three and a half years, we are too aggressive in international expansion while we don't have a good product. [01:04:38] S2: And so we need more money. Yes. And at this point, our last round was the 1.1 with DST. [01:04:46] S0: Yeah. What happened? And we're running out of money again. [01:04:47] S2: Are you nervous when you're running out of money?
01:04:47 · Harry Stebbings, Jack Zhang
[01:04:47] S2: Are you nervous when you're running out of money? [01:04:50] S0: Yeah. And I'm at SoftBank. And I was like, okay. So SoftBank was the gold in VC. This is 2019. [01:04:57] S2: Okay. [01:04:58] S0: And I fly all the way to London in October 2019, and SoftBank going to lead the round. And this WeWork stuff happened. And they stopped investing, and they did all the work, but the partner going to invest in us got fired. And I literally in a situation we're going to kind of die again if I'm [01:05:17] S2: not able to raise money. What happens then? Basically, I [01:05:20] S0: would have convinced the existing investor to give me a lifeline of convertible notes. So DST and Tencent led the convertible notes. Wow. So we raised essentially, I think, 70,000,000 to $100,000,000 kind of a convertible. But the idea is that we're able to raise another round straight after that. And I need to find an alternative to SoftBank. And Heydosofia is the answer. So Ian from Heydou that led our Series D to kind of get us going. But the funny thing is that COVID happened in 2020. When we signed in the SPA, because we have a business in China, we know that the virus is taking off. And this is like February 2020. And we were literally going through this due diligence stuff. And everyone's sort of the investors start asking me, what is this COVID thing? I didn't know how to answer the question because I was like, this is going to be really, really bad. And I can't say that. [01:06:12] S2: You knew it was
01:06:12 · Harry Stebbings, Jack Zhang
[01:06:12] S2: You knew it was [01:06:13] S0: really I knew it was really, really bad because I have employees in China, and RISE is like a shutdown the whole city and all this crazy stuff. I even wrote a text message to the prime minister of Australia to shut the border from China. I remember that the week that the day we actually the week we actually closing the Series D, The US stock market tanked more than ten percent three times. This is the first time ever happened in The US history. So the market went down 30%. I called Niushan, and I was like, Do you think Ian's going to close? And would you close if you are in this situation? And Niels told me he's really not sure. He's like, No one would know in this situation. It's like never happened before. I wasn't sure, and nobody was sure. To the credit of Ian... I mean, Ian closed. [01:06:54] S2: What was that round? [01:06:56] S0: That was, I think, 1.7. This is like the round after the convertible, so that all the people that invest in a convertible get converted to the $1,700,000,000 round. [01:07:04] S2: $1,700,000,000 How big was the check? [01:07:06] S0: I think was $150 Obviously, half of that is existing, and Ian put in $75 or $80 M. [01:07:14] S2: How is Ian? He's very behind the scenes, he's very discreet. [01:07:19] S0: He is. I mean, Hirosofia is a very secretive phone, and we weren't allow to put a PR using the Hedosophy name. So you would see a bunch of investors led the Series D, but Hedosophy was not named. I think they changed the policy now.
01:07:19 · Jack Zhang, Harry Stebbings
[01:07:19] S0: He is. I mean, Hirosofia is a very secretive phone, and we weren't allow to put a PR using the Hedosophy name. So you would see a bunch of investors led the Series D, but Hedosophy was not named. I think they changed the policy now. [01:07:32] S2: Yeah, they have done. They're much more public. Yeah, they're a [01:07:34] S0: little bit more public now. But yeah, I think Ian's sitting on my board and he's one of my largest investors and not many people know about it. [01:07:41] S2: Has he been a great board member? [01:07:43] S0: Yeah. I mean, he's been investing in the company from 2019 for like five, six rounds after that. He just keep doubling down. So I think we're probably one of the largest investment of Hidosofia in terms of dollar amount. [01:07:55] S2: So you close that, we get going again. Yes. We keep plowing away at these international markets. We are fucking relentless, bashing product market fit in them. And we fix it. It starts looking really good. When does the business really start humming? [01:08:08] S0: I mean, 2020, obviously during COVID, our revenue went halved. That's why we weren't sure whether we're going to close. Because half our revenue is from tuition and travel, right? And all this tuition What's your revenue at that point? Scrub acquisition at that time, we were only $2,000,000 in 2018. So we went 10,000,000 in 2019. So we five times the revenue in 2019, so 10,000,000. Then 2020, we had 20,000,000. '21? '21 that we went more than doubled again. [01:08:38] S2: Wow. In COVID.
01:08:38 · Harry Stebbings, Jack Zhang
[01:08:38] S2: Wow. In COVID. [01:08:39] S0: 2020, we doubled. Right? So that's where COVID. And 2021, we [01:08:42] S2: more than doubled. We're kind of 2.5 x. Fuck. 2,000,000 in revenue when Stripe did the 1,200,000,000. [01:08:49] S0: Yeah. And then crazy assent, no. [01:08:54] S2: No. No. No. Now you look like a genius. But if I was a VC on your board, Dan, I would be supportive if you wanted to sell. Well, I mean, from a [01:09:04] S0: Sequoia point of view, Dan, they invested $4.80 only for three months, and they made under double the money because the 800,000,000 on the cap table, [01:09:12] S2: right? Dude, I totally get it. It does not do much for them in that respect. And their fund size, totally. Okay. So we closed ahead of Saphir. We're off to the races. What happens now?