Notes for ThisWeekInStartups Ep.611: “Jed Katz Javelin VP shares 52-pt Series A Checklist; HomeHero’s Kyle Hill & company culture

Jed Katz, Javeline VP MD

In the first part of this episode of TWiS Jed Katz presents a 52 points list on best practices for raising Series A rounds to the founders at LAUNCH Incubator.

Kyle Hill, HomeHero CEO

In the second part of the episode, straight from the stage of the LAUNCH Scale Conference 2015, HomeHero’s CEO and co-founder Kyle Hill explains how a great company culture can propell a startup’s growth to the moon and beyond.

You can watch the whole episode on YouTube or on the TWiS website.

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First part

Introduction by Jason Calacanis:

  • The market can turn off for months, usually for 18 month
  • It happens every 7–8 years (crash of 2000, in 2007–2008, now it’s time for another downturn)
  • Every company should be funded with 18 months of runaway
  • Plan how much you are going to burn in 18 months and raise enough to get there
  • #1 reason a company die: the founders quit
  • #2 reason a company die: the company runs out of money (founders usually give up when the money runs out)
  • Getting seed money is easy these days, getting a series A it’s hard.

Here you have a checklist on raising money for series A rounds from Jed Katz, Managing Director at Javelin Venture Partners

  • The goal of a first meeting is getting to a second meeting (not a term sheet straight away)
  • You are trying to avoid a no, to get them intrigued by you as founders, what you are building, the market size and the whole potential of your idea
  • They are for determining if there is a match and they want to work with you and viceversa
  • The goal is not to go deeper in the details, there are following meetings for that
  • They want to know what’s important for them and see if it’s a quick no or they want to spend more time with you

How VCs should see you

  • Great communicator, you need to be articulate and be able to tell your story in a way that “wakes them up”, that gets their attention
  • You need to be a good listener, they’ll give you feedbacks and you need to show them you can apply or disagree with them with good arguments
  • You should be part visionary, part operator — the vision is important but you need to come across as someone who can get the job done
  • At Jed Katz’s firm it’s important that you are data-focused, metrics-focused, that you study your business and can iterate and make adjusted along the way
  • You should be sophisticated and very capable: you know how to handle yourself, how to have conversations with future potential investors, biz dev conversations that could resolve in deals etc
  • You must be ontellectually honest and transparent (No BS)
  • If you don’t know something or fear some competitor, get it on the table
  • Example from Thumbtack: they were asked a question but didn’t know the answer
  • They were honest about it and went back to their database to figure it out, showing transparency and focus on data
  • You need to be scrappy and executing at high velocity: get things out there quickly, see how customers react and adjust
  • You need to be mission driven, passionate, you have a goal you want to accomplish and ready to walk through fire for it
  • You need to be great at recruiting team: your ability to bring in others great A-players is gonne be difference between you getting huge or just decent

How Series A investors see your business:

  • You should have a very clever, unique business, solving a major pain point that hasn’t been solved or been solved poorly
  • The total, actual Addressable Market should be in the billions (for Javelin fund)
  • You should be able to show it’s actually your TAM, if you get all the customers you are targeting and you are paying all it takes, you should be able to get that number — not just throwing numbers
  • Create substantial revenue stream and substantial strategic value
  • They don’t want you to be acquired for some multiple of the revenue but with some huge premium to that because other companies can’t imagine not having you (thanks to some strategic value you’ve created)
  • It needs to have potential for explosive growth with revenue and scalable, being able to grow much faster than expenses
  • Your business should be able to be attractive to recruits, people should want to come work at your company (you are solving a sexy problem or you are great and have a great company culture)
  • At the beginning you should be able to do one thing very well, expand only later when you are more mature
  • You should have both great product dna and great marketing and sales dna: you need to figure out what to build but also how to get it out there and get customers
  • Your business should be hard to duplicate and to compete against

How to choose which VCs you should approach

  • fund size and investment amount must match
  • Example: if you are raising 10 millions don’t go to a 40 million dollars fund
  • Identify a champion, the partner at the firm who’s gonna help you and fight for you from the inside to close the deal
  • Find investors where the board member who will join your company will be actually helpful, who you would enjoy working with and who’s not going to create drama
  • He shouldn’t be just an advisor but a constant brainstorming partner that you can call, email at every time of the day and have the time to help you
  • There must be cultural fit with them and be both emphatetic and brutally honest (Jason is great at that)
  • You’ll be meaningful to their funds: find somebody who’s gonna care if you win (if they invest a lot of money in your company, they will care more)

Getting to them

  • if you can’t get a warm intro to the series-A investors you probably don’t deserve to pitch them
  • The intro should come from somebody the fund respect (entrepreneurs, angel investors etc)
  • Start the relationship early: the earlier they know and can see you doing and building what you said you’d be building the more seriously you’ll be taken
  • The more they’ll know you as an entrepreneur, the more they’ll trust you
  • They are all about removing risk

How much to raise

  • 18 months cash + enough to create some amazing progress and show some real metrics on your business and then a bunch of cushion for fundraising (it takes time)
  • Assume it will take more time than you think, getting series A is getting harder (series B will get harder as well)
  • Things will always take longer and cost more than you’ve budgeted
  • You should assume 20–33% diluition: sometimes it’s better to take the extra delusion and work with the investors you want to work with
  • The model should be realistic if not pessimistic; if too optimistic you won’t be able to keep up with the expectations you’ve set
  • Stay scrappy even when you get the series A money
  • Don’t raise too much money at a too high evaluation: if you can’t grow into that evaluation quick enough and down round can kill you (and more often than not, it kills you)
  • At his fun they don’t want too much diluation, they want you to be super-motivated

Getting the yes

  • “Wake them up”, try to make the partners in the room as passionate about the business as you are
  • Act like you are trying to recruit them into the company (you are, in a way)
  • Simplify, if it’s too complicated it will be harder to remember and they won’t remember it when discussing it between themselves
  • Demonstrate you fit in the funds investment criteria (he’s impressed when founders show they did their research)
  • Have product demos at the beginning of the presentation
  • Show that you can take feedbacks and be responsive
  • If any question is left answered, get the answers and email them as quickly as possible
  • The more organized with diligence you are, the more you show you have your shit together and that you are talking to other funds as well (competition will create urgency in them)
  • Ask for ways the partners can help: you are choosing your partners also
  • You should be interviewing them too: what’s relevant to their network? What can they add to your business? Why would you choose them as a partner?
  • Leave them intrigued at the end and hint at the fact you are talking to ther funds as well to create competition
  • The more you can show there are terms sheets coming, the more they’ll think this is a credible thing and the more seriously they’ll consider it

Avoiding quick nos

  • Be likable, show your personality and don’t be boring
  • If you can’t engage them, they’ll think you won’t be able to engage others
  • Don’t oversell
  • Don’t underestimate competitors
  • Don’t act like it will be easy: admit where it’s gonna be challenging and where you’ll need help
  • Show patience, it’s a relationship-building game
  • Being impatient is not a good sign (that’s why it’s important to have money in the bank and time to raise funds)
  • Be someone they’d be proud to work with, someone they’d want to introduce others and brag about on social media

Tricks of the trade

  • Associates are not useless, they can be your allies or enemies so treat them well
  • Try to have meeting later in the week
  • Most funds do their meetings on Monday: if you met them the previous Friday they’ll remember you better
  • Don’t over negotiate
  • Tell a big but realistic story: they are going for huge exits
  • They are looking for outliers, the big billion dollar companies: you must convince them you can go for the grand slam and do it
  • A pitch for believable 1 billion dollar company is better than a pitch for an unrealistic 50 billion dollar company
  • Lower the perceived risk as much as you can, get risk off the table (perceived risk = bad = no)
  • VCs are looking for reasons to say no
  • They get 150 pitches a month and they say yes to one every 6 weeks
  • Start pitching the funds that are less likely to say yes to practice your pitch
  • The more pitches you do, the better you’ll get at pitching
  • Get feedbacks, adapt your presentation and you’ll be better the next time
  • Best free advice you’ll get at these meeting: ask for ideas, referrals, customers, anything you can
  • They’ll give them to you to see how you work
  • Use them and show them how your relationship will be like if they fund you
  • Just have a good time and enjoy the whole process
  • If they enjoy it, they’ll take it more seriously

Companies they said no that’s doing good

  • Laurel and Wolf
  • The product at the time wasn’t good enough
  • They liked the entrepreneur but didn’t take a leap on faith
  • Instead of trying the product themselves, they should have talked to the customers and target demographic and listen to their feedback
  • Kickstarter
  • Very early in their development

Rules for the meeting

  • Jason finds offputting when the CEO is not leading the pitch
  • If the founders don’t know who the CEO is between them is bad (disfunctional relationships)
  • Whoever is the best leader and talker, be the CEO
  • Whoever is the best technical, be the CTO
  • No wallflowers: if somebody is in the room and never says a word, it’s bad (don’t bring them)
  • Too many people at the meeting is another red flag
  • Sit at the same side of the table

Second part

Introduction by Jason:

  • One of the most expectional young founders in the industry
  • He writes a weekly update for his team and his investors (the best from a startup, Jason)
  • He raised a seed round, an A round and a B round

Culture Company and Growth at HomeHero by co-founder and CEO Kyle Hill

  • Startup dies because they run out of money, they run out of money because they don’t grow
  • Growth is the only sign of life
  • One the best predictor for growth is your company culture

HomeHero

  • HomeHero is the fastest and most affordable way for families to find non-medical senior care
  • They are the largest startup in the space, servicing in 4 cities, 19 counties and have 1500 caregivers on the platform and they provided over a million hours of home care over the past 2 years
  • They were solving their own itch, he wanted to find somebody to take care of his dad
  • Chamath Palihapitiya invested in them and took them to dinner where he told them:
  • Growth is getting people in the door, delivering an ah-ha moment as quickly as possible, then delivering value as frequently as possible
  • But your company culture must not suck
  • They didn’t have real company culture so Chamath told him to take all the team to a retreat and find 7–8 value statements that you live and swear by
  • They will be the guiding principles of your whole company at any point
  • To come up with them they did the Love Language test, they asked what company they wanted to be a part of, “The perfect company is…” and write down some adjectives

The 7 value statements

  1. “Focus on long term success and really believe that their business model is scalable and it will work”
  • “Fearlessly contribute new ideas”
  • They encourage every employee to leave their ideas on a Trello page, the more ideas the better, no matter how crazy
  • He sends surveys to his employees to ask for their opinions

2. “Have higher expectations for yourself than others do for you”

  • He considers himself the top marketplace expert in the room
  • Even if it’s not true, he has to hold himself to that standard
  • He obsesses about marketplaces: he’s a Lyft and Uber driver, a TaskRabbit, a courier for PostMate, a ninja for Washio
  • He used all those onboarding sessions to curate his company’s
  • When hiring, they are looking for that same obsession for their trade

3. “Focus on real value over perceived value”

  • They put more emphasis on the output, not the input
  • He doesn’t care if you did 400 calls in a day, what matters is how many clients you’ve closed
  • “Hard work is irrelevant” (Netflix)
  • In college he read the book “Love Languages” where he learnt that he way you acknowledge accomplishments for employees is important and may differ
  • There 5 love languages gifts, words of affirmation, acts of service, quality time, physical touch — hugs or high fives
  • If you have an engineer whose love language is quality time (there are tests to know that) and you want to acknowledge him you take them to lunch and tell them you appreciate the job done (you don’t give him a football off Amazon)
  • It well help to retain your employees, so it’s important to know their love languages

4. “Challenge yourself to do the right thing”

  • Pay attention to the employees that really step when the going gets tough
  • A client of HomeHero passed away, his son called and one of the employees wanted to talk to the son, challenging herself to do the right thing

5. “Treat every problem as an opportunity”

  • Termination sucks but it must be seen as an opportunity for the other person to find a better fit at another company
  • #1 mistake they made at the early stages: hanging on for too long to employees that they knew were not working out
  • Don’t keep people because you like them if they can’t be good for the job

6. “Promote and protect your brand”

  • Your brand is everything about you
  • It’s the way they say it, it’s what they think about when they hear the name, it’s the border, the logo, the padding in the logo, the tidiness of your office, the letter head in the job offers

7. “Default to transparency”

  • He took inspiration from Buffer, crazy about transparency and having everything out in public
  • You should adopt a transparent culture
  • All the Slack channels are public, private groups on Slack are banned, everything is encouraged to be on the public channels
  • All the financial information is on a Google Drive with the exception of salaries and equity for every employee to see
  • The best way to build trust is to be transparent
  • Company culture is the Constitution you live by

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