Lecture 19 – Sales and Marketing; How to Talk to Investors (Tyler Bosmeny; YC Partners)

Okay, great.

So okay, great, thanks forhaving me.

So, my name's Tyler I'm theCEO of Clever and what I want to talk today isabout sales.

And I've a little bit ofinsight into this I graduated college, I actually studiedmath and statistics, probably like someof you here in this room.

And thought I was destined forthis world of, finance.

I was about to go start at ahedge fund.

And at the last second, afriend of mine roped me in to join his startup, and asked meto do sales there, which was something that I knew nothingabout, and so, had to figure out on the fly, andspent a couple of years there, figuring out sales for thisvery early stage company.

And then, when it came tostart Clever, you know, we started Clever, and I didit with two co-founders who are very technical, and onevery product-oriented, and we wanted to build thisproduct for schools, and I thought that experience wouldhave no relevancy whatsoever.

But it turns out that some ofthe things that I picked up at the, this previous job, whereit was figuring out sales, have been huge parts of what'smade Clever grow so quickly today.

Quick background on Clever, webuild software for schools.

We are an app platform used bydevelopers and it's used today by about onein five schools in America.

And we started it about twoyears ago.

And so sales have been a be,key piece of that, and I want to use this time tojust share some of the things that have workedfor me along the way.

Of course, there's a millionways to do this, so you'll find what works foryou.

So first I want to start abouthow most, how I used to perceive sales.

And a lot of people see salesas having this, you know, a lot of mystique around it.

You know, it's people who areyou know, really articulate andimpossibly charming.

And they have these, you know, killer closing lines that theyuse.

And I think this is how I sawsales, and I think this is how a lot of founders I talkedto see sales, because they say things to me like, you know,we're just going to work on the product and build a greatproduct, and then when it's finally finished we'regoing to hire the salespeople.

And what I've learned is thathire the salespeople, as a founder, the reality isthat's you.

And so you know, Paul Grahamlikes to talk about how there's two things you shouldbe doing at any point in time when you're starting yourcompany.

You're either talking to yourusers or you're building your product.

And that talking to your userspart, that's selling.

And so.

You know, this is intimidatingto some people because they're like, I've never donesales, and I don't, wouldn't even know where tobegin.

But it turns out that as afounder, you have some uniqueadvantages that make it, possible for you to be really,really good at sales.

And one of those is yourpassion for the product, and what you'rebuilding.

And the second is yourindustry knowledge of what your, of the industry and theproblem that you're solving.

And those two things actuallytotally trump sales experience from what I've seen.

So, this is actually mycofounder, doing sales.

This is what sales, looks like in the very earlystage of a startup.

It's not Don Draper.

It's a lot of calls likethese.

But this is something thateven as a founder who's never done itbefore, it's very easy to do, but you have to commityourself.

And what we did at Clever waswe dedicated one founder, which was me, to peel off andsay, okay, Tyler you're going to gofigure this out and and work on this full time because it'sso important to our business.

So, couple things that I'vepicked up about sales along the way and in, in trying tofigure this out.

You know, the first thing thateverybody knows about sales is they say, okay, it's a funnel.

And you have these differentstages of funnels and you, of, of the funnel and you moveyour customers through it.

Pretty common categories.

There's this prospectingcategory where you're trying to figure outwho's even interested.

Then you're having a lot ofconversations, which is the second level ofthe funnel.

Then you're finding out who'sreally serious and you want to close them andsign the deal.

And then of course, you're in the promised landof, of revenue.

And what I thought would beinteresting would be to talk about each of the stage, acouple strategies that we've used at Clever thathave, worked really well.

So that these aren't abstractthings but things that, you know, you canhopefully use at your startup.

So, prospecting.

So, prospecting is the processof figuring out who will eventake your call.

And you know, one of thethings that I realized early on, so there'sthis guy Everett Rogers who, who's created this technologylife cycle adoption curve.

And he describes it as bellcurve where you've got you know, your innovators and whowill try new things, and you've got your earlyadopters, your mid-stage adopters, yourlate adopters, your laggards.

And one of the things that wasreally helpful for me in understanding sales inan early startup is he's quantified the tail of thisbell curve and this part over here, the innovators, thoseare your potential customers.

And it might seem discouragingthat only 2.

5% of companies are your potential customersthat would even consider buying from a startup that hasno users and no revenue.

But actually, I found just theopposite.

I found it to be extremelyhelpful to have this frame of mind, because you realize,when only 2.

5% of companies will even take your call orconsider using your product, you realize what a numbersgame this becomes.

So if you want to reach that2.

5% and you want to get some earlysales, you, you've, if you're starting to do math,you're hopefully starting to realize you have to do a lotof calling.

You have to do, talk to a lotof people.

So early on in the early daysat Clever, this was my job.

You know, in the, in the 2 months the first twomonths of YC, I reached out to over 400companies trying to get them to take a call and and talk tous about what we're building.

There's, there's three waysthat I have found most successful in,in prospecting and getting these people, one isyour personal network.

That's obvious.

I'm not going to spend anytime there.

Another one is conferences, which is surprising to a lotof people, and then the one that people are most familiarwith is cold email.

And when I say conferences,this is what people think.

They think I'm talking aboutCES or, you know, E3 or something.

And actually, the kind of conferences where sales happenlook more like this.

And we've got, we would in theearly days would go to a lot of these because you've got towhere your users are.

And if they're, if you'reselling to CIOs and there happens to be a gathering ofthem at a hotel in Milwaukee, guess what, that's probablywhere you should be.

So we go to conferences likethese.

We get the attendee lists inadvance.

We email every single personin advance, and, and try and set up meetings so that whenwe get there, every single minute of thattrip was, was well spent.

And this was huge in Clever'searly days.

These, this was where we metall of our earliest customers.

The second thing I mentionedis cold email.

A lot of people don't know howto write cold emails.

It's actually really easy, andthe key is not to write a lot.

Should be really concise.

This is an email template thatI used early on and you're welcome to copy it, butit's really short.

Here's who I am, here's whatI'm building, and I'd love to talk to you aboutthis.

Could we find time tomorrow? It's really easy and, and youcan customize this and find out for every business you want tosell to who's the right person to send it to and you can sendout quite a few of these.

So all right, that'sprospecting.

And the reason this is soimportant is because you've gotta build that first layerof the funnel.

Then you get them to take yourcall.

And this is another placewhere a lot of founders I think just have alot of questions about what toactually do.

And the biggest thing to takeaway, in fact if you only take awayone thing from this presentation today, the numberone thing you should remember is when you get them on thephone, remember to shut up.

And that's really surprisingto people.

So many founders, when I helpthem with their first sales pitch, theyfinally get somebody on the phone who wants to talk tothem about their product.

And they're so proud of thisthing they've been building for the last threemonths that all they want to do is get on the phone andtalk about every feature and talk about all the differentthings they can do and talk about why it's thegreatest thing in the world.

And I have that temptationtoo.

It's just part of being reallyproud of something.

But it turns out that if youwatch the best salespeople, like the best salespeople inthe world, the top 1%.

And you have a chance tolisten in on a call with some of those people, like I have, the most surprising thing ishow little talking they do.

In fact, I've seen calls wherethe, where the salesperson told metheir goal was to only spend 30% of the calltalking, and have 70% of the call the otherperson.

And they would ask a lot ofquestions.

They'd say things like, why did you even agree to takemy call today? This problem that we'retalking about solving for you, how do you solve it today? You know, what would yourideal solution look like? And they're not, they're notdoing the talking.

They're finding, they're doingeverything they can to find out what this person needs,and hopefully understand their problem even better than theydo.

That's what really great salesis and in fact this is something I, I, I, I drillinto everybody at Clever.

It's a really important partof sales and there's actually now if any ofyou use Uber Conference, they have this amazing featurewhere when you hang up a call it sends you an emailautomatically and tells you how much you talked versus howmuch the other person talked.

And looking at one of thoseemails you know, if someone doing sales atClever, I get one of those emails, I can tell immediatelyhow likely the sale is based on how much talking wewere doing.

So, you got all these people,now you got on the phone, do a lot of listening, reallyunderstand their problem.

And then the other part ofthis stage that surprises a lot of people is follow up.

So here's a lot of differentsteps that you can imagine going through.

You know, emailing somebody,not getting a response, and emailing them back.

Calling them, leaving a voicemail, having a pricing call.

You know, there's probablylike you know, 60 things up here on thisslide that could be steps for closing a deal.

These actually aren't justrandom things, this is one deal that, this was the second dealClever ever signed.

These are all the differentsteps that we had to in order to get this done.

And you can see there's a lotof really embarrassing things up there like I emailedsomebody and they didn't respond and I emailed themagain and they didn't respond.

And then I emailed them againand this is from somebody whowanted to buy our product.

Isn't that crazy? Ana that surprises a lot ofpeople.

I see so many founders todayhave a great call with someone, they send an email,they dont hear back and they say, oh that person mightnot be interested.

well, guess what, this is what it looks like inthe best case and.

And so you really have to havekind of, this unhuman, unreasonablewillingness to follow up, and drive things to closure.

Now, qualify with that withone thing.

Which is to say, when you'restarting a company, your time is extremelyvaluable.

because it's your onlyresource.

And, and you couldn't possiblydo this for every single person who mightbuy your product.

So your goal should be to getpeople to a yes or a no, as quickly as you can.

Where you die is if you have athousand maybes.

And sometimes I talk tofounders who say oh, yeah, I have this great pipeline ofyou know, a hundred people who are, who have expressedinterest in our product.

And the maybes are what killyou.

If you can get to a yes or a no, in some ways a no is, iseven better than a maybe.

Because it allows you to moveon and focus on somebody who might bea yes.

So, have this super-humanlevel of, of follow up and ambition.

But make sure you're focusingit on the right pieces.

All right.

So you've talked to someone, you've talked to a ton ofpeople.

You've had all these phonecalls.

You've followed up with themridiculously.

To the point where they, they just know you're notgoing away, and they've gotta sign anagreement.

This final step is somethingthat, if you haven't done before, itmight seem opaque, but it's actually really simple.

It's called redlining.

So you'll send over anagreement.

Their lawyers will mark it up.

Your Lawyers will mark it upand you kind of go back and forth.

If you're part of YC, this isreally easy because YC has standard templateagreements that they give you.

So you don't have to findthese and you can just you know, usethose.

But they've never beenavailable, you know, if you weren't part of YC youkind of had to figure this out on your own.

One of the things that I'mreally excited about is, as part of this presentation, YC has agreed to open sourcetheir deal documents.

So these documents that YCfounders used to get are now going to beavailable to everybody.

So this should never,hopefully, never be a barrier to anyonewho wants to do sales for their start up.

You've got some greatdocuments.

And then the other thing I'llsay about this, a place I see so many smart,smart people go wrong, is you gotta remember whatyour goal is.

Your goal is to sign somedeals, and get some reference customers,and get some validation and getsome revenue.

That, if you don't do that, your start up is, is, youknow, toast.

So in light of that, it'sreally surprising how many smart people will want to doten rounds of document review.

Quibbling over the most minorpoints because of pride, because of intelligence,whatever.

You know, make sure theagreement is the way you want it, but then sign itand move on.

I've seen founders spendmonths quibbling over some indemnification clauses.

And their business would havebeen way better off if they'd you know, just signed the dealand moved onto the next one.

So, that's one closing trapyou can fall into.

I've two more.

One other closing trap that Isee founders struggle with a lot, is they're talking to acompany who says, I will use your product, but Ijust need one more feature.

You know?Or they say you know, I'd love touse your product but it doesn't have this onefeature so we're just not ready.

And to most people, especiallyif you're ambitious, when somebody says that to youwhat you want to hear is, oh, well I can build that feature.

Great.

You know, I'll build that feature and then they're going to use myproduct.

But the problem is, it almostnever works that way.

In fact, somebody telling youthat they would use your, they want to use your productbut it's just missing this onefeature.

I would almost map that to apass in your mind.

Because nine times out of ten if you actually build thatfeature.

You go back to them and then there'd be one morefeature, or there'd be some other reason that they'renot using the product.

So, if somebody says to youhey, I want to, but, you know, there's this one thing that'spreventing us from using your product.

I would do one of two things.

One say, well that's great.

Let's sign an agreement.

And we'll put in the agreement that we'regoing to build this feature.

In which case, you know, you know that if you build ityou're off to the races.

Or more commonly, what we did at Clever was wewould say, that's great.

We're going to wait to see if we hear that demand from morecustomers.

And then once you have a lotof customers requesting it, then you should build itregardless.

And then, and then you're not, you don't have to worry aboutdoing something that's customer one-off, which iswhat you really want to avoid.

So, don't fall into this trap,it happens all the time.

And the other trap I wouldhighly, highly recommend you try toavoid is the free trial trap.

Because this hap, happens allthe time.

People, you know, they go downthis path with a, with a customer, it seemsreally exciting.

And then the customer says,oh, well can I get a free trial? And you can't blame them.

That's a totally reasonablething to ask for.

But the problem is, when you're starting a startup you need revenue, you need validation, you needusers, you need commitment.

And free trials get you noneof those things.

So you go, you do all thiswork, and if you end up with a freetrial, unfortunately, you haven'tmade as much progress as you.

It's actually terrible.

You, you think you've madeprogress.

But really, at the end of thefree trial, you're going to have to sellthem all over again.

So the way I handle this thathas worked really well, is when somebody says, can Iget a free trial? You say, well we don't, wedon't do free trials.

But what we can do is we'regoing to, we do annual agreements here.

And what we'll do is for thefirst 30 or 60 days, if for any reason you're not happy,you can opt out.

And that's a way to get youthe things that you need, while giving them the comfortthat they might need to take a chance on a start up.

So that minor change isactually makes a night and day difference when you're, when you're thinking aboutthese things.

All right.

So, you've prospected.

You've had a lot ofconversations.

Now you've closed people.

You've gone through theredline process.

You worked out the freetrials.

And you're on your way, hopefully, to your firstsales.

Now early on, you could thinkof sales as just like any otherthing of a start up.

Your goal is to, you don'thave to do things that scale.

In fact you can purposely dounscalable things to try and get early customers.

That's, that's the fun of it.

But the other thing that Ithink is really important to keep in mind is, once you'vedone this enough.

What you should start thinkingabout is, well what aspects of this arerepeatable? And, and what aspects of this,you know, are we going to scale further? And there's this, Cristoph Janz has this reallygreat blog post online about the five ways to build a $100million company.

And he talks about, he canhave a thousand customers buy a product that costs $100,000.

Or he can have 10,000customers buy a product that costs $10,000.

Or he can have 100,000customers buy a product that costs $1,000.

And even though you don't needto know on day one, which bucket you're going tofall into.

Most companies do fall intoone of these buckets.

And so, you should startthinking about that as you're doing this.

If, if you want to be in theelephant category of $100,000 product, that'sgreat.

And you're going to have areally high touch sale cycle, and that's fine.

You know, that's sales force.

That's work day, that's great.

But if you think you'regoing to be a rabbit, and sell products for $1,000 ayear to businesses.

And your sales processinvolves flying out to see them three times andeight demos and, and you know, three months of redlining.

Then you probably have torethink something.

And so I see a lot of startupsmost commonly in that, who want to be the rabbits.

And sell for a low pricedproduct to businesses, not thinking about how to doit in a scalable way.

And that's one area where youcan get underwater.

Or it just forces you toincrease your prices.

So this is how I think aboutdifferent businesses.

And it'll be helpful for youwhen, once so you can get started,and once you've done enough of thesales to say, okay.

You know, where am I? And the corollary to that is,is, how do I have to price my product, tobe a viable business? So that is, those are some ofthe things that I figured out along the way building,building sales now at a few, at a few different companies.

And specifically on this verynarrow stage of, of zero to 1 million.

After you get to 1 million, you'll find there's a millionblog posts, you know, about how to get from 5million to 50 million.

Or 10 million to 100 million.

But this zero to one step, Iwanted to ded, focus the presentation on thattoday.

Because there's not as muchwritten about it and it is something that I think is veryopaque to a lot of founders.

I figured this out just bydoing it.

And I'm confident that ifyou're starting a company, you can too.

If for whatever reason youwould like to do what I did and join a startup that'sfigured it out and, and hone your skills and honeyour craft.

We are hiring at Clever, sothat's an option.

>> But even if, and if thatdoesn't, if you do want to start yourown company, and you have questions aboutsales, I put my e-mail address uphere.

And feel free to reach out atany time, I'm happy to help.

So, thank you.

>> Thank you very much.

>> Yeah.

>> That was awesome.

All right.

So now, we're going to talk about a little bit more detailon how to raise money.

Michael Seibel is first goingto talk about how to have a pitch.

And then Dalton and Qasar willdo investor role playing.

>> Yeah, sure.

My name is.

Mind blowingly you know, new.

It really is basic blockingattack.

And the one point I wanted tomake before we get started is, we actually don't spend a lotof time at YC focusing on this.

The main reason is, the bestway you can make your pitch better is toimprove your company.

If you're, if you havetraction and your product is doing well,these conversations are like, the investors want to see yousucceed.

And so, if you rememberanything, it's make your company betterand the pitch will be easier.

We're going to spend the timein the three kind of sections before the meeting, whichMichael will kind of focus on.

We'll do a kind of, a role play of what meeting'sactually look like.

And then we'll just wrap itup.

We are going to do Q&A at theend, we'll kind of save fiveminutes.

So if there's something wedon't cover, please write down yourquestions and we'll go through them.

Now, without further ado.

>> Beautiful.

>> All right.

>> So, my name is MichaelSeibel.

I'm a current YC partner.

I've started two companies.

One was called Justin TV.

It ended up selling to Amazon.

The other was calledSocialCam, which sold to Auto Desk.

And what I really wanted to dowas break down and demystifying the process ofcreating a pitch.

Because I think what happenstoo often, when I see companies come totalk to me, is that they don't know how tosimply explain what they do, and then ask for money.

And that's basically what youhave to do as a founder.

So we're going to go over fourthings.

The first is what your 30second pitch is.

This you need to be armed withconstantly.

This is basically, how youtalk about your company.

This is magic.

Whether you're talking topeople who want to give you money or don't want to giveyou money.

You're talking to yourparents.

This is your go to.

The second is your two minutepitch.

This is for people who aremore interested.

This is people who you mightwant to raise money from.

Or people who you might wantto get to work for you, or people you actually.

Kind need to get a little bitdeeper.

Notice that's where I stop.

A lot of people practice 10,30 minute pitches, hour pitches, I think that'sall garbage.

I think you can get everythingyou need done in two minutes.

And one thing I like to tellfounders is the more you talk, the more you have theopportunity to say something that peopledon't like.

So just talk less and it'llprobably be better.

So, then I want to tell youabout when to fund raise, because I think a lot of companies get this a littlebit wrong.

And then, quickly, how to setup investor meetings.

So, 30 second pitch, this isso simple, it's three sentences.

You can take your time, youcan breathe when you do this, you don't have to get thatmuch information out.

The first is one sentence onwhat does your company do.

Everyone I meet for the firsttime screws this up.

You have to be able to do itin a way that is simple and straightforward, that requiresno pre-information on my part.

You have to assume I knownothing, literally nothing, about anything.

This is how you make it supersimple.

So you know, usually what we tell people is apply the momtest.

If in one sentence you cannottell your mom what you do, then rework the sentence.

There is a one sentenceexplanation that your mom, or your dad is going tounderstand.

So really, really start there,and it's okay if you use reallybasic language.

It's okay if you're saying heywe're Air B and B, and we allow you to rent outthe extra room in your house.

That's simple, right? You don't have to say we'reAir B and B and we're a marketplace forspace.

I don't know what that is.

And it's going to require moretime.

So use simple language.

Very, very important.

The second is how big is yourmarket? It makes sense to do a couplehours of research.

Figure out what generalindustry your product is in.

Figure out how big it is.

Investors like to hear that you're in amultibillion dollar market.

It's pretty simple to do this.

You know, Air B and B might say, how big is thehotel market? How big is the vacation rentalmarket? How big is the online hotelbooking market? These are simple numbers tolook up on Google.

And it makes an investorunderstand, oh wait, if we're big, if we reallyblow this company up, it can be worth billions ofdollars.

Don't skip this step.

Second sentence, how big isyour market? Third sentence, how muchtraction do you have? Ideally this sentence issaying something on the order of, we launched inJanuary and we're growing 30% month overmonth.

We have this number of sales,this amount of revenue, this number of users.

Very simple.

If you can't speak to tractionin terms of pre-launch, you need toconvince the investor that you're moving extremelyquickly.

So, the team started workingin January, by March, we launched a beta, by April,we launched our product.

Right? Convince the investors thatyou guys are moving fast.

That this isn't some long slogthat you guys aren't thinking about this like a bigcooperation.

Your thinking about it like a startup where you canmove fast and make mistakes.

That's all you have to do in30 seconds.

Three sentences.

From that basis you should beable to start a conversation aboutyour company.

From that basis I understandexactly what you do.

You have no unders, you haveno idea how valuable it is to be able to explain to someonewhat you do in 30 seconds, so really internalize that.

Like if you take nothing elseaway, that's going to help you.

Okay.

Two minute pitch.

Now you've got someone youactually have to convince of something.

Maybe even someone you have toask for money.

So, I like to add fouradditional components and these also go by very quick.

The first is unique insight.

Now, if you talk to VCsthey'll say stuff like, what's your secret sauce, what's yourcompetitive advantage, what's your unique insight? It's all the same thing.

When I think about uniqueinsight, what I think about is here'syour opportunity to tell me something that I don't know.

Here's your opportunity totell me something that the biggestplayers in the market you're trying to enter don'tunderstand or don't do well.

This is the ah-ha moment.

And you'd better have it downin two sentences.

The ah-ha moment.

So you've gotta crystallizeall of the reasons why you guys are going to kill thecompetitors, or the really intelligent thought that gotthis business started.

In two sentences, and I needto ah-ha.

You can see whether it's happening when you're sayingit.

That's why I like twosentences, so you get in and out fast.

So if I look at you and I'mlike huh.

Then it's okay, you've nailedit.

If I look at you and I'm like, I already knew that,then you didn't nail it.

If I looked at you and I just don't understand whatyou're talking about, you definitely didn't nail it.

So, practice that uniqueinsight.

In your two minute pitch,that's all, you're only going to get two sentences toget that out there, so it can't be complicated, andthat's basically the theme of this whole thing right, itcannot be complicated.

Next, how do you make money? You know, your business model.

I see so many founders runaway from this question because they think thingslike, if I say advertising, people are going to be like,oh, that's stupid.

Just say it.

Don't run away.

If it's advertising, sayadvertising.

Facebook's a massiveadvertising business.

So is Google.

If it's direct sales, it'sdirect sales.

If it's you know, a game and you're selling in-app in-appadd ups, like that's fine.

Just say it.

Don't run away from thissentence.

It only has to be one sentencelong.

Where founders get tricked onhow will you make money is, they say, well, we're going torun advertising, maybe some virtual goods, we're going tofigure out how to do this, and maybe this, and maybe this.

Well, now you're sayingnothing.

Now you've told me you have noidea how you want to monetize this.

This was a checkmark that Ijust wanted to write, oh, they know how they're going tomonetize.

Instead, I'm writing a bigquestion mark.

So, do the thing that everyoneelse in your industry does to monetize 95% of the time.

Say it and move on.

Like, it's totally okay, no one's going to hold yourfeet to the fire and say three years later, youdidn't monetize this way.

But it's much better to beclear and concise than it is to startspouting out every single way your company can make money.

The next one is team.

I think that this answer isactually really clear.

I think you're trying to dotwo things.

If your team has donesomething particularly impressive, youneed to call that out.

We were the founders ofPayPal, probably want to say that.

We were the founders ofAmazon, might, probably want to say that.

So if you guys have donesomething that has made investors money, you wantto say that.

If not, then please don't goon about the awards your team has won, or the PhDs or the Idon't care, I don't care.

What we want to hear is howmany founders.

Hopefully between two andfour.

What we want to hear is howmany of them are technical.

How many engineers versusbusiness people? Hopefully it's 50 50 or moreengineers.

We want to hear is that howlong have you guys known each other.

We don't want to hear you guysmet at a founders' dating event threedays ago.

ideally, you've known eachother either personally or professionally for at leastsix months.

We want to hear is that you'reall working full-time.

It's really helpful, we're allcommitted to this business.

And what we want to hear ishow you met.

That's it.

You can get in and out of thattwo sentences very easy.

Your only way to buildcredentials is if you've accomplished something.

And with an investor typicallyit's if you've accomplished something that'smade someone some money.

So don't try to overinflateyourself if you don't have that stat onyour resume, move on.

The more you talk about a badthing, the worse it looks.

So, the last one is the bigask.

When it comes to this and youhave to figure out whether this is a conversationinvolves fundraising or not.

What I tell people is likethis is the time where you kind of have to know whatyou're talking about.

This is a time where you haveto know, are you raising on aconvertible note? Are you raising on a safe? You have to know what the capof that safe is.

You have to know how muchmoney you're raising.

You have to know what theminimum check size is.

These are things where if youdon't know these these things, investors going to be like, ohthese guys aren't serious, or they haven't done theirhomework.

So whereas in the rest of this whole thing you shouldn'tuse any jargon.

In this part you shouldn'tjust be like, oh, we're just raising some money.

Like now it's time to actually use a little bit ofthat jargon.

If you don't know that jargon,Google search it, like, it's real simple.

You guys will learn it fast.

So, that's it by the way.

That's too, that's all yourpitch.

Done, like, game over.

Now you let them talk.

So, when to fundraise.

I think this is so important.

Right, you've got this littleGrowth graph here.

Investors like to invest basedon traction.

And so literally it's alwaysbetter to raise money when you've got more traction thanless.

Often times though, you guys'll be in a situationwhere you're just starting.

Or maybe you just launched.

So what you need to do is youneed to think about how do you flip the equation? Your entire mindset should be, typically you are the onesasking investors for money and therefore they arestrong and you're weak.

How do you create a scenario, where you are strong and theyare weak? Right? That's where you want to befundraising.

So first, how do you know thatyou're strong? If investors are asking you togive you money, you're strong.

That might be a good time tostart fundraising.

If investors aren't askingabout giving you money, are you talking to peopleabout your startup? Or are you running superstealth.

If you're talking to peopleabout your startup and you're getting the word out, either that's through thepress or just through talking to yourfriends or people you know doingstartups, that's a good way to kind ofstart feeding that.

The second thing is have youcreated a plan so that you can launch and grow without needing to raisea bunch of money.

95% of the startups that Imeet can get a product to market with a very, verylittle bit of money.

So never put the investor in the ultimateposition of power.

We can't do anything until yougive us money.

You always want to flip itaround.

You always want it to be, thisthings moving, we all left our jobs, we'reall working full time.

And it's moving, if you wantto jump on great, if not.

There are a lot of angelinvestors.

That's the attitude youwant to have.

That's the confidence youwant to have.

If you need money early,always plan for needing less money.

And always be able to showthat you've got a fully committedteam that's working fast.

That's going to be how you gain an advantage whenyou can't show traction.

If you can show that investorthat you haven't launched yet, but you've done eight monthsof work in one month, or two months.

That you've got a great teamthat have all quit their jobs and they're totally committed.

You get some of that advantageback.

But you don't get all of the advantage unless you'relaunched and growing.

So something to keep in mind.

Finally, how to set upinvestor meetings.

This is really, really simple,but I'm surprised at how many companies don't getthis right.

The first is you want a warmintroduction from another entrepreneur, preferably, or aprevious investor of yours.

That's where you want tostart.

If someone who has passed onyour company as an investor offers you, tomake introductions, that's kryptonite.

Don't touch that.

So first, warm introduction.

Very simple, you don't want tocold call these people, you don't want to bum rushthese people, the person, the credibility of the personwho's introducing you to an investor is a big part on whether the investor will takethat meeting.

Second, think in parallel.

So many people that I meetwill run the fundraising this super slow process, we metwith one guy this week, we're going to schedule ameeting with another guy next week, anotherguy three weeks from now.

When you're fundraising you'reon.

It's a sprint, it's not amarathon.

So you want to schedule all of your meetings during the sameweek.

It's extremely hard to do, buthere's one trick that I love.

Tell when you're emailinginvestors, you're getting those warmintros, the investors email you back.

You say, hey, we'd love to setup a meeting but we're building like crazy forthe next two weeks.

So can we set it up in thatthird week? Right? So then, you've, I've e-mailedevery one that, right? So every one schedules thatmeeting three weeks out.

It's better for them becausetheir calendar's open.

It's better for you becauseyou've got all your meetings in one week.

And also, what did you do? You hinted, hey, I'm notdesperate for the money.

We're building.

Like, I could meet you inthree weeks.

But we're building.

We're busy.

Like, it's signalling all ofthe right things.

So that's the best way tokind of go about how you're going to do that.

The last thing is one teammember should be invested in fundraising full time.

It shouldn't be something thattakes over the whole company, because it's very, verydistracting.

So with that, let's kick itoff to the next part of this.

Who am I handing it to? Big Dalton.

Yeah, that might.

Oh, beautiful.

All right.

Hi my name is Dalton CaldwellI'm one of the.

Camera can get us here, okay.

Yeah, I'm one of the partnersat YC and one of the things that we're going to do todayreal quick is a mock pitch.

And first of all I know thisis a bit contrived but this is in this format of likea college class, we're going to do our best to,to have fun and kind of demonstrate what it'slike.

And I realize there's amillion reasons why this, why you could say, oh thisisn't realistic of what pitch is really like but you know,again, there's, there's a lot.

Yeah.

That we can show you.

Just in terms of my backgroundover my career, I've raised 85 million overseveral companies, so I've sat in a lot of investormeetings.

And so, I'm going to be pulling as many things as Ican.

So again, we're just going totry to show you something to talk to, and useit as a learning session.

And you already did your introearlier Caspar, right? It's yeah I've, I mean, I'vedone a couple startups.

Cool.

Yeah, yeah, yeah.

So we're going to do twopitches, and we're going to go through thempretty fast.

And as, as Michael said, thesetend to go fast.

So let's go dive into thefirst one.

Okay, so so Caspar, Iunderstand you, you're coming to pitch me to, can, what canyou tell me about what you do? So we're building acommunication platform that will allow you know,businesses and consumers to collaborate on one singleplatform rather than the kind of fractured statethat they're in right now.

and.

I don't know, I, I don't follow.

So, like think about like whatlike WhatsApp or Snapchat that's for consumers.

We want to do that forbusinesses.

and, and so, what the.

I have to do this with astraight face.

What, what that what thatmeans is we want to enable consumers to talk tobusinesses.

And that's really, what reallythe goal of our business, of our startup business.

I still don't, so, who usesthis, what does this product do? so, I mean, it, it.

It's for consumers and businesses, a messagingproduct.

a, it allows consumers tosend.

Why, why would, why would a consumer want touse your product? Because they want to message abusiness.

okay.

Well, okay, what can you tell me aboutthe, the market or what the opport,what's the size of this.

How is this coming together? Well, I mean.

Messaging companies are verybig.

Obviously Whats App sold forlike $19 billion and Snap Chat is like really growing veryquickly as well so we, I mean we think theopportunity is very big.

Okay ,.

So, okay.

Okay, could you tell me alittle about your traction, your numbers.

Like, have you, have you giventhis to people yet.

yeah, I mean we don't want tokind of open the Komodo and kind of go into all thedetails here.

I, kind of at a high level.

We're live.

We definitely have thousandsof users in the Bay area.

Hundred of business, you know,have kind of.

Can you tell me who some ofthose businesses are? There's ones that you've beento.

We don't, we don't reallywant to get too much into the details, because, youknow, we're still early and we don't want, you know, we'retrying to stay stealth.

Okay, well, can you tell meabout what you've learned so far, what insights you've hadfrom.

Yes.

The consumers are sending messages to these businesses,and we think that's great.

so, and these businesses areresponding to the messages, and we think that's, you know, I don't think that's obviousthat that would happen.

So, can you tell me about whatyour business model is, and how.

Yeah, so we, we charge businesses like amonthly rate.

We haven't precisely figuredout what that is we've, we've, right now we're freefor the few hundred companieswe're in right now.

But we're looking to probablydo a monthly something.

How much do you think a business will bewilling to pay? We think certainly 10 to$15,000 a month.

Okay so, so anyway could youtell me a little bit about your team and who youhave working on this.

yeah, there's we have fivefounders technically I'm the only one who's full timeright now the, we're raising money so we canget, you know, the rest of the team on boardyeah.

That's this.

Or can any of the foundersprogram, or, or.

yeah, yeah.

I mean we have, I mean one ofthem is a bio PhD but he's like he's really pickedup coding.

the, the.

I mean, I'm a Pythondeveloper, I did learn Python the hardway.

Oh, look at the time.

Well, it's been really greatmeeting you.

Please keep me in the loop,this sounds fantastic.

[CROSS-TALK].

I'll send you an update.

Great.

That was awful.

So let's just go through, so.

That was obviously not strong.

So let's just talk about someof the mistakes.

So first of all, you need to make sure the person you'retalking to knows what you do.

This just seems really simple,but it's not.

Yeah, this seems simple, butit's not.

So many times, people getflustered.

They get nervous, and theystart talking really fast.

And there's no way you're evergoing to convince anyone of anything if they don't know, even what your app actuallyis.

You have to know your numbersobviously.

If you're very vague or evasive, like don't even havethe meeting.

If you don't feel comfortabletelling an investor what your numbers are, don't even meetwith them.

It means you're not ready yet,right? For market size, try to givesome plausible bottom-up analysis and don't justname-drop big companies that aren't even really related towhat you're doing.

People tend to do that a lot.

Try to have insights, try toconvince me that there's something that I don't alreadyknow about the market that I learn talking to you, ratherthan just what everyone knows about whatthe market is.

Right, I learned nothingduring that particular pitch.

also, the team's just like,why are you working on this, why are you suited for it is agood thing to do.

And finally, like, he didn't drive theconversation anywhere.

Like, obviously that wentpoorly, and he just let the conversationjust, like, flail around until I cut themedium because we ran out of time as fast as I could.

So anyway, that was, that wasnot a good pitch.

So let's, let's try thatagain.

Okay, all right.

Let's do this.

Okay.

All right Caspar, well so I understand you havea company and can you, can you just tell me a littleabout what you guys do.

Yes.

So we're a messaging product.

We allow, I mean that soundskind of vague, so what we allow you to do you todo is essentially message a location.

So when you walk into a Crateand Barrel, you can send the Crate andBarrel manager a message like hey there's puke in thehallway.

Or if you're in the airport,I'm trying to find this specific gate because I'm notat this airport, where is you know where's aterminal for Virgin.

Or if you're at Target, whataisle.

Okay, so is this a mobile appor what how do I use it? Yeah, so on the consumer sidewe have iOS Android app, but really getting consumersto download apps is obviouslyvery difficult.

Yeah.

I don't, I don't.

In.

I don't usually just download apps.

Yeah.

To send a message.

[CROSS-TALK].

In, in most businesses we havea called action, which says text the ownerdirectly.

Oh.

We've tested actually a bunchof copy that works the best insmall print.

We have, the messages areanonymous, they also lowers the barrierto entry.

I think the mostcounterintuitive thing we've learned in the kind of launchthat we've had where, in 350 locations in the Bay,we've been doing this for about three months we're about11% weekly growth rate in terms ofacquiring businesses.

But the most counter-intuitivething that we learned, because we weren't actuallysure, is, will people send messageswhen they walk into [CROSS-TALK] and they do.

What's the number one type ofmessage that people send? So you would, so originally, we started this product offthinking this is going to be, like, in-location feedback.

That was the premise,in-location feedback.

What we found is more thanhalf the messages, are actually not aboutfeedback at all, they ask things like we, we were in this location inSan Jose this Kabob stand, father and son, it's just atake out place, and we saw messages that gothrough, that went through that saidlike are you hiring? And that's like very strangebecause you would think like why wouldn'tyou just ask the owner.

Yeah.

But we realized that we know this is the owner, and the person who's walking indoesn't and so they, they do prefer toactually just text the owner because they think that's a,that's an easier medium.

Okay, so it's like asuggestion box, or it's like a way to just likemessage a business.

Yeah, initially that's what wethought it was, but what we actually discoveredwas the vast majority, I shouldn't say vast majority,over half the messages are actually justthings like when do you open, when do you close becausethat's not on Google.

Do you, do, you know, are youcatering can you, do you have any reservationsavailable tonight, et cetera.

Okay, okay.

Well, look, in terms of your traction it sounds like you said you hadsome businesses, like.

Yeah.

Tell me about what, what you guys have right now.

So we have about 350businesses, all from San Jose to SanFrancisco.

We sold them ourselves asthree founders.

We're all technical, but weactually did all the sales because we learned a lot abouthow these businesses work.

We actually come from a retailbackground.

We originally built thisproduct for large enterprise players likeStarbucks and Walmart.

But we recognize that closingthose contracts, and our limited amount of runwaywouldn't really be possible.

So we wanted to get theproduct in the hands of users.

So we did SMBs.

And that's when we discoveredhey, this like, this messagingproduct.

>> Okay, okay, that soundsinteresting.

It sounds like you have somecustomers.

>> Yes, so we get.

>> How, how could this be big though? Like, okay, maybe you can100,000 customers.

>> Yeah, so, in terms of like,numbers, we, we see one and half messages on average perlocation per day.

That might not sound a lot,but for a business, that'sskidding 30 messages.

You take like a Yelp review ora Google review.

In a lifetime of visits, theymight get five or seven.

So they're getting a, a hugevolume of messages relative to what they tend to experienceand they're private, so they're not public.

So in terms of, how do weactually make money, it's not, you know, frankly speaking, we don't have a very clearanswer there.

The two paths are the SMB sideor the LCS side, the largecustomer side.

Large customers, we know fromour retail experience, just regular feedback toolsare 3 to 4 million per year, so a like a Sear's, where wecame from.

SMBs we've tested with arewilling to pay $50 a month, so, I, I, you know, Icertainly I think this is.

>> Okay.

>> This can be a large business, but, and there'sclear ways to make money, but.

I could see, I could see that.

Just a couple things like, can you tell me about yourdistribution strategy and also just a little bit aboutthe team.

>> Yeah.

So distribution so the thing thatwe learned in selling to these SMBs is it'sreally freaking hard.

there, the formula LTV minusCPA, lifetime value minus cost price acquisition in SMB isnever going to work out.

Right.

>> And so we have two solutions.

One is to go up market, like we originally planned,the Starbucks or Walmarts or two is actuallyessentially pair with consumer facing companiesYelp, Google, Facebook.

>> Have you been talking tothem, do they actually want to doit? >> Yeah, so we've talked toGoogle and Facebook we're meeting withYelp.

What we're basically want todo is every time you search for a business thereshould be a message button.

We want to get consumers inthe habit of knowing, they can send, essentially atext message to any business.

That can help us get broaddistribution.

Our real vision is to becomekind of that infrastructure, that messaging infrastructurebetween consumers and business.

If that doesn't work, let'ssay Google, Facebook, and Yelp don't want to give upthat valuable property.

It's really an ad unit.

>> Okay.

>> we, we do want to sell thisas a feedback tool to large, large players.

>> All right.

Can you tell me a little about the team? We're running low on, on time.

>> Yeah, there's three of us.

All technical.

We Mike and I did a companybefore.

Sunny is an ex-Googleengineer.

We come from retail.

So and our first startup was afailure.

So, I don't know if that'sgood or bad but, we've, we've workedtogether and, yeah.

We're all technical, we builteverything ourselves.

And we sold everythingourselves.

>> Okay.

>> So we've already had a couple conversations withyour firm.

We're raising 500,000 and 8.

5million convertible note.

Of that 500, 250's committedby Mike Mapels, Eli Gill, and Aiden Sinkit.

And Mike with Floodgate iswilling to fill the round.

We think your, you know, you particularly, you and yourfirm can bring a lot to the team with your retailexperience.

Is this something that'sinteresting to you? >> Yeah, you know, I, I thinkthis is really interesting.

I mean, I would need to talkto a couple more folks on my side, but I do think thisthis, this could be pretty big.

>> Yes, since we've had acouple conversations before and and we're certainlywilling to meet again, we are closing a round thisFriday.

And so, certainly take timeand let, you know, and let, your other partners know.

I'll be available between nowand Friday.

I'll give you another callbefore Friday.

Before we close the round.

But we'd love to actually seeyou, see you in the round.

>> Okay.

Well sounds good.

I gotta go, but thanks fortalking to me.

>> Great.

Thanks.

Okay.

All right,.

>> So very different class type of,type of a conversation.

>> Yeah, so do you have aclicker.

>> Yes.

>> So in terms of that one, you know, some key points hereis, try to actually tell a narrative thatmakes sense to people.

You notice there wasnarratives there.

He was talking about people,how they really use it.

Were able to tie it down tothe real world, which is good.

He was able to demonstrateinsights, and actually tell me something Ididn't already know about the market, like, there were,there were some tidbits there.

It was more, it was more of acollaborative meeting where it felt more like a conversationthan just like a, like I was interviewing himabout something in, in my opinion.

He actually asked for money.

And this is the other keything is at the end, you saw I could have easilyjust been like, okay, gotta go.

But he, he did talk aboutfundraising as, as Michael mentioned.

And he was able to provide allthe context and all the questions I would need to actually have a seriousconversation with him.

If he was cagey about it orshy about it, and not clear on the numbers,that there's a very high, good chance that, you know, Iprobably would have just ended the conversation, due to timepressure.

>> Yeah, it's interesting.

And we, we sit on this side alot.

You really, you can tell whenpeople are very passionate and know their business very, verywell.

And that's what you have tobecome.

okay.

So closing thoughts here before we, what you want to doafter the meeting.

Before we get into the Q&A.

We're running a little shorton time.

After the meeting, the firstthing, just like Tyler said in thesales thing, follow up.

This is, this is important.

And anything other than acheck, or wired funds is a no.

So if they say, we gotta keeptalking to partners, I assume that's a no.

And so, you do want to putsome pressure.

The way that you can do thatis get deal heat.

Deal heat is just a term whichmeans there's a demand for your, to, to be in your round.

This is the easiest way and an important way to actuallydrive up price, et cetera.

Due diligence on theinvestors.

So let's say you have that500,000 raise for your seed round on the 8.

5 millionlike we used in this example.

Due diligence investors.

If you do find it, I, I do,due diligence on adults, and I find, hey, he's actually nota great investor.

I can get Elaud, or MikeMaples, or whoever to actually fill therest of the round.

It's surprising to us, how many entrepreneurs don'tdo this.

You would, it's like, you would actually spend a lotof time hiring somebody.

You're selling a part of yourcompany to somebody, you should know who you'reselling it to.

To make sure they, you know, they're the type ofpeople you think they are.

And then last, know when tostop.

So some founders get so goodat fundraising they just want to do it all the timebecause it's much easier to do than actually building thecompany.

>> Yeah, you think you can fundraising does not equalsuccess and just because.

>> Yeah.

>> You fund-raise does not mean you succeeded and nobodyrealizes that and I'm, we say this and we'll saythis now, but I'm sure everyone will stillequate fundraising with success and read aboutsomeone's fundraising and assume that means they'resuccessful.

>> Well my, my, my intuitionas to why this is the case is because a lot ofsmart people their whole life, they've like, applied to goodschools and applied to good jobs, and they, they justthink fundraising is another like application theycan just kind of check off.

And building a company is muchmore ambiguous, but.

Anyways, that's, that's thesession.

I don't if we have time for,oh.

The edge is under, underlining, building yourcompany.

Fundraising is not the goal.

>> Can you guys just stickaround for a few minutes after, andanswer questions? >> Sure.

>> Yeah, we can do that.

>> All right.

Thank you very much, that was great.

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