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Founder Advice

Rethinking investor outreach as customer development: How Common Paper navigated a successful raise

After embarking on multiple business ventures and successfully securing $30 million of VC funding throughout his career, Jake Stein shares his insights and learnings.

I have co-founded three startups, each with the goal of securing VC funding. These have included a mix of successes and setbacks, each teaching me valuable lessons along the way. In total, I have successfully raised over $30 million in funding.

Before co-founding Common Paper, I had the opportunity to co-found a software company called RJMetrics in 2008. Our goal was to solve a problem we experienced while working at a VC firm, analyzing the data of portfolio companies and potential investors. In 2016, RJMetrics was acquired by Magento.

Following this, I co-founded Stitch, which was based on a small second product we had created at RJMetrics. Stitch focused on data integration software and was later acquired by Talend.

Looking back, the biggest piece of advice I would have given myself would have been to start Stitch sooner. It turned out to be a bigger opportunity than our original business, but it took us too long to take the leap.

Developing Common Paper

One challenge I consistently faced at RJMetrics, Stitch, and Talend was around commercial contracts. Negotiating these contracts involved high legal fees, unpredictable delays to our sales cycles, and difficulty keeping track of contract details at scale. I thought there had to be a better way, and that spurred us to found Common Paper.

Inspired by the success of SAFE, which standardized early-stage startup fundraising, we wanted to do the same for sales contracts. We worked with a committee of attorneys to create standard agreements but soon realized that standardization meant that we could rethink the entire job of contract management software. If the contracts are standardized, we could treat them as structured data rather than unstructured text.

We built software tailor-made for working with standard agreements with robust APIs for creating and accessing contract data. This helped companies to close faster and enabled seamless integration with systems like payments, compliance, and product entitlements. For example, we integrated with Stripe to help our customers automatically bill their customers immediately after they sign a sales contract.

Preparing for the raise and refining the pitch deck

Before co-founding Common Paper, I conducted 100+ customer development interviews with salespeople, lawyers, finance executives, and founders. This helped me understand that the problems I had encountered with contracts were widespread.  This research helped me better understand the pain points and possible design solutions.

Leading up to the raise, I ran a similar process with potential investors. I reached out to have informal conversations with people who were good candidates to lead our seed round. These discussions served as a form of “investor development”, akin to customer development. I asked them about their initial reactions to the business overall, which parts left them skeptical, which parts were most exciting, and what kinds of evidence would be most important to them once we were ready to begin fundraising. These conversations were incredibly helpful and served as a blueprint for the pitch deck.

I began with a template deck, and I iterated and customized it extensively to hit the points that had been highlighted by the specific investors I was targeting. To further refine my pitch, I conducted dry-run presentations to people in my network, including founders and other VCs who wouldn’t be able to invest due to the stage, focus area, or conflicting investments.

Fundraising begins

Once we were ready, I began scheduling meetings with potential investors. DocSend proved to be an invaluable tool. It facilitated seamless sharing of the deck while providing insights into who had actually viewed it. This allowed me to gauge investor interest and tailor my follow-up accordingly.

Fortunately, we received four term sheets, a testament to the strength of our team and the compelling nature of our idea. Ultimately, Boldstart and Uncork and co-led our seed round.

It’s tough to know exactly why this fundraise was a success when I had personally failed other times. I put it down to a combination of a great team, a compelling idea, and luck that 2021 was a favorable fundraising market. I was also fortunate to benefit from being a repeat founder, having experienced a successful exit with my prior company.

Looking forward in today’s market

In recent years, the bar for traction has noticeably risen. Previously, there were stories of startups securing a $20 million Series A round before formally launching their product. These companies had minimal or zero revenue and relied on a handful of enthusiastic and prestigious design partners as their main traction signal.

However, the landscape has evolved. $1 million in annual recurring revenue (ARR) is a common hurdle for raising a Series A round. While that’s a hard and fast rule, and different investors may have varying perspectives, it’s a general trend I’ve observed.

Companies that might have easily secured a strong round a few years ago now face challenges in raising funds or may not secure funding on the terms they had anticipated. Investors are placing less emphasis on leading indicators of revenue and instead focus more on actual revenue. The specific leading indicators vary depending on the business model. As an example, the leading indicators for our business are things like as downloads of the standard agreements, the number of contracts closed on our platform, and the aggregate value (often referred to as GMV) of those contracts. These are still useful metrics to understand the business and help to forecast future performance, but the importance of translating them into revenue is higher than ever. 

Top takeaways

  • Connect with investors for customer development: a valuable tactic in the fundraising process is conducting “customer development” on a group of investors. This involves engaging in conversations and brainstorming sessions with potential investors to gather feedback and insights before the raise even begins.
  • Crafting the pitch deck: the pitch deck remains a critical tool in the fundraising process, even as investors spend less time reviewing them. One key aspect of successful fundraising is structuring your story effectively. Founders must think about how to present the most compelling parts of their vision in a succinct and impactful way. By crafting a story that resonates with investors, founders can capture their attention.