Russ Heddleston, Co-founder and CEO of DocSend
What was your main takeaway from Web Summit in Lisbon?
The market for investing in growth-stage companies has always been global, but increasingly, VCs in the US are looking to invest in EU startups at earlier stages. VCs have raised a ton of capital they need to put to work, plus, the valuations in the EU are a lot more attractive. This has caused deals in the EU to be more competitive for investors. The flip side of this is that if you’re a US startup, you are now competing with a much larger set of other startups to raise funding.
What can we learn from EU startups?
Engineers are in short supply everywhere, including in the EU. Maybe it’s because countries are closer together, but EU startups seem to be embracing the remote model more than startups in the US. Even for companies that have a main office, EU companies are more conscious about putting that office in a cost-effective location and then having specialist remote roles wherever they can find them. This is also something that both EU and US investors are considering as a positive factor.
Should US startups seek investment from EU firms?
The European approach to investments is different than it is in the US. They don’t as often have the “winner-takes-all” view that justifies growth at all costs. Most VCs in the EU would rather invest in a more predictable and proven company over something that looks like a moonshot (i.e., huge potential payout but very low likelihood). Because of that, the check size and valuations for VCs in the EU are a lot smaller. If you’re a US startup and you’re looking at an investment to accelerate your growth, VC firms here should still be your go-to.
Andy McLoughlin, Partner at Uncork Capital
What should founders look for in their investors?
At the very early stages of a company’s life, I think there are three things that are important. Firstly, your investors should have the expertise and network to help you think through some of the hard problems you will face along the way. Although we’ll never be experts in your particular business (compared to you, the founders!) we’ve seen dozens of companies and can often help you avoid common mistakes. Secondly, your investors should have an appreciation for (and the funds to support) the fact that many businesses will take longer to hit their stride and may need more money before the next formal round of venture capital. Lastly, your investors should have the network to make warm, relevant introductions to the people who are a good fit to lead your next round. And a bonus fourth point: you should enjoy spending time with your investors—you’re likely going to work with your seed investor for 8+ years so you should genuinely like them!
What category are you most excited about right now and why?
Although we’re a generalist firm investing across B2B, B2C, hardware, and “frontier technology” (space, robotics, autonomy, VR/AR, synthetic biology, bioinformatics, etc.), I invest purely in B2B software. I love startups that build products to help companies build and operate better. This spans developer tools like LaunchDarkly (a feature management platform) and Coder (security and productivity tools for software engineers), “company infrastructure” like Human Interest (a paperless 401(k) for SMBs), and Koan (a simple and collaborative way to manage OKRs and company goals), and vertical industry software such as Alchemy (productivity and digitization for the $1T speciality chemicals industry) and Focal Systems (deep learning computer vision for brick-and-mortar retail). At a very high level, all of these products enable their customers to do more with less, and many of them use some AI to automate and improve existing processes.
Should an early-stage founder look for angels as well as VCs to fill out their round?
Absolutely. When we lead or co-lead a seed round, we always try to reserve room for value-add angels and small funds. Angels—many of whom are still in the thick of building their own companies—often have a different viewpoint and network from VCs, and I’m a firm believer that diversity of high-quality opinion is a very good thing.
Alex Poulos, VP of Marketing at DocSend
At what point should early-stage startups consider bringing in a marketing hire?
In my opinion, one of the biggest mistakes startups make is bringing in marketing too late. There is data that shows that one of the top reasons startups fail is lack of market need. It’s not that these companies can’t bring a product to market; instead, it’s that they fail to create product market fit—and that’s what marketing does.
I’d say once you have ten people on your team, you definitely need someone focused on marketing, unless one of your founders is particularly experienced in sales or marketing. And at each stage of growth, hire marketing leadership talent at a slightly higher level of experience than you think you need—you’ll save a lot of mess down the road by doing this.
How should startups assess where to focus their initial marketing efforts?
It depends on the stage of the company. There’s a great book by Bruce Cleveland called Traversing the Traction Gap that intuitively describes the stages of a startup’s life as: “Go to Product,” “Go to Market,” and “Go to Scale.”
In “Go to Product,” the focus should be on identifying a category, understanding the landscape, identifying possible target personas, and articulating value. In “Go to Market,” focus on understanding growth levers, assessing different channels, nailing down messaging, and a lot of experimentation and learning. In “Go to Scale,” it’s about being more intentional with programs, channels, and spend, and understanding your unit economics.
What are some common misconceptions and mistakes you see in startup marketing?
One I see a lot is the idea of “build it and they will come.” That’s where marketing is treated as an afterthought, and it then operates as a reactive function in the organization. Another big one is simply trying to copy what another company is doing, likely because the CEO or Founder says “I heard company X is doing this and growing like crazy; why don’t we do it?“ It’s important to think critically about whether a strategy is applicable to your specific business model.
Also, many marketing leaders just do too much. They try to cover all the bases by spreading their team and budget too thin with every program and channel under the sun. Just focus on identifying 1-2 channels that will become true multipliers for your business. Finally, in a lot of organizations, marketing is disconnected from the revenue engine. If marketing isn’t participating in forecasting revenue, owning pipeline creation, and doesn’t have financial KPIs, it will soon be marginalized.
Charles Hudson, Founder and Managing Partner at Precursor Ventures
What’s the most common mistake you see in seed-stage pitch decks?
The biggest mistake I see is decks that don’t make it super simple for me, as an investor, to understand what the company does and why that matters. When you can’t communicate that basic point, nothing else matters.
How does the size of the founding team affect your willingness to invest?
The only time I worry about founding team size is when the founding team (as defined by the company) is more than 3 people. I think it’s really hard to have more than 2-3 people who are core to starting a company at the founding stage. It’s not a hard out, but it is something I’d like to understand. We also have many solo founder companies that have done really well, so we are totally fine with the other end of the spectrum.
For companies that don’t yet have a minimum viable product, what should their pitch deck include in order to get an investment?
I need to really understand what your insight is about the problem you’re solving and why it will still be true 12-18 months from now. Telling me that a given platform doesn’t have a given feature doesn’t work; a startup that is a year away from launch has to remember that the competition won’t stand still while you build your product.
Dan Rumennik, Principal at Streamlined Ventures
What feedback do you find yourself always giving to your portfolio companies?
1) Identify the core value driver of your business. A lot of friction gets removed when a team is aligned on what they are working toward.
2) Set ambitious goals. The idea of starting a company is already pretty audacious, but don’t stop there. It’s amazing what a team can accomplish when they shoot for the stars.
3) Be transparent with your supporters. Often times, founders try to sugar coat updates to their investors, and this only hinders providing feedback. Be transparent and the learning can happen faster!
What would an early-stage, cutting-edge tech company need to include in their pitch deck in order to get a meeting with you (assuming they don’t have a fully-formed product)?
In a pitch deck I like to see: i) clear articulation of a valuable problem to solve; ii) the team’s distinct POV on how to solve it; iii) how big the market opportunity is for solving this problem; iii) why the team is uniquely qualified to execute on the idea and build a valuable business.
Even though it is not something that goes in a deck, warm introductions go a long way to getting a meeting.
How important is business model and the ability to monetize when looking at companies to invest in?
It’s important, but often times, entrepreneurs at the earliest stages haven’t fully developed a business model yet. What’s more important to me is understanding if their idea is going to create value for customers. If you create real significant value for someone, monetization will be easier to solve.
Alex Smereczniak, Co-founder and CEO at 2ULaundry
2ULaundry has raised $10.5MM in capital and launched three markets since it was founded in January 2016. 2ULaundry lets you have your laundry and dry cleaning picked up and cleaned within 24 hours with a text or click of a button. Here’s what Alex learned in his most recent fundraising round.
What have you found to be the most important thing to do when putting together a pitch deck?
Tell a captivating story. I didn’t follow the traditional 10-slide boilerplate deck that you typically see. I certainly leveraged components of that approach, but started by writing “lead sentences” on the top of each slide to make sure the deck followed a compelling narrative. I learned this as a consultant at EY and it worked incredibly well while raising capital.
What major challenges did you encounter with investor outreach, and how did you address them?
Some of the bigger challenges were keeping all of the communication organized. I had to treat it like a sales pipeline and use tools like HubSpot, DocSend, Mixmax, etc. to do it as efficiently and effectively as possible.
What is the most important quality in a potential investor?
Passion for the problem you are trying to solve, followed by belief in you as an operator. If the investor does not believe in the product or you, it’s going to be a bad, short relationship.
How has the ability to see how investors interact with your pitch deck been the most valuable to you?
The ability to see how investors interact with not only our pitch deck but also other data room materials has been a complete unfair advantage. Imagine going on a date and knowing exactly when the person is interested in what you’re saying and how genuine their interest is. DocSend provides that for entrepreneurs when they’re “courting” investors. Unfortunately, no investor is incentivized to tell you your business sucks or that they don’t like your idea, so they never do. This results in a lot of long maybes which could lead to a catastrophic waste of time, especially across 100 unique investors and hundreds of conversations. DocSend gives you those true insights and allows you to pass on the investor before you share too much of your data and spend too much of your time.