Have you tried to pitch a SaaS company and need to raise early-stage capital, but don’t know the best strategies to do so? Today’s episode features a panel discussion with SaaS influencers sharing their advice on how to pitch a SaaS company to investors.
Panelists include Jonah Midanik, founder of Limelight Platforms and managing director of the Acceleprise Accelerator Program; and Mikael Dia, founder and CEO of Funnelytuics.io. The panel discussion is hosted and moderated by Jono Landon, founder and CEO of Hubbli.
Topics Include:
- Funnelytics.io: Funnel analytics company that helps marketers turn traffic into profit
- Limelight Platforms: Offline marketing platform evaluates events, sponsors, and shows
- Acceleprise: SaaS-only accelerator program provides capital to companies with products in market to avoid problems
- How to select investors? Build momentum, gain traction, and find investors that fit
- What is haute to fundraise? Venture-backed startups don’t always correlate to success
- Pitch Deck vs. Narrative: Share a story that resonates with investors to get buy-in
- Mistakes Made: Thrown out of investor offices and not doing stage-appropriate pitching
- Pre-Seed Pitching: Is the market big? Are you good? Do you know how to get there?
- United States vs. Canada: Risk tolerance is different and product of your environment
- Work/Life Balance: Time, energy, attention, love, and patience is fixed resource
- Pre-Revenue Advice: Talk and listen to customers without trying to position your product’s solution to a problem
- Proof of Concept: Positioning generates revenue and system attracts same buyers
- Wow Moments: Combination of expertise, traction, and no attribution of offline marketing
- Leading Indicators: List, learn, practice, and improve to be successful with investors
- Early-Stage Price Model: Tweak, test, and play with pricing regularly
Links and Resources:
Toronto Software as a Service (SaaS) Meetup Group
Acceleprise Accelerator Program
Price Intelligently by ProfitWell
Tweets:
Episode Transcript
Jono: Hello and welcome to the Kick Saas Podcast. I’m your host, Jono Landon. In this podcast, we share excerpts from live in-person SaaS growth events that I run here in my hometown of Toronto, Canada. A little about me, I’m the founder and CEO of Hubbli, a B2B SaaS company that helps private schools find new families to enroll and engage them throughout the entire enrollment journey. Essentially, it’s like HubSpot but for private schools.
This episode is a recording from a recent panel discussion that I hosted and moderated at the Hubbli head office here in Toronto on the topic of How to Pitch A SaaS Company to Investors. The panel included two major influencers in the SaaS world here in Toronto. One is Jonah Midanik, founder of Limelight Platform and the managing director of the Acceleprise, accelerator program, here in Toronto. The other is Mikael Dia, founder and CEO of Funnelytics.io, also happens to be one of my personal favorite marketing tech tools.
This panel discussion offers many great takeaways for anyone who has founded or is leading a SaaS business and needs to raise early stage capital. We’re going to jump right into this episode and I hope you enjoy the format and content we go through here. I look forward to sharing future episodes with you from these live SaaS growth workshops.
Mikael: My name is Mikael Dia. I am the founder and CEO of Funnelytics and basically, pretty simple, right? I took the word funnel, I took the word analytics, I smashed them together and that became the name of my company. We are a funnel-analytics company, we help you understand what’s working and what’s not working with your marketing funnels—look at your ads, your emails, the flow of your traffic. We show you what’s making you money and what’s not making your money.
We launched 24 months ago. We scaled to just over $3.5 million in those past 24 months, bootstrapped, we’re just closing our first round of funding. That’s in short. I’ve raised some money in the UK and stuff like that so we’ll talk about that as well.
Jonah: Hi, I’m Jonah. Dual role although most of my time actually spent on the evil side of the table. Most recently, I was the founder and CEO of Limelight. Limelight is an offline marketing platform. Basically, taking all the fun tools digital marketers had online and bringing them offline. For big Fortune 5000, so they could evaluate things like their events, their sponsorships, their consumer show. If you’ve ever walked through Scotia Centre and anyone’s ever stopped you with an iPad, I apologize in advance. That was likely us.
SaaS platform, we’ve been around for five-ish years, raised low eight figures of venture both here and in the US. That was my day job and now I’ve pivoted to much more of the investment side, managing director today of Acceleprise. We’re out of New York and San Francisco. We’re both in a SaaS only accelerator, we take companies that have products in the market—maybe a few customers maybe not—and give them some capital and a little bit of lessons around the potholes we all stepped in. When I say we, I mean myself and then a group of operators that have built some really amazing softwares like Salesforce and Gainsight. We’ve got a seed fund as well.
Jono: Okay, awesome. I’m going to ask questions and we’d all love to hear what both of you think on all the questions.
First question is when you go out raising money, how do you select the investors that you want to go after? What’s your criteria when you’re looking? I know I’m in the process of doing this, trying to find the right investors. Then, what do you do when you’re building that list that you want to go after? How do you approach that?
Jonah: There’s a couple of things. First of all, you would like, ideally, to find someone that is value-add. The joke is when we read all this stuff online as Canadians offerings like, “Capital is everywhere,” and as a Canadian you’re like, “Where’s this everywhere you keep talking about?” It turns out it’s like a six-hour flight. Capital isn’t everywhere. There’s definitely an element to if you’re doing it in Canada, it’s like who’s stage appropriate, who’s actually doing this. In the initial stages, that is still a tough market here in Canada.
Non-traditional forms of capital outside the angel groups which I’ve definitely got a view on is one of the things I looked for—whether that’s family offices, high net worths. I started there with influencers and MySpace, people that knew marketing pretty intimately and would understand the problem. I’d been really successful in that space. Once you get to real traction and you feel comfortable going to venture, if you’ve got a venture appropriate business. I’ve also built and scaled businesses that weren’t venture appropriate, service businesses, and built them to millions and millions of dollars of annual revenue. Those were businesses that weren’t venture appropriate.
Once I understood that Limelight was a venture appropriate business with a very large market, I was finding partners inside firms who I knew would be able to be value-add. Both in being value-add, I knew that was a worthwhile endeavor, but also, I knew that they’d understand the problem and deeply understand the problem and which definitely increased my likelihood. That was how I approached it.
Mikael: Yeah, I approached it slightly differently. First and foremost, I know you know where I’m at. I’m at the seed stage, I’ve got to look for funds and investors that will invest at the seed stage. From there, I went down the spray and pray road, let’s just hit them all up. It’s a funnel at the end of day. How many meetings can I set up?
But then, what you start to realize is that a lot of them don’t actually fit with your type of business. I got a lot of people who came and are like, “We don’t invest in MarTech,” and I was like okay, fine. You start to find your core niche of the type of investors that will fit. The problem is if you start with trying to narrow that down, first, you don’t really know. It’s like marketing on that front. You can’t really just be like, “I know for a fact that this is my buyer,” when you’re just starting. You have to open up the funnel a little bit and then now, you start getting some traction, you want to build that momentum. That’s what I found from my end.
Jono: Okay, cool. When you’ve had your successful raise, what do you think the investors were looking for? Was it about you or your co-founder that made them say, “This is somebody I’m going to get behind,” and is that something that you think is consistent or is that really dependent just on the different investors?
Jonah: Now that I’m on the other side of the table and I get into the secret meetings now, it is pretty consistent. The first is founder market fit, not just are you solid but why are you the person to solve this problem? As an example myself and Mikael, we both have marketing backgrounds. If I walked into someone and be like, “This is my DevOps platform.” You don’t know anything about DevOps. Founder market fit is definitely a thing. That’s definitely one.
The other is, is this someone I’d work for or is this someone that I could conceivably see a younger version of myself working for? Very much one. On top of the founder market fit and is-this-someone-I-can-work-for, just where’s their curiosity? What is it that they’re interested in and what is the vision? A lot of those things definitely, very much, matter. Whether we like it or not, right now, specifically in the Valley, what is hot to fundraise is people that have worked in venture backed startups. That’s unfortunate because I’m not sure that I’ve seen any data that actually correlates to success, but it definitely correlates to success in fundraising.
Mikael: From my side, not looking at it under the table but it still correlates, it’s a story, at the end of the day. People buy into the story. A quick example, our story with our traction with Funnelytics and what we’ve been able to build is what people are buying into. They want to see that journey, they want to see what that story looks like, but I could just as easily have had a really great story as a founder who has gone and exited companies and had that background. That’s the story I tell. This is the new startup that I have. It may not have very much traction, but because I can share this story that you buy into, you’ll buy into that product, that thing that I’m working on. Just always think about the story that you’re telling these investors, they’ve got to buy into it.
Jonah: Yeah, I think that’s a great point. A lot of people here—when I say here, I mean Canada—really tied into pitch decks. It’s not about your pitch deck, it is about that narrative, that story. What’s the story you have that you’ve got a vision to win some market? What’s that unique market insight? Why are you the person to deliver that vision? Ultimately— I’m talking about the early stage—once you start getting into $5+ million checks and having been in those meetings, those become very different conversations about what is $1 in sales and marketing equal? That story is now a financial picture painting.
But if you’re in the kind of sub-four millionaire stage or sub-two millionaire stage, it’s very much what is your vision that you’re selling? Why is it you that’s selling it? What makes that a credible vision to sell? If you need a pitch deck to do that, you’re already lost. The last big round I closed, I literally walked in. They’re like, “Do you want to put up a deck?” I was like, “Why? I do this like 70 hours a week. I don’t need slides.” The idea is more on the vision, the narrative.
Mikael: Just to touch on that, with decks, it’s funny because with MaRS who’s not necessarily fully close but we’re pitching to them. We found that most decks are like 12 pages. They give you an average, this is what your deck should be. This is the way you should tell your story to the VCs. My deck is about 40 slides and when I present it, they move. Each slide is a story. I go through it and it takes me about 15 minutes, but it’s 40 slides. When you’re in there, you’re like, “Oh, I’m captivated.” They’re like, “We’ve never seen somebody pitch that way but it’s cool.” Don’t be tied to that idea of like, “I’ve got to tell my story this way.” As long as you hit on the main components that you have to, of course.
Jono: Okay. What’s the biggest mistake you’ve made when pitching?
Jonah: I got thrown out of Foundation Capital, that’s the thing that happened. I wish there was one. I’ve had partners of billion dollar funds literally just pull out their phone in the middle of the meeting and just start texting. There was no one else there, it was just me and them. That was cool. In case it wasn’t clear where I was at, everything but call their assistant. Look, I made a ton of mistakes. I didn’t do stage appropriate pitching. If you’re pre-seed, literally, all they care about is is the market big? Are you good? Do you have an idea of how you’re going to get there? They know your product is shit, they know that the six people on your advisory board you’ve spoken to once a month. They’re not stupid, they do this all day. I didn’t know that because I didn’t know that.
The other one is not understanding who you’re pitching to. I literally used to have two decks. I’d have one deck where everything was in USD and it would tell them how he’s going to get to $100 million in revenue in seven years, and then another deck, they would tell the Canadian investors how it is going to break even in four. I’m literally not joking, I just feel like I’d switch. Not understanding who you’re pitching to.
You look at a partner and you go, “What would have you invested in before?” What are the commonalities that I have between their latest, greatest success? VCs were talking to brilliant people all day and we’re pattern matching. I look at 500 companies a year and we invest in 20. I don’t know anything about most of the things that I’m investing in so how do we pattern match? We look at, “Well, these are the things that I normally see that are successful.” We’ve got a founder who is either deeply technical, or highly charismatic, or has deep domain expertise we look at. Just not understanding, reverse engineering it.
Mikael’s point, it’s a funnel. It’s just a funnel. You do your spraying or however you do it to figure out what your funnel is and then learn from that.
The other thing I didn’t do is I didn’t keep an objection handling sheet. I get these objections and I didn’t know to write them all down and then make sure to introduce those objections early. All of your businesses have structural flaws, mine do too, of course they do. Every business has a structural flaw. Congratulations, you’re Tim Cook. Why are you here? But if you don’t acknowledge that ahead of time, then it just becomes problematic. I literally run a program on mistakes I make, it takes 16 weeks but those are some highlights.
Mikael: Yeah. To just touch on that and iterate on that, 100% going, I don’t mean to keep talking about this whole story but it is about understanding your story and then who is the audience. If you’re at pre-seed, don’t go and pitch them, the CAC, LTV. Don’t try to pitch something to a Series A investor to a seed investor. You have to understand your audience and what they want to hear. You’ve got to pitch it that way.
Going back to the objection handling. As I was going through the rounds of pitching, I kept adding into my appendix of my already 40-page deck of potential objections. I had slides now that covered things that people came back to me and say how do you expect to get to $100 million? Okay, cool. Now, I have a slide that it’s in the Appendix. I won’t necessarily cover it in my story, but if they asked that question, boom, I got that slide. This is how we’re going to do it. Now, it becomes just handling objections and then they’re like, “Alright. I guess I got to write you a check.”
Jono: Cool. You touched on the difference between Canadian investors and US investors. I know that, I’ve experienced that as well when talking to an angel network and my decks that I’m looking for $600,000 and they told me I should be asking for $300,000. I never understood what they base that on. Then, I took the same back to the Valley because I heard they’re more aggressive over there and I got laughed at because I should have asked for $2 million. Why is it like this? How would you describe the difference?
Jonah: It’s like this because people are products of their environments, right? We’re all products of our environments. As I explained to my parents, nature and nurture, it’s still your fault. We’re all products of our environments. Silicon Valley is a part of their environment and their environment says that two dudes in a garage can change the world. In Canada, our environment says that mining, finance, and real estate is how you get rich. While mining is like, is there gold there? Are there trees there? Can I spit on the building? Where are your branches? That’s how Canada makes its money.
Silicon Valley made its money betting on moonshots. “Yeah, we’re going to invent computing.” Okay, what’s that? It’s like an abacus but with more silicon. What? We’re products of our environments and that accounts for the difference. If you look at the financial crash of 2008 and you look at how we were impacted as economies, the US made more on all these structured products than we did during the roaring, whatever we’re calling that decade. We made a lot less but they experienced a near depression and we just didn’t because we weren’t there for the party.
If you look at the returns of venture funds and the way they behave here, the venture funds here lose less and make less because the risk capital here is less. It’s because the environment that they grew up in, we are in, is less risky. There’s less risk capital. The risk capital here is more risk adverse. That is the primary difference to remember.
In the US, venture funds. If you go bankrupt, cool, 8 of 10. They literally don’t care. I mean, they care but it’s part of their model. Even at seed stage or Series A stage here for sure, they start to downside protect. You will see no downside protection amongst venture firms at those early stages.
Speaking as someone from a US fund who’s got both Canadian, US money at his company, it’s a massive difference. The reason why I got thrown out of Foundation Capitals by Jonathan Ehrlich who is a founding member of C100 and a great guy, and he was right, because I was showing him some small ball nonsense. He’s like, “We have a billion dollars under management. If you can’t return $500 million to the fund, why are you here?” I was showing him like, “Oh, this isn’t guaranteed.” I was right.
We’ve had a lot of Fortune 500 on platform. We’re growing, it was going to be fine with no churn. That’s the primary difference you need to understand is that the risk tolerance is dramatically different and it’s dramatically different because of the environments people grew up in. Also, if you take out Shopify, Michael Hyatt had the largest tech exit in Canada pre 2016, $459 million. That wouldn’t be in the top 100 US tech exits. The highs are more high and the lows are more low in the US and that’s how it’s built.
If you don’t understand where people are coming from and align yourself with your investors around the timeline, what they are looking for, et cetera—a lot of you at an early stage are like, “Why can’t I raise money in Canada?”—the Canadian risk capital’s orders of magnitude less risky which is why they invest later at lower terms and actually think it hurts our innovation economy but that’s a whole other talk.
Mikael: I’ve never raised money in the US so that was extremely insightful. I have raised money in the UK and their risk tolerance is even lower than Canada. That is interesting especially when it comes to tech and when it comes to startups, we’ve raised about 650,000 pounds for a previous business. We also did crowdfunding which was interesting if we want to go into that lifecycle of trying to raise money from people and the masses.
From what I’ve seen in terms of Canada, I think you’re right. It’s just that risk tolerance at the end of the day. But that being said, you also have to be careful of valuations. Valuations can also kill you and having too high of a valuation and somebody putting in a lot of money, it sounds great. But if you don’t match that valuation in the next few years or when you run out of money, you’re screwed. You’ve got to go a down round and things start getting iffy. You’ve got to keep that in mind too I would say.
I used to live in London and I had a startup in the UK so I raised money over there.
Jono: I’m changing gears a little bit. Mikael, do you have any kids?
Mikael: I do, one three-and-a-half year old.
Jono: Jonah, you’ve got two. I’ve got two.
Mikael: One plus one is really three in this case.
Jono: Yeah. Talk about how you balance life with the startup experience, the ups and downs, the, and then you go home.
Jonah: The honest truth is you can’t effectively. By that, I mean something’s got to give like you’re a fixed resource. Your time, energy, attention, love, patience is a fixed resource. The question is then where do you spend it? My kids are non-negotiable. I’m home for dinner as these guys will tell you most nights, and these guys will also tell you it’s going to be unlikely that anyone’s going to outwork me so what gives? The answer is pretty much everything else.
I run a company and I like to think I’m a really good present parent because that is true, but I don’t do a whole hell of a lot else when I’m in startup mode because it’s really, really, really, really difficult to do that. I think that we can talk about work-life balance and all that good stuff but the bottom line is being a founder is as hard a job as I know what it is. By the way, VC is much easier, much easier. When these assholes tell you otherwise, they’re lying. It’s much easier, it’s orders of magnitude easier.
A founder is about as hard a job as you can ever have because as a SaaS founder, you need to be good at sales, marketing, customer success, finance, product dev, fundraising, investor relations. There’s six, it’s an impossible task. You have no money and you’re going to take over the world. It’s an impossible task.
In doing that,you just got to decide where my red lines are. My red lines are between 5:30 and 7:30, I’m at home and I’m not answering anything. On the weekends, between Saturday at 9:00 AM and Sunday at 7:00 PM, I’m not available. But that does mean I’ve made a lot of associated sacrifices. I guess if we call that balance, that’s fine, but it’s really difficult to pretend that it’s anything other than that.
Mikael: Yeah. Work-life balance is pure bullshit. I don’t agree, I don’t think I agree with Jonah. At the end of the day, there’s only one thing that exists, it’s life. You choose how you live your life. There’s no ‘this part of my life is work and this part of my life is home,’ it’s not. You’ve got 24 hours in a day and you choose how you spread out your day. Jonah says that at 7:30, he’s at home, he’s with his kids, and he goes to bed. At 5:30, he decides to go and do work. Basically, that leaves everything else out. You have to decide: what are your priorities and how do you want to live your life.
I’m at home every single day as well. By latest, I’ll leave the office at 6:30. I try to put Isabel to bed. I try to get her to bed at 7:30 but she keeps going to bed at 8:30. Anyway, we put her to bed. I spend time with my wife, we have dinner. I’ll try to chill out a little bit before watching a Raptors game, I’m a massive NBA nerd so I’ll watch the Raptors game. Usually, check some emails or do some stuff on the side, go to bed, and then, I work. I try to get up and go to the gym, but like, it’s just your life. You just choose how you want to live your life and realize that if you’re going to start a business, you’ve got to focus on it. That’s what it comes down to.
Jonah: The other thing and you hear this a lot and I used to think it was a cliche until I was in that spot. It does teach you the power of no. I just say no to most things and everything like and respectfully again today. It’s like, be here at 6:30 but I’m not speaking until 7. I will be here at 6:55 and it will be fine because I don’t have 25 minutes to just be here on time. You just learn the power of no because you start to understand that actually where you’re paying for that yes is you’re paying for the yes—for the gym time or for whatever time you have for yourself.
One of the things I talked to my team about a lot is you wake up every morning and you have an impossible task with more things than any one person could possibly achieve. Actually, what your job is in the morning before you start your day is decide what to say no to.
Mikael: Realized too that the road has been painted before you write. That’s why you join Acceleprise, because there’s mentors who can guide you and they’ve got arrows in their back so pay for that. I’ve spent more than way more on my entrepreneurial education than I ever have with my university education. I have two master’s degrees which is kind of ridiculous. I’ve spent way more money on mentors because it is an impossible task. We have to put on all of these hats and try to manage all of these things. “I don’t know about you guys but I didn’t know all of these things so I’m going to pay somebody who’s done this.”
Jonah: Still don’t.
Mikael: Exactly, still don’t. It’s like every time you think you’ve solved something is like, “No, I’m sorry. It’s a new challenge.” It just keeps going so if you don’t know much about marketing, hire a mentor or hire somebody smarter than you who can also take that on but think about that. It’s like the path has been paved before so find somebody who can help you weed through the bushes in a sense.
Jono: Okay. Obviously, there’s been a lot of advice that you guys have given. Jonah, I know you spend a lot of time giving a lot of advice. Just to be specific about early stage companies here in Toronto, SaaS, what’s the thing that you’d say the most commonly?
Jonah: Very early stage is very much to make sure you’re out there talking to customers with an open mind, and an open heart, and not trying to prove your thesis. I think that a lot of time, effort, and everything else is spent trying to push a rock uphill. As founders, you are right about the problem you’re solving for sure. There’s no way you spend like 10 years in an industry and solve this problem and live it every day and are wrong about the problem. You’re likely not wrong about the thesis, about your solution, but it’s quite possible. In fact, it’s statistically probable that you’re wrong about the first iteration of your solution and the second iteration of your solution.
I see companies go lay but that’s clearly a problem and everyone agrees. That’s clearly a very smart person who’s a good founder. I guess my advice is have the courage to be wrong, have the courage to be wrong publicly, and have the courage to steer those conversations to a place where you get to be wrong. I actually drove the most value in my life from saying I don’t know. You literally heard me interrupt Mikael by saying I still don’t.
Despite the fact that I give advice for a living now, I think that advice is powerful for the simple reason that I know that I don’t know. I think that that is my advice at an early stage. Get out there. Don’t try and prove yourself right, try and prove yourself wrong. Listen to your customers, listen to your prospects. You’re definitely right about problem solving, there’s no way you put it all on the line to solve the big problem. You just didn’t. There’s no way your thesis is like way wrong, it’s just not. It’s very likely that what you built is wrong.
Mikael: Show of hands who here is like pre-revenue, who here is like sub-500, 1000, sub-a million. Everyone else is over a million or not has a start up? My advice if you’re pre revenue, you have to talk to your customers. You have to roll up your sleeves and make your first major sales, because you do not know how to position your product. You have the solution in your head, you think it’s the greatest thing in the world. You’ve thought about it but doesn’t mean that somebody else understands it. You’ve got to roll up your sleeves and you’ve got to do the work and go and make those sales.
You have to prove the concept to yourself but at the same time do it with an open mind as Jonah said because how you think the product is supposed to be pitched or supposed to be put out there is most likely incorrect. You have to have that open mind as to what is the feedback, but you’ve got to figure out how to generate those sales, and you’ve got to do that yourself.
Once you get to about the 2000 I would say mark, it means that you’ve got some sort of proof of concept. I know how to position this thing to generate revenue, or to get somebody to pull out their credit card and give me money for it. Now, I’ve got to find a system to attract that same buyer. That’s how I think about it. I’ve got to figure out what it is that I’m going to do in order to bring that same buyer to me in an automated way, whether it’s a marketing funnel or it’s your sales cycle. Usually, it’s always a funnel but whether it’s offline, online, irrelevant. But now you’ve got to find a way to attract that buyer. Once you get past the million, now it becomes different types of problems.
Jono: Of course it’s always a funnel.
Jonah: It’s always a funnel. Everything is a funnel
Mikael: AKA Funnelytics. At the end of the day, once you get to around that million dollar mark, that’s when operations start to really be the issue. It happens earlier than that, but that’s how I like to think about it. My advice is if you’re pre-revenue or sub-200, roll up your sleeves, do the work, focus on sales. Focus on figuring out that fit. If you’re at that next level, figure out how am I going to get that customer to come to me? How can I create a system to make that happen? Then, figure out like, how do I structure my team? Who do I need? Who would I need to replace myself with? Et cetera. That’s my advice.
Jono: I’ve exhausted all my questions so thanks, guys. What I’ll do is we’ll pass the mic around. Margie, you up for that? You guys can start asking your questions.
Margie: Okay, guys. The rule for a Q&A is that you raise your hand if you have a question and then you only ask one question to allow everyone, as many people as possible, to ask because we only have about 15, 20 minutes for the Q&A. Who wants to ask the question first? It’s being recorded so be careful with the question you ask.
Man: Hey guys. Thank you, that was very good. Question for both of you. Slower growth with bootstrapping or faster growth raising money? You’re doing a healthy ARR, why are you thinking of raising money at this stage? You’ve been on both sides of the table.
Jonah: Yes. It really depends on a couple of things. First and foremost, and I can’t stress this enough, there is no one path. You don’t need to get on what I call the alphabet ladder, it’s not better. Most of those companies that use Crunchbase announcements actually return the founder nothing. I was on the exact team of a company to raise $70 million the founders got. They were literally in a magazine shoot for Forbes for Top 3 under 30 on like a wet tarmac next to a private jet, they got not $1 from that startup. We’re the first major esports platform. I literally built the betting layer into Madden and NHL, they got nothing.
A, what do you want? Most of the wealthy people I know did not get venture capital. Most of the wealthy people that I know run good businesses with 25 people that they like and they make a healthy profit and then they go home. Then, the question becomes once you figure out what you want, what will your actual business sustain? I always say manage the business you have, not the business you want. Lots of people try and turn something that’s good into something else. You see that actually a lot in second generations when they inherit a parent business like, “What we need to do is franchise this.” Actually, what you needed to do was continue to run the successful thing that’s been there for 30 years.
If you manage the business you have, not the business you want, that means, again, having the courage to be wrong. Most businesses are not 100-million error businesses by definition. Most businesses are not going to be publicly traded and as much as it’s like, if you get five, you can get a hundred, that’s actually not true. It’s of course nonsense. You have to be very honest about what the market’s telling you. If you can’t generate a ton of demand, that’s the market telling you something. It doesn’t mean you can’t be very successful.
I would say that the easiest time I ever had was running a $5 million a year business where I had no investors and I could do whatever I want. I used to take off February, like the whole month. I was just like, “February is terrible, I’m going somewhere else.” I knew for Limelight, if I wanted to take over and win a market, which I did, that the comparative advantage I generated wasn’t going to last very long and it was going to be a land grab. The only way to finance that J-Curve plus Product Development was going to be venture capital. So, be very honest with yourself.
Also, what are you capable of? The reason why I’m no longer the CEO of Limelight is I talked to my board which I still control and I said, “If we were hiring for CEO today, would we hire me?” They’re like, “Well…” I’m like, “No, you wouldn’t. Of course you wouldn’t. If I applied for this job, you would not hire me. I’m the best person to get us here that’s why we’re here but of course, you wouldn’t hire me.”
There’s nothing in my resume that says I should be a scale CEO. “You could learn to do it.” I’m like, “Yeah, I could learn to do a lot.” Again, honesty, courage, vulnerability. I think that that is how you get to the place that’s good for you and I don’t think anyone but you can tell you what that is.
Mikael: Yeah. I can’t really top that. That was a pretty, pretty very good answer. What he said.
Margie: All right. Who else wants to ask a question?
Man: That was an awesome talk. Thank you. We talk at Acceleprise a lot about wow moments when you’re pitching to customers and over time, understand how to achieve that and how to leverage that. I can only imagine that from a high level it’s a very similar concept when you’re pitching to investors but how did you find success in getting them to start knocking their head, smiling, and achieving that wow moment pitching to investors?
Mikael: For me, it wasn’t really that hard to kind of give them the wow moment when I spent the first 24 months focusing on what I said with those three steps and we had 100,000 users in 24 months and $3.5 million dollars in revenue. That kind of was the wow moment. It’s like, “Okay, let me listen to what this guy’s got to say.”
You’ve got to create that wow moment. You can’t just be like, “I have this idea,” because everybody has an idea. Everybody can come here and share an idea, your idea is not a wow moment, unless you’re speaking. An example, when we raised money in London, in the UK, we were running a language-based business. It was an app, basically, Uber for language teachers and language learners so you could find language teachers on this app. Our first angel investor had just sold an English school in a foreign country. For him, it was like, “Yes, this is wow because this is perfectly in line with what I just did. Therefore, this is a solution. I can see it.” That was a wow moment. You have to create it, you have to figure out like what wow moment am I going to create and a lot of times, it’s traction.
Jonah: The wow moments are created. When you hear of pre-revenue stealth raised, what that means is the person that raised that money, their wow moment was they had insane experience in the space and it’s universally understood to be really monetized all problem. Does everyone know Zapier? Zapier for IoT, connects different integration for IoT because there’s a million IoT systems. They don’t talk, it’s a cluster f***, Zapier. It’s like Zapier for IoT, everyone knows IoT. Everyone knows their fridge doesn’t talk to their toaster whether or not your fridge needs to be connected to the Internet is a different story but everyone knows it. You need milk. Yes, I know. I opened it.
He was the head of IoT at Cisco. Someone is going to win this Zapier for the IoT market. The second they said, “Yeah. This isn’t brilliant but he’s the head of IoT at Cisco.” The wow moment was you’re the head of IoT at Cisco. His wow moment, “Wow, you bootstrapped to $3.5 million selling primarily online with not terrible churn.” Your wow can be a combination of your expertise plus traction.
For Limelight, my wow moment was and I put it up front, big problem. No one can attribute their offline marketing. It’s 10% of global marketing budgets, solution, Limelight as trusted by and then I put up 31 Fortune 500 logos.
You’re like, “Literally, I’m sitting in Sequoia,” and they’re like, “How the fuck did you get 31 Fortune 500s?” I was like wow. They didn’t invest. You needed 35. They didn’t like us at all.
Jonah: So, the wow moment has to be an authentic thing. At the end of the day, there is some capital out there that’s not brilliant but the bottom line is raising is very, very, very hard. Wow, it needs to be something relatively authentic.
Margie: All right.
Man: Hello, guys. Thank you very much, Mikael and Jonah. It’s been extremely motivating and I’m speaking for myself but I can see the audience as well so thanks very much for sharing your stories. I think that one of the things that I saw in common, both of you were mentioning, is to know your audience when you’re pitching or when you’re trying to find those investors. We’re not talking like huge investors that are everywhere, the information. But how do you know exactly without making those mistakes or creating that big funnel? How do you know exactly my idea or my industry is XYZ? I know that these investors are going to be the right ones to do and not to waste time. For example, sources like Crunchbase. How do you network and how do you find that information from investors that you’ve seen, you know that this is more likely for this investor to actually have my attention?
Mikael: You don’t. I don’t.
Jonah: You don’t.
Mikael: You just have conversations and you try to have conversations and you get better as well. You only learn as you do, you only learn as you grow and you move forward. That’s the answer.
Jonah: I’ve actually got a little bit of a hack because Mikael’s right. How could you know? You even haven’t done it before. There’s some hacks. Example, Acceleprise is known for InsureTech. Do you know why we’re known for InsureTech? Because we had a massive acquisition for one of InsureTech companies like a monster returning the fund. We actually don’t know that much about InsureTech. It just turns out that one of our companies that got acquired happen to be an insurance company and now everyone’s like, “These guys are the InsureTech wizards.” People are like, “Tell me what’s InsureTech,” I’m like, “It’s like technology but for insurance.” I literaly know not a fucking thing about InsureTech.
The bottom line is you don’t. Here’s a quick hack for what you should do. Make a list of investors, the one you definitely don’t care about. Talk to them first because you’re going to fuck it up.
That’s just like waste as we like, “That was a waste.” You’re literally telling a company like, “This guy is totally not for you, pitch him hard.” Learn, just waste your bet. What I see all the time is like, “I got a meeting for Sequoia.” I’m like, “No, no, no. No, that’s your 11th meeting. That’s not your first meeting because you’re gonna get 10x better.” My hack is you don’t.
Now, are there some hacks and are there some leading indicators to let you know where you might be more successful? Sure.
If, as an example, like Limelight is a MarTech platform, for Funnelytics, everything’s a funnel, is MarTech platform, I picked companies that had great success, venture funds, and a great success with MarTech. I went to Mayfield and I met with the first ever board member of Marketo. I met with the HubSpot investors and I said, “We are going to be the HubSpot of offline marketing.” They’re like, “Get out of my office.” You do all those things. There are some hacks. Look for partners that are invested in things that would let you believe that they’ve got some knowledge or in the problem you’re solving. Look for people that specifically talk about vertical focus and then pick some generalists that you genuinely don’t care about and make sure you get meetings.
To answer the second part of your question around networking. Obviously, I mean the first answer is, in general, VCs are infinitely more likely to take a meeting if they’ve got a warm intro. That is 100% of the time true. I meet a lot of people at events, I’m Canadian so I kind of talk to everybody. It will absolutely take those meetings and conversations and all of those things. If someone that I trust says, “This is a good founder,” I am very much likely to take it from a 15-minute call to 30 minutes sit down, and everyone’s better sitting down.
Mikael: That’s how we met, by the way, the first time. There was a warm intro. It always works much better.
Jonah: That’s LinkedIn and plum networks. A VCs attitude, basically, is—just so you understand, this is stated it’s very explicit. If you can’t get to me from a warm intro, how the fuck do you build a company? Not wrong.
Margie: Oh, very good advice there. All right. Who else has a question?
Man: Thanks, gentlemen, for the talk today. Here’s a big question I have. I’m in a bit of a different situation, I’m a pretty experienced entrepreneur, and I put millions into my company. The space I’m looking at is total trust markets, a billion dollars to large companies in the US in that space. Do Canadians have the vision to do this kind of thing to invest? Because what I’ve seen is their vision is small to invest in startups who I feel like if you look at prodigy math, we’re both in the X space. […] family to grow the business but they never got any institutional investors.
Jonah: That’s what I said, there’s orders of magnitude less risk capital. It’s not about vision. I’ve got […] on my board, he’s a very visionary guy, but there are orders of magnitude less risk capitals. It’s not that they don’t see the vision, it’s that they want to see a lot less risk before they’re able to commit meaningful dollars. My advice to anyone in that type of situation is you ask cell division. I can say, at Limelight, I get inbound investor interest on a very regular basis from a US fund. I introduced a US investor to a Canadian company that wrote like a pretty significant check, $34 million. Toronto is on the map, so unfortunately US.
Margie: Alright, anyone else?
Man: You stretched almost every point. My question to you is in the early stage, have you decided your pricing model? Just didn’t discuss the sizes on a board like the pricing model. Did you change when you raised? How does it work and how did you decide?
Jonah: I’m the worst at this.
Man: You are struggling right now?
Mikael: Yeah. Pricing is tough, I’ll be honest. Pricing is something that you’ve got to tweak, test, and play with every, I would say, six months. I play with my pricing about every six months. There’s no right answer, again, here. There is no right pricing model. Is it going up? Are you making more money today than you were from your customers yesterday? Is your ARPU going up? That’s how I look at it. That’s a tough question. There is no real answer to pricing models. There is a guide that you should probably read from Price Intelligently about pricing models. A lot of it is serving your customers, understanding their tolerance, like who is your customer.
For example, we have agencies as our customers. Freelancers is a type of agency or not really and then they grow to bigger large scale agencies. As you understand your core market, now you have to understand what their price tolerance is. You’ve got to look at comparables to some degree but never price based on your competitors. You’ve got a price based on value. Pricing is an interesting game.
Jonah: Profit well is another great resource for that. I have nothing to add because I’m demonstrably bad at this.
Mikael: It’s tough. Pricing is tough.
Jono: Yeah. With pricing you have to think about also like, it can be strategic too. In general, I always tried to just keep on asking for more and doubling it. If you’ll notice, I think over 80% of SaaS companies don’t have pricing on their website specifically because they want to talk to somebody and negotiate it and figure out what their price is, what it can be. When you’ve done it—let’s say your product requires a sales call and even if it doesn’t, it’s a good idea to do this so that you can learn a lot—is to have that call, do the demo, sell them and then ask them what they think when they say, how much is this, and that means they’re ready to buy.
I remember at one point, I was selling probably for $39 a month and they asked me, “How much is it?” I said, “How much do you think it is? They said, “At least like $89 a month or something.” I was like, “Yeah.”
Mikael: You’re right on.
Jonah: How did you do that? I saw Hubbli for about like $500 a month. You keep on doubling it and testing your market. Just to give you another thing, I’ve done many different things where I’ve had many different pricing options. One thing I’ll just say on a sales note is that I wanted to, because we’re still bootstrapped and I want to grow really quickly, find the perfect, the sweet spot, that I knew I could close the deal. It was enough money that I had a really healthy business.
Basically, RACV is $5000 a year and I figured out how to close that transaction on one call. $5000 cash transacted in the call. I got it to the point where I was getting subscriptions for like $1500 a month but it was more demos and I wanted to just bang out sales and show growth. I can still tell investors, “I can get this HCV up to $20,000, $30,000,” and I’ve proven it but I wanted to grow really quickly so I just nailed it down to one price that I could close on one call.
Mikael: One thing before you jump. One thing to also understand with pricing is you have to understand the audience, the customer. I’ll give you a quick story. I also ran a marketing agency before I started my SaaS and I had a friend. She worked for a company doing about $100 million a year doing all sorts of billboards and that kind of stuff. Their customers were Fortune 100, Fortune 500 type of companies. Because she was my friend and I was running my agency, she’s like, “Mikael, we need a new website and I know you guys build websites so put in a bid.” I was like, “Okay, fine.”
I put in a bid and I put in $3500 and she comes back to me, she’s like, “Mikael, I need you to add another zero to this because I don’t care how much it costs you but if I present this to my boss, he’ll think that we’re buying a cheap website and our audience is like Fortune 100 companies. We need to feel like our website was $35,000, so I don’t care how much it costs you. If it’s going to cost you less, that’s great. You make them profit but you need to put another zero.” I did, she gave me the deal and I was like, “Okay. I now understand something about pricing. ” Understand your audience.
Jonah: Yeah. The other thing is as a Canadian startup, I’m pretty comfortable saying this, you’re likely underpriced probably dramatically because you’re afraid of losing the deal and you’re Canadian.
I challenge everyone on their next sales call, double the price. Don’t qualify it, don’t say anything after, and just pause until they talk. 50% shots, you still get the deal. If not, if they say something, just go back to your old price, it’s free. Literally, try it. Actionable, tactical, do this. Acceleprise folks, do this.
Jono: I think what we’ll do is wrap it up. That’s been great. We’ll turn the music back on. I think there might be some refreshments left maybe. I just want to thank everybody for coming out on a very cold, cold night and make sure that you join our community at Toronto SaaS. You can hashtag us, Toronto SaaS and join. We have a Slack group as well, join our meetup. Join us everywhere. If you have any questions at any point just feel free to reach out to me anytime so thanks. Thank you guys, that was great.