“Make Sure You Have at Least Eighteen Months’ Worth of Runway in the Bank” Lessons I Can Share About My Series A Venture Financing Round
I had the pleasure of interviewing Kyle Slager, CEO and founder, and Sergey Sundukovskiy, CTO and co-founder, of Raken, a SaaS platform that streamlines workflows for the construction industry. Raken is a unique tech startup because they are completely customer-driven, focused on providing solutions that genuinely work in the field and streamline workflows instead of adding to them. That’s why their app has maintained a near 5-star rating since its initial launch in 2014. The company just raised $10 million in Series A funding led by USVP to help enhance and expand a product their customers love. The company’s people are also popular — CEO Kyle Slager was just named Most Admired CEO for a small privately held company by the San Diego Business Journal.
Jean: What is your “backstory” of how you become involved in the Startup space.
Kyle Slager (KS): I worked in various trades of construction during my summers in high school and college, then five years with one of the largest investment firms in the world after college. If I were to sum up how/why I left to start a company, it was when the itch to solve a problem became stronger than my basic human need for security. I like to take risks. I like to bet on myself. The way I look at it, I have one life — I want to live it and I want to work with people I enjoy working with.
Sergey Sundukovskiy (SS): I always wanted to be my own boss. However, I had a number of limiting beliefs that delayed my entry into the startup space. For instance, I always thought that one must have an absolutely unique idea to build a successful startup, where the opposite is true. In fact, absolutely unique ideas usually lead to business failure. Besides dealing with the usual set of startup problems, would-be entrepreneurs must also build a market for their “unique” ideas, which often proves insurmountable. That is why most aspiring innovators in the startup space are reinventing the unique ideas that others failed to successfully implement. Google did not invent search, eBay did not invent eCommerce and Sony did not invent video games. They are fast followers. In addition to being mistaken about needing a unique idea, I also thought that one must have academically backed business acumen. As such, I set out to get a Ph.D. in business to prepare myself for the startup world. Little did I know that academia very seldom creates entrepreneurs. After completing my Ph.D., I felt I was sufficiently prepared to start my own company. However, despite working for a number of startups in the past and now having strong business background, I made every mistake in the book with my first startup: raising too much money, merging my company with another, failing to focus on a narrow market target, chasing every opportunity instead of prioritizing, and so on.
Q: What do you think makes your company stand out? Can you share a story?
KS: Our customer-driven approach and our culture. In regards to our customer-driven approach, everyone on our team spends significant time with our customers and we manage Raken as an inverted pyramid: customers are at the top, then in order moving down are customer facing team members, field leadership that supports customer facing team, senior leadership that supports field leadership, and lastly the CEO at the bottom. Product development is driven by customer feedback (we love our customers more than we love our product). Ultimately, everyone’s mission is to help our customers be successful. Regarding our culture, we encourage everyone to be themselves; there isn’t anyone else on earth that has your same voice, or your fingerprints … imagine how unique your heart and mind are? We encourage everyone to bring what makes them unique every day.
That being said, you have to fit our culture to be on our team and the following are our principles that each team member must follow:
- Assume Positive Intent
- You Will Get What You Give
- Celebrate Every Win
- Do What You Say and Say What You Do
- Be On Time
- Display Bias for Action
- Act With a Sense of Urgency
- No HIPPOs (Highest Paid Person’s Opinion) Allowed
- No Brilliant Jerks (Play Well with Others or Go Home)
- Treat Others with Respect (Zero Tolerance for Gossip)
SS: Raken has number of distinguishing characteristics. First and foremost, it has an unprecedented NPS (Net Promoter Score). Most months we range between 60 and 70 on the scale of -100 to 100. To put that in perspective, applications or devices with 70 NPS represent an essential group of tools that are an integral part of person’s life, like a cellphone, wallet or computer. These are the tools you would come back for if you forgot them at home. This high of an NPS score is not a coincidence. We have almost fanatical dedication to our customers. Large and small, they all LOVE us. We have bar none the best customer success team in the business. No customer is too small. No customer is not important. Our business model is predicated on the “Land and Expand” strategy. As such, we have net negative customer churn. In other words, if we stopped acquiring new customers, our business would still be growing through existing customer expansion. We are also quite different in our approach to the construction market. Most companies in our space approach potential customers through the office, where perceived technology decisions are made. That strategy relies on office administrators to convince or even force those in the field to adopt technology. At Raken, we approach our customers field-first. We believe those who will use the technology day-to-day will make a better choice than someone who is sufficiently removed from field activities.
Jean: Are you working on any exciting projects now?
SS: Raken is streamlining development of the $6 billion Transbay Transit Center in downtown San Francisco, the largest approved public transportation project in the United States. The massive project includes construction of the one million square foot center dubbed ‘Grand Central of the West,’ as well as underground rail levels, rooftop parking and the surrounding neighborhood. Raken has contributed to many other high-profile projects, including Salesforce tower (tallest building west of Mississippi), and the stadium where the Atlanta Falcons play, the $1.6 billion Mercedes-Benz Stadium in Atlanta.
KS: We have been on some of the largest projects in the world, and it’s exciting to be a part of something of that scope that will affect so many people’s daily lives. That being said, Raken is also used on small projects, commercial, residential, general contractors and all specialty trades. We work with anyone who is hired to build something and needs to document their work.
Jean: Do you have a favorite book that made a deep impact on your life? Can you share a story?
KS: The Four Agreements by Don Miguel Ruiz. A friend of my dad’s gave this book to me for Christmas around the time I graduated High School. I still have the book and it’s short, so I re-read the book every couple years or so. The message pulls from the Toltec civilization of indigenous Mexicans. The amount of information that’s available these days can sometimes be overwhelming — I like to keep things simple and this book helps me do that.
The 4 Agreements are:
- Be impeccable with your word.
- Don’t take anything personally.
- Don’t make assumptions.
- Always do your best.
SS: Several years back I read a book called “Great by Choice” written by Jim Collins. It had a profound effect on me. I sometimes refer to it as an MBA in a single book. It has number of short stories illustrating a particular concept that often takes place outside of the business setting. However, lessons of the story are directly business applicable. I wish I read this book before starting my first business. I am thoroughly convinced that I would have avoided most, if not all, of the missteps that I made. I really like Jim Collin’s writing style. In “Great by Choice,” as well as his other books, he distills complex concepts down to easy-to-remember guiding principles applicable to many business use cases.
Jean: What are your “5 Lessons I Can Share About My Series A Venture Financing Round” and why? Please share a story or example for each.
KS: Before you raise money, make sure you are hyper-focused and clear on your intention — what is your vision for your business? How are you going to get there? How much do you want to raise? From whom? Why is that person or firm the best source of funds? Share exactly what your intention is and what you’re most passionate about and people will go out of their way to help you find the person that best aligns with helping you get there.
- The first lesson of fundraising is centered on the investment story. Founders need to put themselves in the shoes of the investor and ask a question any investor would, “Why would I invest in this startup as opposed to many other companies out there?” Each round of funding, including Series A, has the investment theme. The story of your startup needs to be consistent with that theme and should contain at least three main components: the team, the traction and the promise. Even at the Series A stage investors are still heavily investing in the founding and the management team. Traction needs to show that business has been sufficiently de-risked in terms of customer acquisition and user retention. Last but not least, potential investors need to see the promise of greatness, which would result in 10X return.
- The second lesson is related to selecting a correct investor profile. It is tempting to cast a very wide net to maximize the opportunity. However, it is important to remember that approaching the wrong investors will only draw out the process without yielding desired results. As far as investors are concerned, every detail matters: investment strategy, investment industry, check size, existing portfolio, and board engagement style, all play an important role.
- The third lesson is connected to founder responsibilities. Job number one, number two, and number three for any founder is not to run out of money. Make sure you have at least eighteen months’ worth of runway in the bank before you need to hit the road to raise more funds. You never know how long it is going to take. Plan for unforeseen circumstances and possible need to go the distance. The worst position to be in is trying to negotiate the deal while running out of money.
- Lesson number four has to do with the company valuation and contract conditions. Not all money is created equal. Look at the fine print. It is easy to confuse valuation with effective valuation. Effective valuation takes into account liquidation preference, rate of return, and other elements of the deal. In this situation, a $30M valuation might be higher than $40M. It is better to get some legal advice when dealing with contract terms. The desire to remain frugal does not pay off in this particular case.
- Last but certainly not least, make sure you practice your pitch and you know numbers. It seems obvious, but many founders are less prepared than they should be when showing up at the investor meeting. Reasoning goes something like this, “We know our business well. We are not going to get stumped.” Nothing could be further from the truth. It is easy to get lost and get confused. It absolutely takes practice. Also, unless you are a single founder make sure that each of the co-founders knows his or her role. It is critical not to block each other. An investor pitch is no place for an ego. Be humble but be confident.
Jean: Some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? (He or she might see this.)
KS: Dr. Tom Catena, a fellow Brown University football alum and an incredibly brave and selfless person. He is currently serving families in the Nuba Mountains of war torn Sudan. Depicted in the documentary “The Heart of Nuba.”
SS: I very much admire Mark Suster, fellow UCSD graduate. I really like his practical, pragmatic and experience-based approach to running companies. I am an avid reader of his blog “Both Sides of the Table.” In my mind it is a must-read for any tech entrepreneur. Also an honorable mention goes to Shai Aggasi. Without excessive adulation, his contribution to Green Tech is very difficult to overestimate. Shai was a founder of a company called Better Place, prominently featured in “Start-up Nation: The Story of Israel’s Economic Miracle.” Even though Better Place has failed as a company, I feel that lots of Shai’s ideas are finding their way into Tesla.
— Published on June 21, 2018