Poornima Vijayashanker

Startup Fundraising: How Fundraising Will Impact You in 2018—Whether You Are a Startup Founder or Employee

BuildTV

It’s the start of a new year, which is an exciting time all around. You’re probably excited about new opportunities, starting a company, or building product in 2018!

While I’m all for optimism, I’ve also gotta stay true to them theme of Build: debunking myths and misconceptions when it comes to building tech products, companies, and your career in tech! ;) So we’re going to spend the next four episodes of Build debunking themes around fundraising for startups.

I know what you’re thinking: “Poornima, is this really necessary?! Can’t we just focus on product and engineering? How about some Build Tips with those friendly product managers, designers, and engineers from Pivotal Labs?”

Don’t worry—we’ve got plenty of those in store for you! Before we dive back into the fun and friendly banter of Ronan and his team, I thought it was necessary to start 2018 debunking myths around fundraising.

Here are my reasons for doing this:

Reason #1: If you want to be a founder and start a startup in 2018, you need to know how to control your own destiny.

Gone are the days of a quick and easy seed deal. If you don’t believe me, then read these posts by Fred Wilson and Jason Calacanis, two very active investors with compelling data spanning the past five years. They show you that investment in early stage companies is indeed slowing down, and why the trend is going to continue. #byebyebubble

Reason #2: If you want to be a founder and fundraise, you need to know what it’s really going to take to get the first check that gives you the freedom to quit your day job.

I know I previously explored what it takes to raise capital from investors and how investors add value beyond the check. But times are changin’! As I went back and reviewed the episodes, I realized that while much of the advice still applies, there are new challenges that founders—especially first-time founders—face. If you’re going to be one of them, then you need to be aware of them as you build your startup. There are also going to be a lot of sacrifices that you will need to consider making. As you’re faced with them, you might feel like you’re doing things wrong, when others have had an easier time. But you cannot compare when the market is in flux.

Reason #3: Don’t want to be a founder? Even if being a founder is the furthest thing from your mind, you might be thinking about joining a startup as an employee at any stage, from garage to growth.

Well, you need to be able to tell fact from fiction. You don’t want to get lured into visions of billion-dollar exits, only to discover that they are going to be cutting health care benefits, won’t be able to make payroll next month, or that all that equity won’t help you buy my 2005 Honda Civic! You need to be able to ask tough questions to understand the real health of the company and market opportunity so that you can decide if it’s worth taking the risk.

Reason #4: As an employee at a startup, every quarter you are going to be tasked with challenging milestones.

Metrics matter more and more these days, and every department has a funnel. For engineering, it’s making sure the team is continuing to build and ship a quality product, balancing out features with infrastructure, and keeping an eye out for that pesky tech debt to avoid slowdowns. For product, it’s making sure there is a good balance of attracting new customers, while engaging and monetizing existing ones—as well as holding the engineering team accountable to spending time on paying down product debt. And marketing has to keep growing traffic no matter what!

Teams are also staying lean longer, and founders are looking for employees with generalist backgrounds who can #GSD.

Everyone’s contribution matters to achieving metrics, which makes you feel wanted as an employee. But it also means that you need to be good at prioritizing and understanding tradeoffs, in addition to being a fast learner!

At the end of the day, you need to know and understand that what you are doing is actually moving the needle and going to help attract investment and customers.

There is no point in building product or marketing just for the sake of it.

Hopefully, my reasons have convinced you why learning about fundraising is integral to your own success at a startup, and we can move on to the first episode of the year! In it, we’re going to tackle the first misconception a lot of first-time founders fall prey to: thinking they need to reach out to investors the moment they have an idea.

It turns out you actually don’t need to reach out to investors and you can get started by funding your idea on your own. You’ve probably heard this a lot already.

Quite frankly, investors won’t even take meetings if you do reach out. I can count on two hands the number of investors who I had successfully raised from in previous years that wouldn’t even return my emails recently! Why? Because it’s getting really competitive out there and they want to make sure startups have substantial progress before they are willing to take time to meet.

To help us out, I’ve invited Erica Brescia, who is the COO and co-founder of Bitnami. Erica has also recently joined XFactor as an investment partner. XFactor is an early stage investment firm that’s looking to fund female founders as well as mix-gendered teams.

I choose Erica and her peers to come on the show because they are all founders first and investors second—meaning they have sat on both sides of the table.

Here’s what you’ll learn as you watch today’s episode:

  • why investment may not be applicable to the type of business you are building and alternate approaches to funding your startup;
  • the questions investors ask themselves before they will respond to a meeting request or write a startup a check;
  • when startups are “too early” to fundraise, why the definition of “too early” is inconsistent, and who really gets funded early—and why; and
  • the work that startup founders and teams must do if they are keen on attracting investment.

In future episodes, we’ll dive into topics like why raising capital won’t help you outdo competition, how to get over the constant rejection, and what it’s going to take to get that first check.

Listen to the episode on iTunes!

Startup Funding: How Fundraising Will Impact You in 2018 Whether You Are a Startup Founder or Employee Transcript

Poornima Vijayashanker: Got an idea for a tech product that you want to scale into a big business? You probably think that you need to go out and raise capital from an investor, right? Well, it turns out that you may not need to. In today’s Build episode, we’re going to explore when it makes sense to reach out to investors.

Welcome to Build, brought to you by Pivotal Tracker. I’m your host, Poornima Vijayashanker. In each Build episode, I invite innovators and together we debunk myths and misconceptions related to building products, companies, and your career in tech. One misconception a lot of first-time founders fall prey to is thinking they need to reach out to investors the moment they have an idea. It turns out you actually don’t need to reach out to investors and you can get started by funding your idea on your own. In today’s episode, we’re going to dive in deep to understand some of the mistakes that first-time founders make when it comes to funding their idea. We’ll also talk about what investors are looking for and when it makes sense to reach out to them. To help us out, I’ve invited Erica Brescia, who is the COO and co-founder of Bitnami. Erica has also recently joined XFactor as an investment partner. XFactor is an early-stage investment firm that’s looking to fund female founders as well as mix-gendered teens. Thanks for joining us today, Erica.

Erica Brescia: Thanks for having me. It’s great to be here.

Poornima Vijayashanker: This is the first time that you and I are meeting. Thanks for being here. I want to know a little bit more about you. Let’s start with your background. What got you interested in tech?

Erica Brescia: I’ve always been very interested in gadgets. It started out actually with mobile phones way back in the day, but I’ve always been curious about learning more about technology and gadgets and how things work. I really wanted to understand how mobile phone networks worked back in the day. Don’t ask me why. I went on to study investment finance. A different path than a lot of people in Silicon Valley take. My father is an entrepreneur and I always had it in the back of my mind I wanted to start my own company. I got introduced to my co-founder and decided I was just going to help him work out a few kinks in the business and get it off the ground. Here I am now running a software company. It’s really a case of being open to new opportunities, but also just having this lifelong interest in understanding how things work and learning new things.

Poornima Vijayashanker: Let’s talk about Bitnami, your current company. What exactly does Bitnami do and what inspired you to start it?

Erica Brescia: Bitnami is a catalog of open-source applications that you can deploy on servers. It’s primarily like B2B software. Things like maybe Moodle or Druple or WordPress, if you’re familiar with that. We also package up a lot of development environments and development tools, things like Jenkins and Get Lab or Anode or Rails or Django Development environment. We have over a million deployments a month of the applications that we package. We publish them both through Bitnami.com as well as on all of the major cloud bender platforms. Users choose Bitnami because they know everything is going to work right out of the box every time, and they get a consistent experience wherever they deploy the software. If I can just add one more thing to that, one thing I’m particularly excited about is up until now we’ve been bootstrapping through our relationships with cloud vendors, but we’re about to launch a new product for the enterprise. We’re essentially taking the next step in the company’s evolution by productizing all of the automation that we’ve built to deliver this catalog of applications so that others can take advantage of it, too.

Poornima Vijayashanker: It sounds like Bitnami has been going strong for a long time. How long have you guys been around?

Erica Brescia: We’ve been working on the Bitnami part of the business since 2013, but the technology dates back about ten years to when we started Bitrock, which is the predecessor. We do have several years in now.

A day in the life of a startup COO

Poornima Vijayashanker: That’s great. As a COO, what’s your day to day like?

Erica Brescia: It was funny, when I thought through that question, there’s no day to day. I spent Monday and Tuesday in some really key BD meetings. In Seattle yesterday, I was in LA for an open-source conference. I’m obviously here today. The way that we have our leadership roles between my co-founder and I might be different than a lot of other companies. I run everything except for product and engineering. That means that marketing, sales, BD, legal, finance, everything rolls up to me. That basically keeps things running and make sure that the company is growing and bringing on the right people and has revenue coming in and all those good things. Obviously as a quickly growing startup that’s very, very tech heavy, I’m still involved in everything including product and engineering, too. There’s never a typical day. It varies a lot and the days are long, but a lot of fun.

Poornima Vijayashanker: Very good. Now you have actually taken on another role. If Bitnami isn’t enough, you decided to join XFactor as an investment partner. Tell us a little bit about XFactor and why the decision to go into investment.

Erica Brescia: Absolutely. I’ll start with XFactor and tell you about the fund. Then I’ll talk about why I joined. XFactor is a $3 million seed fund. We’re making $100K investments in 30 companies. Pretty easy math. The genesis was really a woman named Anna and a guy named Chip. Chip is a partner with Fly Bridge. They got together and wanted to find a way to fund more women in technology because they had read some of the statistics about how difficult it can be for women to raise funding. The truth is, it’s really an untapped opportunity. There’s a ton of brilliant women building some very interesting companies. They were having problems in some cases getting through the traditional VC process because of some of the biases that we’ve all read about. We probably don’t need to go through that. The idea was that they were going to get together a group of operating female founders. I think that’s really the key is we’re all women who have built and scaled our own businesses across a variety of sectors. I have a lot of experience in B2B and closing very big BD deals.

I’ve acquired companies and things like that. Some of the other women are very heavy on the consumer side and they’re great at branding and rolling out new products. We got a really diverse team of women, but who are actually still on the ground running businesses, very in touch with the problems that founders have in getting new companies off the ground. We think we have a pretty unique perspective and also an edge in terms of what we can offer founders because we’re so close to the challenges that they’re experiencing. We’re very focused obviously with that check size on pretty early-stage companies and helping set those founders up for success. We do expect most of them will go on to raise for their venture capital. We’re there to support them in doing that. I actually haven’t raised VC for my company, but all the other women have. We have a good diversity of experiences and opinions around that too.

Being a startup founder and angel investor

Poornima Vijayashanker: Why’d you join?

Erica Brescia: It took a lot of thought. They came to me. At first, I thought they just wanted to run the idea by me back in February. Then I get an email a few days later saying, “We’d love to have you join us.” I really did spend some time thinking about it and talking to my co-founder and my husband about whether or not I’d be able to balance everything, because it is a big commitment. If I make a commitment, I want to come through on it and make sure that I’m not letting the founders and my fellow investment partners down. It really came down to the opportunity both for personal growth for me and to give back. There’s a financial opportunity, too, which is fantastic. I really saw that we have a pretty unique angle into both deal flow. Several of us are YC founders as well. We have access to the YC network and obviously just good networks in Silicon Valley and outside as well. I felt like we could do something really interesting. I could meet a lot more women in technology. Also, I really do think there’s a huge untapped opportunity there. I think we’ll be able to produce above-average returns. It really came down to me asking the question, “Do I have time for this?” I’m going to get less sleep for sure. That’s definitely been the case.

Poornima Vijayashanker: Sure. You can make time.

Erica Brescia: It was just too good to pass up. This is one of those things that I just couldn’t say “no” to because the opportunity is so big and it’s something that I’m enjoying doing so much.

Poornima Vijayashanker: Wonderful. As soon as I saw the news, I wanted to reach out to you guys because I thought it was fabulous and needed to be spread to everyone else. Let’s talk about your investments then. I know everyone has probably got different things that they want to invest in. We’re going to talk to some of your partners later on. Let’s talk about what you like to invest in.

Why angel investors focus on making investments in markets and business models they are familiar with

Erica Brescia: Sure. I right now am very focused on things that I am passionate about. I think about whether or not the company keeps me up at night thinking about it later. I am usually receiving on the deal flow that it’s on B2B and enterprise sales in particular because that’s where my expertise and experience is. I found myself drawn to some other things, too. One of the investments that’ll be announced soon, I wish I could name some of them.

Poornima Vijayashanker: That’s OK.

Erica Brescia: I think we’re about to announce that we’ve made eight investments in the first two months.

Poornima Vijayashanker: Oh, awesome.

Erica Brescia: We’ve been very busy and we’ve met some amazing women. One of the investments that I’ve led so far is very much a technology, cloud-focused company, which is absolutely my bailiwick. The other one is a fin-tech company. I was really drawn. I loved the founder. Was very impressed by her and the team that she’s put together. Also, it was just the problem that they were solving, I could see it so clearly. It was palpable and I was staying up at night and I was talking to my husband about what they were doing and why I thought it was exciting. When I start thinking about how they can make the business successful and what they should be thinking about, that’s a very good sign to me. I know it’s not direct answer. I invest in this list of companies, but that’s really not the way that it’s worked out so far. I’ve looked at a variety of med-tech companies, fin-tech companies, more women in technology and sourcing and recruiting companies. Some people doing interesting stuff with NLP. It’s really been a very diverse range of companies.

Why women-founded tech companies are broader than they are portrayed

One of the things that I think you’ll see us talking about more, which is very cool, is a lot of these companies are not what you would typically think of as the women-in-tech companies. A lot of people think all we want to work on is beauty. I like makeup and clothes and everything as much as the next person, but I don’t know anything about those businesses. A lot of the deal flow that we’ve had, it’s coming from all kinds of very hardcore tech, a lot of VR stuff, too, and AR. We’ve seen a broad range. Right now we’re looking for the next billion-dollar businesses really. Any other VC it’s, “Is this something I’m passionate about and can it be huge and can I add value in helping them make it so?”

Poornima Vijayashanker: Actually, that’s a good segue into talking about I think one of the things that confuses some folks in our audience and even first-time founders is, what qualifies as a tech product and then what—let’s start there and then we can talk about maybe what a big idea is.

Understanding if your startup is a tech-enabled business or a tech product

Erica Brescia: Sure. Almost anything these days is tech enabled. If it’s not, you might have a scalability problem. I don’t think we have very strict definitions as to what is tech or not. If excelling in technology and in the technical underpinnings of the product is going to give people an advantage, that’s probably a tech company or something that we would think of as such. Some of the subscription businesses or there’s a food device I can’t talk too much about, but that we’re looking at. A really novel subscription business around it. Another two companies have come through that are working on breast pumps for women. They’re hardware companies but there’s a lot of technology obviously that goes into the hardware. Obviously a lot of tech powering how they’re approaching the businesses. It’s really a pretty loose definition of what a tech company is. Even some of them are physical spaces now that we’re looking at. It’s a pretty broad range. It’s not like we’re only investing in software or we’re only investing in sass or something like that.

Poornima Vijayashanker: That’s good to know. Tech enabled but there’s probably some conversation that needs to be had around, “Are you really just selling water online or is there a distribution model that is tech enabled and it’s cool if you sell water online.”

Erica Brescia: Exactly.

Why finding an investor isn’t good enough—You need to find the investor who understands your market and business model

Poornima Vijayashanker: Got it. Then let’s talk about I think another area, though, which is—you’ve already started talking about you enjoy the deals that are B2B, more enterprise, and maybe a little bit more saas heavy. I think one of the concerns that a lot of first-time founders have is, “I just need to find an investor.” I just need to find one investor, but they may not necessarily find that right investor. It’s interesting because it’s not just limited to tech. I was reading Barbara Lynch’s memoir, who’s a restaurateur, and she talked about going and finding the investors who invested in restaurants for her nine restaurants. Talk to me a little bit about what it means to be vertical focused as an investor.

Erica Brescia: You want investors who understand your business or at least have the capacity and time to learn about it and who are upfront if they don’t understand things, too. There’s several things that make people good investors. One is, don’t be an asshole, if I can say that on your show.

Poornima Vijayashanker: Sure. Of course.

Erica Brescia: I just don’t want to work with people who are not good people. To me, some people don’t care about…I’ve actually had people come to me and say, “It doesn’t matter. All VCs are going to be assholes, you just need to accept that and move on.” I’m like, “Uh, uh. No. No, I don’t. There’s a lot of great VCs out there.”

Poornima Vijayashanker: That’s the normal assumption.

Erica Brescia: There are a lot of good people out there, men and women in venture capital. I do think it’s important that you understand somebody who understands your business and the cycles. Before, example, we’ve had a lot of very hardware-centric businesses come through. Those are difficult to invest in. In particular, if you don’t have experience in hardware because you don’t have a really good understanding of how long it’s going to take and what the development cycle should look like and how capital intensive that you’re going to be. It’s harder to make good investment decisions. It’s harder to be helpful for the founder, because if you have unrealistic expectations for the type of business they’re building, nobody wins. It’s the same, we’ve seen a lot of robotics companies doing super cool stuff, but I’ve told them, “Look, I’m not an expert in robotics. I’m going to have to go out.” We do have an associate who does some work for us, but we have to go out and be willing to invest our time to get up to speed in those industries in order to feel comfortable making an investment.

It’s good advice. I think what you’re alluding to is, find an investor that actually knows what they’re talking about in your space because otherwise they could really do damage by slowing you down, refusing to fund a second round or something like that. A follow on or just inundating you with questions all the time. The last thing you want to be doing is just educating your investors on the market when you have a company to build.

The sacrifices founders have to make to get their startup off the ground

Poornima Vijayashanker: Exactly. No, that’s a good point. Let’s talk about the other side of this, which is also, it’s very tempting, as a first-time founder or somebody who’s green, to have an idea, whether it’s hardware or anything that we feel is capital intensive or sometimes we just don’t even have the capital as a founder. We haven’t quite got to the financial point of our life. It’s tempting to immediately say, “Oh my gosh, to get this thing off the ground I need to go and get investment. That might not be the right time.” Let’s talk about what time horizon makes sense. I know it’s going to be product specific, but I think it would be helpful to just—

Erica Brescia: It really depends on so many different variables. One of them I think is important is to be realistic about where you are in your life and what kind of sacrifices you’re willing to make. The reality is, if you have a family and a mortgage, it’s a heck of a lot harder to stop taking a salary—particularly if you were to work in Silicon Valley because the salaries are quite high here right now—and go and start something from scratch. If you’re 22 and right out of college and have none of those financial responsibilities, you might have more flexibility. My vote is do as much as you can before raising funding. Build as much as you can. First of all, there’s so many good investment opportunities right now that I think most investors, they want to see…first they want to see that you’re committed. If you just go out with a pitch deck—like I took two weeks of holiday for my job to put together a pitch deck and if you fund me, I’ll go do this—you’re never going to get funded because we want to see conviction.

We want to see that you quit your job, you’re committed, you’ve been working on this with somebody else preferably for six months. You have the personality and the skills and the charm or whatever it may be, the conviction to actually get other people to join you. That’s important, too. Unless you absolutely can not do it without raising money up front, I would say get at least to a prototype or as far as you can to be able to go show people and prove to people that you’re there for the long haul and that you’re willing to make sacrifices to make something happen. I will also plug incubators, like Y Combinator. Obviously I’m biased because we went through the program. That was a great experience for us in terms of helping us just build some momentum and we did rebranding of the company and accomplished a lot during that period. It’s not about the funding necessarily, but it can give people who are cash wrapped a bit of cash to fund those first few months. It really helps you to accelerate that initial process and sets you up very well to raise from VCs after the fact.

We’ve certainly sourced a lot of our deal flow from YC. We try at XFactor to be very broad and we’ve had people from all over the world, in fact, contacting us. Of course, we’re going to look to YC because they’ve already been through that filter. They’ve achieved something during the period that they’re in Y Combinator. It’s a three-month sprint. We’ve found that looking at people that have at least gotten to the point where you would be if you’ve gone through a Y Combinator or similar. They’ve got something to show. That’s when it makes sense. I will say, this is really the approach that we’ve taken with Bitnami is try to find money from customers. Let’s not undervalue the fact that people will pay you for what you’re building. Hopefully if you’re building something valuable, and you’re much better off going through that experience, learning what it takes to sell to people and collect their money—there’s a lot of details there—and try to build your business that way. You don’t need to go for VC right away. There are great examples of companies that have been hugely successful doing that like GitHub and Atlassian.

Why it’s OK to build a lifestyle business

Poornima Vijayashanker: I’m going to have you hold that thought because we are going to talk about that in a little bit. Now, the other thing I want to point out because you said customers, but I think also bootstrapping with a pay check to get off the ground. A lot of times people are worried about quitting their job and having a source of income, so using that especially for businesses that a little bit more capital intensive early on. Want to throw that out there. I want to dive a little bit deeper into this whole idea of, “I do want to get investment eventually.” Let’s say I have gotten to a point, maybe I’ve gone to an incubator or I’ve gotten it off the ground, I have some customers. Then there comes that period where you’re talking to an investor and they may not really understand how big your idea is. It’s oftentimes that thing that people nitpick over and over again that, is this a big idea? Is this a big market? Or sadly people like to say, it’s a lifestyle business. There’s a stigma here in Silicon Valley against that. Let’s talk about what exactly defines a big idea—if we can even define it because I know it’s a little amorphous—versus a lifestyle businesses and maybe even break that stigma of that lifestyle business.

Erica Brescia: Sure. First I’ll say I don’t think there’s anything wrong with a “lifestyle” business. There have been a lot of deals that we looked at. There was this one amazing woman, I won’t name the company, but she came through my network actually. She developed some really interesting technology. It was my belief after talking to a lot of people that she’s going to sell the company for somewhere between $30–50 million within two years. Awesome for her. Not a great VC investment?

Why venture capitalists don’t invest in lifestyle businesses

Poornima Vijayashanker: Why?

Erica Brescia: Because we can’t produce the kind of returns that we’re looking for. We have LPs just like any other VC fund. We have a responsibility to them to generate returns. I told this woman I want to help her in any way I can. She’s incredibly bright. I just couldn’t see a path to them building a billion-dollar business. That’s really what it needs to be. There needs to be a path that you can understand for how this can be huge. It’s going to be very risky. I should say we always know that businesses are going to change and evolve and you’re very much betting on the founders. That’s absolutely true, but at the same time, if they have conviction around a specific idea and we don’t see how it can get to be a huge business, and some of the great hardware companies we’re looking at are like that. I think they will have fantastic businesses and fantastic exits. I certainly wouldn’t call them lifestyle businesses because they’re life changing in terms of the returns that they’ll create for the founders. They may not be appropriate for a VC fund. I don’t think there’s anything wrong with that.

You need to take a dispassionate look about what you’re building, how big the market really is, how much of it you have an opportunity to grab, and be realistic about that. Then think about the kind of funding that makes sense. You might be able to find a family office or something or angel investors who are not looking for the same VC-style risk and returns. They’ll be totally happy with the company selling for $10, $20, $30 million. In a couple years, they’ll double their money and everybody’s fine.

Where venture capitalists and angel investors get money to fund startups

Poornima Vijayashanker: On that note, let’s actually define what an LP is and why VC versus angels that people understand if they’re not familiar.

Erica Brescia: Sure. An LP is limited partner and they’re the people that put money into the funds. They’re often wealthy. They always have some money coming from somewhere. Often wealthy individuals, but depending on the fund, they might also be pension funds or endowments and things like that from universities or different trusts and things like that. Basically the people who put money into the hands of the venture capitalists who are the people who actually invest that money. In the case of angels, angels I think have evolved a lot. Now we have the super angels.

Poornima Vijayashanker: We’ll get into that in a future episode. I keep saying this, but it’s gonna happen. It’s gonna happen guys.

Erica Brescia: I won’t take us to off course then. There are a lot of different kinds of angels. I was an angel investor before joining XFactor. I mean, not at a huge scale, but I’d made a few investments myself.

Poornima Vijayashanker: What’s the scale?

Erica Brescia: I was writing like $10,000 checks.

Poornima Vijayashanker: Perfect.

Erica Brescia: Smaller checks. Then there are people like—I’ll take my father, who’s one of my closest friends and heroes and has inspired me to do all of this. He built a brick and mortar contracting business that did quite well. He’s been making tons of angel investments and all kinds of different things. Some tech, some very, very nontech. You have people like that. Then you have people like Eric Han for example. My company did raise a bit of angel funding primarily to get some really great folks involved with the company. Some of these people were like Eli Gillin, Eric Han. Eric Han was the CTO of Netscape. He went on to be a very early investor in Red Hat. Since then, has been one of the first checks into a ton of companies that have IPO’d. He was on the board of Red Hat after they IPO’d. Eli Gillin is running his own company now, but he started and sold a company to Twitter and ran a bunch of stuff there. These are people who have done well in their career, typically understand tech. They make a lot more investments than somebody like maybe me or my father who might’ve written a couple of checks a year. These people are doing several key deals a year, usually only investing their own funds. That’s one of the big differences. They don’t have LPs. It’s their own money. They might be doing it more at scale. We call them usually professional angels or super angels.

Poornima Vijayashanker: Business angels.

Erica Brescia: Exactly. Who are making a lot of investments, but they don’t have LPs to answer to.

When it makes sense to approach an investor with your startup idea

Poornima Vijayashanker: Great. Let’s end with this question. When does it make sense then when you think you have this big idea, to approach an investor? I know you guys said early, but what is maybe too early and what’s a reasonable early to get a meeting?

Erica Brescia: It depends on what you need. Let’s start with why do you need the money? That’s the first question you should be asking yourself. Where is this money going to get you? You better have a good answer before you go talk to VCs. What milestone are you going to hit with this? Then the second question you should ask is, could I get it from anywhere other than VCs? Do I have friends and family who might want to just give me some money? Could I even take out a loan? Sometimes these other things make sense. There are a bunch of diverse opinions on this, but my view is you don’t take VC unless you absolutely need it. Until it’s holding you back from scaling. In the particular case of Bitnami, for example, we’ve primarily bootstrapped. We’ve only taken a million dollars in outside funding in total. I have over 70 employees in 12 countries. We’re cash-flow positive. We’ve built quite a stable and steady business. We are starting to talk about potentially raising venture capital because we’re launching this enterprise product that I mentioned before.

That involves building out an entirely new part of the business. I can do that off of cash flow, but I’ll probably go a lot slower and we see that there’s a limited window of opportunity here. I think it really depends on your specific case and whether you can do it any other way. Or if there’s an investor that you can feel or that you feel can add a lot of value. There are certain investors who might have a ton of experience in your space. Maybe they started an earlier company and exited it and are just itching for the chance to do it better now that the technology is evolved or what have you. If you find people like that, I think they can be really helpful to building the business. Otherwise, it’s like, you should raise when you need to raise. If you feel like you could run out of money in the near future and not be able to actually execute on your plan.

Yes, there is such a thing as being too early to fundraise for your startup (and yes—it’s inconsistent!)

Poornima Vijayashanker: Let’s admit. There is a time that’s too early.

Erica Brescia: Oh yeah. There always is. It’s funny. We funded a company that was quite early and quite a high evaluation. That’s one of the deals I led actually. I knew the founder and he’d already built a successful company.

Poornima Vijayashanker: There you go.

Erica Brescia: You’re much more willing then, almost eager, to get in because this is a male, female team. I happen to know the male better than the female. I told him I wanted into that deal because I think this guy has a ton of potential. Even though it was early, I would write him a check, but he’s proven. That matters.

Poornima Vijayashanker: Exactly. I think that’s a big stigma, or rather a big misconception around who’s getting a deal, who hasn’t built a product yet, or it’s not on the market. It’s great that you mentioned that. I think for most other folks, they need to see something. They need to see product. They need to see at least a concierge-style minimal bible product or service, some cash flow, some customers. They really want to…those who don’t have a track record need to step up their game and show a little bit more credibility. Questions Investors Ask Before They Take A Meeting Or Write A Check To A Startup Founder

Erica Brescia: Yeah. The things I look at is, are they committed is the number one thing. Starting a company is hard and a lot of people underestimate how hard and how many sacrifices you make. You can do a whole episode on what’s involved in that. Are they committed? Can they build a team? I look at that a lot. That’s one thing where people who want to move to Silicon Valley who have no connections there, that’s one of my questions. How are you going to find people and convince them in a highly competitive job market to join your team? If you can do that, it also speaks pretty highly of you and your ability to convince people and help them see the vision. Then can they build the product? Is it something that people will pay for?

Those are the checklist items that I have. The more that you can demonstrate, the easier the time you’re going to have with fundraising.

If you can’t prove that people will pay for your product, if you can’t prove that people will use it, especially if you can’t prove that you can build it, that’s when we’re going to have a lot of challenges getting to the next step. That’s when I try to give people a clean “yes” or “no.” Sometimes it’s like, “You’re just not there yet. If you do these things, then I might be interested. I’m sorry. I need to see more before I can make the call.”

Poornima Vijayashanker: Yeah. I think that’s fair. Thank you so much Erica for sharing all this information with us today.

Erica Brescia: Thank you for having me.

Poornima Vijayashanker: That’s it for today’s episode of Build. Be sure to subscribe to our YouTube channel to receive the next episode where we’ll continue the conversation and talk about when it makes sense to transition from angel investment to seeking investment from venture capitalists and what you need to do in that interim period. Ciao for now.

This episode of Build is brought to you by our sponsor Pivotal Tracker.


Build is produced as a partnership between Femgineer and Pivotal Tracker. San Francisco video production by StartMotionMEDIA.

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