What It’s Going to Take to Get That First Check From an Investor

Guest: Ooshma Garg and Danielle Morrill, XFactor Investments

play_button.svg

All this month, we’ve been exploring how startup fundraising is changing and why it’s going to continue to change in 2018. We started off by talking about why you don’t want to reach out to an investor when you just have an idea, how to evaluate if seeking investment makes sense for your business, and—in the last episode—why no matter how great your idea or business is, you’re still going to receive a lot of noes.

After what might seem like endless reality checks, I’ve saved the best episode for last! ;)

In this week’s episode, we’re going to talk about what it’s going to take to get a yes from an investor. Ooshma Garg and Danielle Morrill are back. Ooshma is the CEO and Founder of Gobble, and Danielle is the CEO and Founder of Mattermark. They’ve both recently become investment partners at XFactor Ventures, an investment firm that’s focused on investing in female founders and mixed-gender teams.

Here’s what you’ll learn in this episode:

  • Some of the uncomfortable activities you’re going to have to do find that first investor;
  • How to approach the topic of check size;
  • How to leverage that first check and attract additional investors who may have been on the fence; and
  • What the investment partners at XFactor Ventures are looking for and the types of startups they have already invested in.

Finally, if you are a female founder or are on a mixed-gender founding team and want to pitch your startup to the partners at XFactor, you can check out their website and follow up with them via email at hello@xfactor.ventures.

Listen to the episode on iTunes!

You can listen to this episode of Build on iTunes. Please take a moment to leave us a review. Your positive review will help us get featured in News & Noteworthy and bring more exposure to the work we’re doing, as well as the talented guests we feature!

Back to main


Like this video? Here are some others you might enjoy:


Startup Funding: What It’s Going to Take to Get That First Check From an Investor Transcript

Poornima Vijayashanker: In the last Build episode, we explored all the reasons an investor may say “no” to your big idea. If you missed the episode, I’ve included a link to it below this video. In today’s episode, we’re gonna dive into what it’s gonna take to get that yes from an investor. So stay tuned.

Welcome to Build, brought to you by Pivotal Tracker. I’m your host, Poornima Vijayashanker. In each episode, innovators and I debunk a number of myths and misconceptions related to building products, companies, and your career in tech. Now, it can be very disheartening to hear no after no from investors, and make you wonder whether you’re eventually gonna hear a yes. But it is possible, and in today’s episode we’ll talk about what it’s gonna take to get that yes.

Today we’re back with Ooshma Garg, who is the CEO and Founder of Gobble, and Danielle Morrill, who is the CEO and Founder of Mattermark. And they are both investment partners at XFactor, a new investment firm focused on funding female founders and mixed-gender teams.

So thanks for coming back, ladies. I know last time we talked about all the many reasons that we’ve received a no. This time let’s turn it around and talk about what it’s gonna take to get a yes and let’s start by reveling in that moment where we each got our first yes. Danielle, when was the first time you got a yes?

Danielle Morrill: I got my first yes from Dave McClure. We were sitting on the curb in front of their new office they had just opened in Mountain View. It was my birthday and it was the “you can quit your job now” check.

Poornima Vijayashanker: Awesome.

Danielle Morrill: So it was extremely exciting to kind of put that milestone.

Poornima Vijayashanker: Yeah. What about for you, Ooshma?

Ooshma Garg: I got my first yes from Ben Ling and Keith Rabois. I remember going to get a physical check from Ben. He was at Google at the time. Now he’s a partner at Khosla Ventures. And so we had been meeting and going back and forth and then I showed up there and he just wrote this check that was more money than I had ever seen in my entire life. He’s like, “Here you go.” I felt like I was this bodyguard…like I needed an armored truck. I felt like anybody who looked at me could see that I was carrying tens of thousands of dollars in my hand. It was really funny. I remember just being so excited, but also funny enough, just so careful and so nervous carrying that check literally all the way to the bank.

Poornima Vijayashanker: Nice. You weren’t like Serena Williams, who just hopped into the ATM and tried to put it in the machine or something like that? She did a drive-by with one of her first—

Ooshma Garg: Oh yeah?

Poornima Vijayashanker: Yeah. With one of her first grand slam winnings. It was like—

Danielle Morrill: I didn’t even have a bank account.

Poornima Vijayashanker: There you go.

Danielle Morrill: That sounds awesome.

Poornima Vijayashanker: That’s awesome. All right. And then what did you do right after you got that first yes…after you deposited the money in the bank?

Danielle Morrill: I don’t think I deposited it for a while. There’s all this stuff that has to happen actually, so we also incorporated on that day, just luck of timing. But yeah, I think it’s really weird. You get this check and it’s like this life-changing thing and then you have to go back to your crappy one bedroom apartment with no windows in San Francisco and it’s like, “Get back to work.”

Poornima Vijayashanker: Yeah.

Ooshma Garg: Yes.

Danielle Morrill: Keep coding, so it’s bizarre and this thing happens and you wanna shout from the rooftops, like, “Ah!”

Ooshma Garg: Yes.

Danielle Morrill: But on some level you feel like, “Oh shit, this is real.”

Ooshma Garg: Yes.

Danielle Morrill: Does that resonate for you?

Ooshma Garg: Absolutely. I think with every great success there’s just great responsibility. And so now you have this amazing check and certainly it’s time to crack a bottle of champagne and celebrate for a moment.

Danielle Morrill: Yes.

Ooshma Garg: But with that comes everything that you were planning to do when you told the person you would do with it. And not only that. It’s just the first check. Typically you’re raising some kind of round and it takes 10 to 15 angel investors to get it all together. So it’s a huge milestone that I think people can take a sigh of relief, but still have to carry it to the finish line.

Poornima Vijayashanker: Now, one of my first investors was somebody who understood my niche market. I know we talked about this in the last episode, but once I found him, actually fundraising became super easy because he went out and kind of rallied the other folks who were kind of on the fence, right? It was, “I believe in this market, I believe in this founder, I believe in this idea, I’m gonna write this check and you all would be stupid to not follow.” Have you had that experience as well?

Danielle Morrill: Yeah, I think different investors take different approaches. Sometimes they go and create the syndicate and sometimes you do and then they come back you up by adding a voice. But I think they’re pretty networked so most investors here talk to each other or they’re only one degree of separation away.

Ooshma Garg: Yes.

Danielle Morrill: So you almost feel like when you’re beginning to fundraise, you can kind of feel the Valley talking about your company. There’s no trace of it on the internet, but they definitely are asking each other questions and saying, “Have you looked at the deal? What do you think of the price? What do you think of this person? Do you know anything about them? Have you heard anything negative?” Just all those questions. Because there is no diligence tool, and I’m laughing because Mattermark is part of that story—

Poornima Vijayashanker: Right.

Danielle Morrill: —but when we were really early stage, it’s really a reputational thing.

Ooshma Garg: Yes.

Danielle Morrill: And so I think part of it is going out and beating the drum for you and part of it is also they’re fielding questions. So as soon as you say, as soon as I said, “Hey, Dave invested in us.” Then I should expect Dave is gonna get hit up with people saying, “What do you think of Danielle? Why did you invest?” etc., etc.

Ooshma Garg: Yeah.

Poornima Vijayashanker: Right.

Ooshma Garg: But I do think it’s important to make sure that when you get some of those first checks that you ask the person who else they would recommend join the round. That would be leaving a lot of value in introductions and referrals on the table if you didn’t do that. Because this person has just expressed huge conviction in your vision. And so they’ll typically or should be able to bring along at least a handful of introductions.

Danielle Morrill: And also, I’ve gotta add, I did not know to do that when I first started out. And I think it’s because you think you’re inconveniencing this person who’s just written you a check.

Ooshma Garg: Yeah.

Danielle Morrill: But actually they just wrote you a check because they wanna make you successful. And so you should ask and ask and ask. They will tell you if you’ve crossed the line, but you probably never will cross the line. And it’s really easy, as an investor now, to just move on to the next thing and get busy. And it’s not that I don’t want to help, but I kind of assume if you’re not asking, you’re all right.

Poornima Vijayashanker: Right.

Danielle Morrill: So ask. Because I think it’s totally true. And I think I did leave a lot of that on the table and probably made it harder on myself than it had to be at first.

Ooshma Garg: Yup.

Poornima Vijayashanker: Yeah. They’re also protecting their investment by getting their fellow investors to invest, right?

Ooshma Garg: Yes.

Poornima Vijayashanker: Yeah. So last time we talked a little bit about the stage that investors are at and oftentimes that makes a difference. And Ooshma, you sort of alluded to this. Now there’s a lot of different types of investors out there in the market today. There’s VC’s, angels, super angels, micro funds, and so on. So let’s talk through what makes sense at each stage, and let’s start with accelerators because both of you have been involved with YC. So when does it make sense to approach an accelerator before or maybe after funding, and what did it take to get in?

Ooshma Garg: Wow. You know, one secret that a lot of people don’t discuss is that many folks that got into something like a YC got in on their third or fourth try. So I did not know that until I started talking to a lot of founders. And YC might’ve given them feedback, maybe they kept working on their idea and they got to a certain stage. So I think that you might apply but you shouldn’t just quit based on getting a no that we talked about. Even getting in to accelerators at an early stage sometimes takes a few tries.

Poornima Vijayashanker: And why would you even recommend people apply? Why does it make sense to do that?

Danielle Morrill: So I think it really comes down to helping you set up the company for success down the road. So what an accelerator or incubator program is gonna do is help you with your go to market, and that doesn’t just mean your product go to market. It’s also the marketplace they create for financing your company.

So they’re gonna help you validate that you’ve got a venture-backable business and they’re gonna help set you up with the relationships and the communication pattern that you need to have in order to be a viable option for those investors. And that’s really valuable, especially if you’re coming to the Bay Area from somewhere else and you can’t really build that network in a few weeks.

Poornima Vijayashanker: Sure.

Danielle Morrill: You really need to be here. And so you’re gonna be able to get a lot of time back. Of course, they take equity for this. But I think it’s probably one of the best trades you’re gonna make because in the beginning it’s just so binary. You’re either gonna raise that round or your company’s probably not going to exist and so early on that’s probably one of the best ways to de-risk financing and then you can focus on the product.

Poornima Vijayashanker: So you mentioned that marketplace pulling in intros for you. For the two of you, how did YC facilitate those intros to angels or super angels?

Ooshma Garg: Well, in my case we were very unconventional. I started the company without YC and I just wanted to build this idea and I felt that there was a problem that needed a solution. So I started prototyping it, I asked my friends for introductions. I was luckily already here for three years after college building a network. So I could just start my own process and seed round and ask for introductions, start raising money, and we didn’t need Y Combinator for the first couple years of the company.

Then, it takes a while. First your company has to get funded so you can explore it, all right? And then you have to find product-market fit and you get to a stage of scale. So it took us a while to find product-market fit and I did YC in the middle of our company’s story, at a time when we were changing models. Solving the same problem, but with different solutions, and when the fundraising environment was really tough.

So I had to make the decision of, “If it’s worth working on, I’m gonna take what I can get.” And at the time that was joining an accelerator. So I think that that’s a good example because it shows that you might’ve been working on something for five years and if YC can help you, or an accelerator can help you, you should still apply and use that as a catalyst for whatever next funding round or whatever growth metric you’re—or awareness you’re really looking for. But I would also say that you can’t let anything like that stop you from building your company.

Poornima Vijayashanker: Right.

Ooshma Garg: So any investor saying “no” or any accelerator saying “no,” you should be building something because you see a way for the world to be better with something. And you have to decide to just do that and do it anyway, regardless of how you get there.

Poornima Vijayashanker: So let’s talk about the mechanics behind this now. So there’s obviously angels, there’s super angels, there’s micro funds, there’s VCs. Walk us through what the check size is or who makes sense at what stage.

Danielle Morrill: Right, so, there’s a lot of flavors. Generally, if you’re talking pre-VC, then there’s very few private individuals who are gonna write more than a $50,000 to $100,000 check. Generally, if you think about someone’s net worth, they’ve got some chunk of their net worth set aside for investing, and it’s probably like 5% or 10%, so you can kind of begin to understand what’s going on there.

But the easiest thing for anyone who’s not a VC is just to ask them. What’s your check size and how much risk do you wanna take? Will you invest pre-product or no, is question one. And then post-product, it’s like what do you need to see from me to invest? There’s so many investors now in that pre-Series A stage that I think it would be hard to give a blanket answer. But the most important thing is to just ask them, “Tell me about the last two or three deals you did. How big were they and what stage?” And I would try to not worry about getting them to do something exceptional. People kind of have their comfort zone with their personal money. And what they’re doing is probably gonna continue to be the same because they’re anchored on their last check.

Poornima Vijayashanker: Yeah.

Danielle Morrill: So if they’ve been writing a lot of $10K checks, that’s probably the check size that they’re writing unless they come into a huge amount of money and it changes their world.

Ooshma Garg: Right.

Danielle Morrill: And then the other thing is you’re gonna have these weird institutional investors who will invest before Series A. I guess this is super common now. When I started fundraising this was a lot less the case. So these are kind of these super angels, micro VCs, I don’t really know what they’re called today. Pre…what is it, pre-seed?

Poornima Vijayashanker: Pre-Series A.

Danielle Morrill: They call it all these different things.

Poornima Vijayashanker: Yeah.

Danielle Morrill: But fundamentally no, those check sizes could be anywhere up to, let’s say, $500,000. They’re generally not leading or pricing a round. No one has to lead a round if you don’t have a equity round, so that’s—a big part of it is just, again, what size check are you normally writing, do you need control in some way, do you add a board seat, all those things. The good news is once you get to Series A, it’s a lot more standardized in terms of ownership. So there’s some rules of thumb and I’m gonna say these and then you tell me if you think they’re different because I feel like maybe they’re not all the same. One big piece of advice is don’t sell more than 25% of your company before your Series A. So fully diluted, when you run your own cap table out. You don’t wanna be in a position where you’ve already sold half your company, because what happens is a Series A investor probably needs to have 20% ownership just for them when they come in. So if you’ve already sold half your company, on top of that, it starts to be pretty demotivating. That can be a little higher or lower, just depending on what’s going on with your business. And then you of course have your other investors that might come in. So maybe you sell 25% to 30% of your company total in that round.

And then the B and C and so on. The way to think about it is the better you’re doing, the more leverage you have.

Poornima Vijayashanker: Sure.

Danielle Morrill: People generally sell 15% to 20% of their company in the B. And then at the C, D, and onward, it’s kind of a sliding scale downwards from there in terms of ownership percentage. And you might be thinking, “Well, doesn’t this add up to more than 100%?” And the thing is that you’re diluting everybody else as you go. So you’re selling a chunk of the whole company at that moment in time. So these investors, it’s generally gonna come down to…fund size will line up with check size. And they’re gonna say something like, “We raised $150 million fund, we’re planning to write $5 million to $10 million checks, and then we’re holding on to $5 million to $10 million per company for follow-on.” Something like that, and you can just do the math.

Poornima Vijayashanker: Right.

Ooshma Garg: Or like, in our case with Xfactor, we have a $3 million fund and we’re putting $100K in 30 companies. And that’s the rubric. So I think to Danielle’s point, it’s your job to understand everyone’s rubrics and appetites so that you are not wasting your time and not wasting their time. And at each stage—and let’s take the seed stage for example, because it’s one of the only stages where there’s so many investors involved—fitting all those puzzle pieces together to get to how much money you need for the next 18 months and a specific material milestone. So I think you start out with calculating that money and you get your friends or blogs or whatever advisors to help you. And then look for people in that stage and then fit those pieces together and ask them to make introductions until you fill the amount.

Poornima Vijayashanker: Yeah, so let’s talk about that. How do you actually get these intros? If I’m outside of Silicon Valley, I’m coming in, or even if I’m here and I’ve been an engineer all my life or a designer or something and then I recently made the switch to a founder, I might not have that network. How do I get those intros?

Danielle Morrill: So, the truth is you’re just gonna have to get out there and talk to people.

Ooshma Garg: Yeah.

Danielle Morrill: And I think the thing is you probably know people who can help you that you might not realize. It’s pretty rare, if you live here, even if you just moved here, not to know somebody who works at a startup. So you just have to start asking. And the truth is you’re gonna have to give away information to get information.

Poornima Vijayashanker: Sure.

Danielle Morrill: “Hey, I have a startup.” OK, everybody has a startup.

Poornima Vijayashanker: Yeah.

Danielle Morrill: “Hey, we’re raising.” OK, “It’s really hard.”

Poornima Vijayashanker: Right.

Danielle Morrill: A lot of people immediately are like, “Oh, OK, interesting.” “Do you know anybody who invests in startups?” And the thing is you’re gonna have to do this at scale. So you’re gonna need to go to events.

Poornima Vijayashanker: Right.

Danielle Morrill: You’re gonna need to ask the people that you worked with in the past and you’re gonna need to do things that you might not enjoy doing, like going on LinkedIn and just doing a ton of research. Nothing is better than a warm intro. So even though this feels really weird and painful to ask, these are gonna generate the introductions that are gonna be the best possible. The next thing is cold after that.

Poornima Vijayashanker: Right.

Danielle Morrill: So anything you can do to get something warm, even if it’s many degrees of separation, is gonna help you more. And so that might also mean cold outbounding someone that you wanna then get an intro through.

Poornima Vijayashanker: Yeah.

Danielle Morrill: So portfolio founders are probably the best people to cold outbound rather than the VC themself or the investor themself. So if someone cold contacts me and says, “Hey, I’d love to get to know you and Mattermark, yadda yadda,” and maybe their plan is that they’d like to get introduced to Brad Feld, the reality is if they can tell that we didn’t click, they’re not gonna ask for that intro. And that sounds really, I dunno.

Poornima Vijayashanker: Transactional?

Danielle Morrill: Mercenary? Transactional?

Poornima Vijayashanker: Yeah, yeah.

Danielle Morrill: But it’s business, so that’s what business networking is.

Poornima Vijayashanker: Of course.

Danielle Morrill: And I think the truth is I wanna send Brad great companies.

Poornima Vijayashanker: Yeah.

Ooshma Garg: Yeah.

Danielle Morrill: So if you’re an interesting company and you pitch me and I get excited, one, I might angel invest in you, which is the absolute best way for me to introduce you to one of my investors.

Ooshma Garg: Yeah.

Danielle Morrill: But the other thing is we all got helped in the same way.

Poornima Vijayashanker: Yeah.

Danielle Morrill: So it sounds transactional, but it’s also just kind of how it works.

Poornima Vijayashanker: Yeah.

Ooshma Garg: It’s the culture of paying it forward.

Poornima Vijayashanker: Right.

Ooshma Garg: Everyone does that. And if they can’t…they’ll be honest. If they can’t give you that introduction and you do click, maybe they’ll give you some advice. And then we go back to that whole idea of listening and staying in touch and sending people updates. But I would say leave no stone unturned. If you just landed here, there’s Techstars or 500 or Founder Institute or Y Combinator or TechCrunch Disrupt or Golden Seeds or who knows. There’s all these things you can apply to. And of course, if you are an island and you don’t know anyone, you have to start out cold. But cold will soon become warm.

Poornima Vijayashanker: Yeah.

Ooshma Garg: And you have to play the numbers game in the beginning.

Poornima Vijayashanker: Sure.

Ooshma Garg: And so just go to all the meetups, email everybody, send links and product demos. Just be creative. Oh! One hack that I had which actually led to me meeting you is that I would go to talks and sit in the front and come up with really good questions. And I’d strategically go to talks where I really wanted to meet the person and I knew they’d be a great investor or advisor. I would wait until the very end. They would give a talk and then all these people would be crowding around someone like Reid Hoffman. In this case it was Aaron Patzer from Mint. And so people were talking to him for 30 minutes. And I waited until the very end and he was like, “Oh my gosh. Who’s this person waiting?” I said, “Hey, I’ll just walk you to your car. I have a quick question.” And then he became a very early on startup advisor and advocate for me. So there’s all these unconventional things I think that you can do to get out there. And they might be uncomfortable but that’s how we all did it.

Poornima Vijayashanker: Yeah. It’s funny. I actually mentioned this hack to a bunch of people whenever they want my time. I tell them I’m gonna be at this event speaking. Some people take me up, some people don’t. Some people have gone so far as to say, “I’ll pick you up from the airport.” I love those people. Because I’m like, “Great! I don’t have to worry about how I’m gonna get from Point A to Point B,” right? Or “I’ll buy you dinner” or whatever, but yeah, I think it’s definitely going out of your way to get that interest and build that network. So let’s talk about what you guys are working on now. You are working on XFactor. So let’s dive into that. Why did you even think this was important? Ooshma, you just rattled off 10 seed opportunities. So why XFactor?

Ooshma Garg: Yeah.

Poornima Vijayashanker: Why do you want to put another one in there?

Ooshma Garg: You know, there was not one female investor in our seed round. And I think…I firmly believe that diversity creates innovation, diversity of thought. And America in and of itself is this diverse nation and considered to be the best in the world. And it’s because of all the different perspectives and kinds of people that we have here.

I like to emulate that in the company and I would like that in our investors. I don’t think that one perspective is gonna make us this breakout, worldwide innovative company.

So, I think that XFactor is unique and necessary because it’s brought together a partnership of nine people and it’s all women and we are all operators, founders, CEOs, and active companies. We’re not retired. We’re extremely current. All these things…fundraising, hiring, strategy, growth, it’s all on top of mind. We can add so much value to early stage companies. And we’re just approaching it in this very kind of operators helping operators, allowing for bad-ass women to help other women in a space where there just aren’t as many.

Poornima Vijayashanker: Yeah.

Ooshma Garg: And really just adding some more diversity to both the founder pool and the investor pool to build more breakout companies.

Poornima Vijayashanker: So you mentioned you were able to raise capital without having a woman founder. So why is that…why do you think that’s important? Right? You did it, you proved it. You did it, you proved it. And I know I’ve…in my last company I raised from all men, so why is that important?

Danielle Morrill: I think that it’s important because it’s hard and the reality is we want these products to exist in the world. It’s not really that these companies can’t get funded. It is harder, but the best ones get funded. And it’s just what are we missing?

Poornima Vijayashanker: Yeah.

Danielle Morrill: What are we missing out on in the world that could exist tomorrow?

Ooshma Garg: Yup.

Danielle Morrill: There’s so many creative, amazing people who are not getting funded for reasons that have nothing to do with what the company is about. And the bad thing is that this kind of poisons the well too, so there’s people who aren’t even trying.

Poornima Vijayashanker: Yeah.

Danielle Morrill: And so I think we wanna send this message that, “Look, we shouldn’t have to exist.” XFactor shouldn’t need to exist and if we do a really good job and we make a bunch of money, people are gonna realize that investing in women, investing in men, we wanna invest in the best no matter what. So down the road, hopefully we can’t exist.

Poornima Vijayashanker: Nice. Yeah.

Danielle Morrill: But until that happens I think we need to…the only way to change it is to actually create competition.

Ooshma Garg: Yup.

Poornima Vijayashanker: Yeah.

Danielle Morrill: So we are in competitive deals and we are sending this deal flow, we’re creating market for each of these founders because we’re gonna need to see a lot more female role models at the top. Ooshma’s company is progressing, Mattermark is progressing, but we’re still very early stage and there’s not a ton of examples of huge exits run by women.

Poornima Vijayashanker: Right.

Danielle Morrill: So I think we’re really great examples here, but it’s very early days and the best chance we have of seeing those results at the end is to put as much as possible at the top of the funnel. And I wanna say I also think it’s just an incredible investment opportunity because it’s under-invested so dramatically. Frankly, we should be able to see incredible returns partly because there’s just so many opportunities that haven’t been taken.

Poornima Vijayashanker: Yeah.

Danielle Morrill: So I feel like not only is it awesome for founders, and I’m so stoked about them, it’s awesome for our LPs and it’s gonna prove to LPs that female fund managers can return awesome results as well. And you know what? There’s more asymmetrical opportunities like this to take. There’s room to create tons more funds focused on women. You can create the exact approach with any minority group.

Poornima Vijayashanker: Yeah.

Danielle Morrill: So it’s…it shouldn’t have to exist, but while it does, we should try to create wealth for all the people involved and then long term, I think create competition in the market.

Poornima Vijayashanker: Yeah.

Ooshma Garg: And it’s so…this is not a not-for-profit.

Poornima Vijayashanker: Yeah.

Ooshma Garg: It is not a charity. We are looking at people who are the grittiest of entrepreneurs and are in it for the long haul and ready to build multibillion dollar companies, and can answer all the hard questions. And we’ve got—

Poornima Vijayashanker: So what are some of those?

Ooshma Garg: Yeah. Well, first of all, we’ve gotten hundreds of pitches.

Poornima Vijayashanker: Yeah.

Ooshma Garg: And we’ve only made about nine or so investments.

Poornima Vijayashanker: OK.

Ooshma Garg: Since July. So in just the last three months we’ve looked at so many companies, and I think people assume, “Oh my gosh, there’s a female investor, she’s gonna invest in a woman.” But I think it’s out of respect to founders that you…that investors ensure that they are looking for and helping you build huge companies and use your time in the best way possible.

Poornima Vijayashanker: OK. So what are you guys looking for in your…and what’s kind of…you said that your check size is $100K, so we’re looking at early deals. And what else are you looking for? What’s it gonna take to get a yes?

Danielle Morrill: Well, the first thing is that we are definitely looking for a return that’s pretty impressive. So even at the early stage if we invest, let’s say $100,000 in a $1-million round, I would say the average post-money valuation is $8 million to $10 million.

Ooshma Garg: Yup.

Danielle Morrill: So right away, to get to a 10x outcome, we need to see a company with really meaningful revenue. The good news is we don’t technically need to find the billion-dollar companies to have a really successful fund, but I think the reality is we wanna find those outliers.

Poornima Vijayashanker: Sure.

Danielle Morrill: So we’re just like any other venture firm at the early stage looking for the most impressive opportunities to deploy their capital. We’ve got 30 bullets in the gun. So we’re also thinking, “OK, we’re gonna invest this money over the next two or three years. Is this the best deal that I can do this year for each partner?” Each partner is thinking about this constantly. So you’re looking at the entire field and you’re saying, “Of all the possible ways to deploy this money, what do we think can get the best return?”

Ooshma Garg: Right.

Danielle Morrill: And that’s what we’re focused on.

Ooshma Garg: And the partners hold each other to a very high bar. We’re all CEOs of our own companies and we hotly debate every deal.

Poornima Vijayashanker: OK.

Ooshma Garg: And it’s incredibly smart, active people around the table. So it helps us make great investments. And it helps us keep the bar high because we have a lot to prove to each other and I think we have a lot to prove as a fund. And that we want to. Because this is…it’s about the great returns, but it’s also, like Danielle said, about setting an example and about proving a point and hopefully making ourselves obsolete.

Danielle Morrill: So I think we should give some specific things for the viewers in terms of what we wanna see because, people listening, we want you to pitch us. So, you gotta have a product. You pretty much have to have revenue I would say for our group, although we would still talk to you, help you get there, stay in touch. We wanna some amount of revenue or customers. I would like to see high margin businesses. I’m looking for software scale. I don’t think that that’s true for all of my partners, but I struggle because I think we’re looking for companies that take advantage of innovations to get the advantage in the market.

Ooshma Garg: Yes.

Danielle Morrill: I’m looking for people who have some special passion. Ooshma talked about being mission driven. It’s really hard. I think we really wanna find founders who are in it for the long haul, so if they’re just an arbitrage deal, I don’t know that we’re quite as excited about that.

Poornima Vijayashanker: Right.

Danielle Morrill: Again, I don’t wanna speak for all my partners, but I personally would prefer to talk to somebody who’s like, “This is the only thing I wanna do.”

Poornima Vijayashanker: Yeah.

Danielle Morrill: I’m looking for patents and technology innovation. I’m looking for stuff that solves problems in the enterprise space and software space for developers, just because I actually think there are a lot of women in those fields and I think there’s more bias for women pitching those ideas than any other idea, and I think they—I wanna give them that check so they have the confidence to go do all the rest of the pitches.

Poornima Vijayashanker: OK.

Danielle Morrill: I wanna write the quit-your-job check. That’s the number one thing. So if you’re watching this video and you’re like, “I would have to quit my job and work on this full-time and I need $100,000,” we wanna talk to you.

Poornima Vijayashanker: Yeah.

Danielle Morrill: Because the quit-your-job check for me was life-changing. I think we would like to write that, so, sorry I’ll let you tell them what you want.

Ooshma Garg: I mean, man. Yeah, Danielle really covered a lot of it. And I think just the founder DNA and passion and willingness, of course plays a huge role. But the interesting thing is that our partnership is so diverse that we have folks coming at it from retail, from consumer, from enterprise, from hardware. We’ve assembled this…and from the finance companies and healthcare, finance, SAS, etc., so it’s really neat because no matter what your company is doing, there’s probably an expert in our partnership that can talk with you, consider the deal, and at least give you feedback, if not invest.

So I think that we are looking for breakout companies in all of those industries. But your…yeah, we—

Danielle Morrill: Our portfolio already has quite a range.

Ooshma Garg: It has quite a range. I mean, we’ve invested in fashion, in hardware, in AI—

Danielle Morrill: Developer tools and machine learning and ag tech—

Ooshma Garg: Yes.

Danielle Morrill: Huge range already.

Poornima Vijayashanker: Well I can’t wait to hear when they come out.

Ooshma Garg: Yes.

Poornima Vijayashanker: So, for our audience out there who’s eager to get their idea out in front of you, how can they get in touch with you?

Danielle Morrill: An email to hello@xfactorventures is perfect. Xfactor.ventures is the domain.

Ooshma Garg: Yes.

Poornima Vijayashanker: OK, what should they send you?

Danielle Morrill: You can send us a pitch or you can send us a hello and we can set up a phone call. Either one is great.

Poornima Vijayashanker: Cool.

Ooshma Garg: Yup.

Poornima Vijayashanker: All right, well, be sure to take them up on their opportunity.

Ooshma Garg: Looking forward to it.

Poornima Vijayashanker: That’s it for this episode ofBuild. Be sure to subscribe to our YouTube channel to receive many more episodes like today’s and great Build tips. 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.