Dec. 11, 2020

Dave Krauthamer, a digital disruptor for The Band of Angels and a group of 200 investors explains how to achieve seed level.

Dave Krauthamer, a digital disruptor for The Band of Angels and a group of 200 investors explains how to achieve seed level.

Dave Krauthamer, Founder and CEO at QuSecure, Founder at Quantum Thought, Founder at Neural Sales and Chair of Digital Disruption Group at the Band of Angels. In this episode he speaks about how the Band of Angels invests, what major metrics do they look at and how to get to them.  We also discussed how one can be a founder of multiple companies simultaneously and how does that work.


Dave's LinkedIn: https://www.linkedin.com/in/intelenx/

Band of Angels: https://www.bandangels.com/

Neural Sales: https://www.neuralsales.com/

Quantum Thought: https://www.quthought.com/

QuSecure: https://www.qusecure.com/

Transcript

That's good. So we should be good to go. I was just start thanks my microphone. Great. All right. And today's a guest speaker will have Dave.

Yeah, Dave, I was still focusing on your last name that I didn't even pronounce her 1st name. Right? So they crossed right? And today is a guest speaker. We have deep.

Crowd tumor he is the chair of the band of angels. He is also the founder at quantum thought, and founder and CEO at Square. And in this episode, we'll talk about Ben evangelist.

What does this angel group do? What do they invest in? What is the role in it? And also we'll talk about deep tech because Q square and quantum thought or both uh.

Quantum computer related programs, so we'll talk about that so let's kick it off by you giving us some background on yourself and on band of angels.

Thank you so, I started on my career in it. I was a have a computer science background, so spend a lot of time in industry as the in telecom.

I went on to found a company that was oracle's largest cloud partner. Until next sold, that started a company and then, um.

And then went on to found, um, uh, 2 companies in quantum computing quantum security space grew up in a very nerdy family. My dad was a scientist, the jet propulsion Labs.

And my mom was a college professor, so I always was fascinated with.

With physics and the realm, but I had a very, very conventional company in the software space that did really well.

That's really cool. So, tell us a little bit more about the band of angels. What do you invest in through band of angels? What's the major focus of that? Angel group?

Yeah, so the band of angels is actually the oldest seed level group and it's about 200 investors very, very senior. So almost everyone there have run their own companies built their own companies.

We have some venture background, and we have CIGS or groups that focus on particular areas. So I'm the chair of the digital disruption group, but we have a food tack. We have a hardware.

We have a med tech sig.

Um, so we've got a number of groups that focus in, on, on, um, different technologies. So we get about 100 applications a month for companies to present.

Um, they go through the we down selected to 6, and then down selected to 3. And not to say, we don't do investments outside those 3, but.

We're looking for, we're looking for really unique propositions in those various verticals. And so it's highly likely we have a.

A saved that focuses on what you're doing. That's really cool.
1st question actually okay, that is going to be or like my 3rd question or but. In general was the check size and who should.

At least be looking into applying to the band of angels. So I've interviewed a bunch of other angel groups specifically in Southern California, and most of them are focusing on seed as well, but pretty much. All of them have some particular focus.

Is that the same for you or there are no other requirements other than BC stage.

Well, yeah, so we're seed or seed stage and so that generally means caps up to about 10M on the high end. Um.

We like to see there's things we like to see and so these are hard rolls, but we like to see some revenue because a seed level.

You want market validation. Um, so we're generally not investing in kind of like R amp D projects.

So, we like to see some revenue. I mean, I personally like to see about 30000 dollars a month and reoccurring revenue.

Um, we're looking for unique solutions that have a real real problem and you've got a real solution to them.

On yeah, and so we cover most industries. So if you have an interesting business model. You know, we'll definitely cover it. We, you know, I like entrepreneurs who.

Who understand the technology, but oftentimes with startups, you know, you really get on the technology side, but not so strong and then go to market side.

So, I have a significant interest in in the development of your go to market model that you really understand it, but we can get into more detail and I can answer that in more detail on it. Sounds good. Yeah, we'll definitely touch on that. A little bit later.

So, 1st question about how Ben evangelist works is so you mentioned that he receive over 100 applications per month question is how do you manage to process?

So, me, I mean, our venture studio received, I think, over 80 applications this month, and just going crazy going over this. And how do you do on a monthly basis?

Yeah, so so we've got a lot of deal flow right? There's a lot of really interesting companies out there right now. So we get 100 applications, but we, the bulk of them, we'll, we'll listen to in each of the 6.

so, my thing is listening to 7 companies next week.

And last month, I, we listened to 14 companies so, um, so we go through I mean, we give we get most people, the ability to pitch.

Yeah, and then we down select from there.

Got it, so, when someone's patient, what do you think are the major, or should be the major selling points of the founder? So, you know, when you share a page, what are the major green flags for you? So you're watching it or hearing it, or like, okay, that's that's good. That's great.

Yeah, so I think, you know, it's, it's almost tried to say that the team really matters, but to me, it I kind of view that from a different perspective. So I want to know that you have a business.

And kind of probably 8 out of 10 start ups. I see your their technical, young, technical founders, and they really have no concept of go to market.

Or are really no network in the, in the actual sales and channels side.

So I want to know 1. do you have a unique piece of patentable technology?

And then within your team, do you have a network effect?

Like, do you have people who can pick up the phone and close a deal.

So, I'm personally very interested in people who know how to sell. I have a computer science security I was, but I'm basically a nerdy sales guy, right?

And I like people who can entrepreneurs who can, who can make a deal happen because at the end of the day at a seed stage, all that matters is that your product is validated.

Um, and to validate it, you know, the only way to really do that is to have revenue.

Absolutely, when do you think shoot failures actually put their efforts solely towards January revenue? For me personally, it's like, you know, 1st, day of the company, but everyone has their own opinion. What is yours?

Well, I think we often get caught up in this trap about creating the ideal mousetrap. I think you should very clearly. You know, this is just my personal opinion. Not. Everyone agrees with me.

I think your time to market should be as quick as possible.
So, from inception to the idea to revenue in my mind should be no more than 9 months.

And I know some company takes companies take years developing products, but from a funding perspective, if that's your model, you better be looking for money from your friends and family.

Because, you know, investors are going to want to invest in sure. Things. Sometimes they'll invest in.

In science projects, not my model it's not our model. The band.

Some people have that model, but I want to see companies that are going to create a real company that means they know how to sell. They've identified their market. They know that they're economic buyers within their within their team. They've identified them.

And so I, I weighed it on the sales side.

Not everyone agrees with me, but typically, that's how the band looks at things we want to know you're validated.

Right that's actually I'm completely on the same page share with you, which I'm actually surprised, because I thought, you know, you're insulting quantum computing and I thought here can be so deep tech.

You bring up a good point I have a quantum computing company, right? Quantum security. We're killing it on the sales side.

Killing it well, because we all know everyone, we all know everyone in the industry.

And, um, we're working with military, we're working with enterprise, I just got an email right before this from 1 of the largest banks.

In the country about kicking off a pilot.

And so quantum security is actually a different realm. It's not totally quantum, but W, we're, we're killing it in the market.

That's really cool.

I've interviewed recently your Parker skip,

and she was actually the 1 who introduced me to you and she said that quantum computers are a little bit far away from the actual of how do you manage to adapt to the to the market that current market needs?

Well, quantum security yes quantum computers are out there, but quantum security is a different realm so in quantum security, it's algorithmic solutions for existing cryptography.

So the actual solution is not necessarily quantum. It's using these multi dimensional mathematical matrices. So there are quantum components to it.

They're not quantum computing quantum security is now the Chinese are spending 10 X what? We have all their networks.

And on government, and military networks will be quantum secure in 18 months. So.

We're not dependent on quantum computers to sell quantum infrastructure for security.

That's really cool. I had no idea, but now it's time for us to move on to the more, you know.

Standard things for normal people to discuss quantum computers and security. So let's actually touch on to what you mentioned earlier, which is, you know, developing, go to market strategies.

And my question is, what do you think are the major major metrics them? What that wants to look at while developing those go to market strategy? What are 2 major metrics that the founders should track?

Yeah, so 1st of all, you know, I view it go to market as a chair with 4 legs. So you have to have multiple routes into your market and a lot of companies are just like oh, yeah, I'm going to go get a couple of corporate customers. It's B2. B, and I'm fine, so I completely disagree with that approach.

I think you have to have a channel strategy so you have to be able to sell through travels. You have to have a direct strategy you have to have a bar strategy you should have a government strategy if it's tech. So you have to have multiple ways into the market.

And the metrics I look at is, like, I want you to really understand the industries. You're selling into I want to understand what your average contract value is.

Um, it related to those industries at the seed stage, you know, we're very interested in your customer acquisition costs and your long term value. cact, LTV.

So, I want to know what's it going to cost you and what's the lifetime benefit of that customer.

Understand that you're in good shape. Now, another thing we like to see is a bottoms up model because a lot of times when you kind of talk about your revenue model, Pre revenue or.

Beginning of revenue you're like, oh, we're going to make 100000 dollars this month. 200000 next. I want to know from the bottoms up. What customers are in your pipeline where are they at? When are you going to close them?

And I want to see a bottoms up model that that leads me to exact numbers. I, I really don't like this

peanut butter spreading of forecasts.

And so be able to support your data as an entrepreneur, you know, you're expected to be a finance person.

You're and he's going to take you apart on the numbers so make sure you are a salesperson, make sure you are a finance person and you can back up everything you say with detailed numbers. People hate to hear that.

But you have to be able to back everything up from the bottoms up.
Right. So recently, I really got into asking my speakers about sales and how to make them.

And specifically a lot of my listeners are early stage squares and a lot of them are actually technical backgrounds, which means they are horrible at sales. So, what's the recommendation to those people? Should they read a particular focus or and what's.

What would you recommend them to get? At least a little bit better in sales and normal human interaction.

Yeah, so so to be successful in business, you have to be great and sales. It's not an optional thing. It's a requirement. You will not be successful unless you are an expert at selling.

So so, if you are weak in that area, make sure you get at least an advisor who is industry player.

Right, if you're selling into med tech or whatever, find some VP of sales at some big company, that is your economic customer.

Bring them in and selling as complicated as with all the tools out today.

You just have to master this stuff and if you don't have the skill, make sure you bring in a partner, or you bring in someone who knows how to sell it's a science. It's not an art.

And your team has to have connections and your economic buyers.
That's the network effect. So I'm going to look at you and go if you're a technical founder.

How are you being supported it in your team by individuals that are going to help? You really create a robust sales model. 1 of the things in startups is you have to grow revenue as quickly as possible to be successful.

And so you can't read the book blood scaling. I read off minute, you have to South and in structure where you can increase revenue.

Quickly and no kidding around right? Like, if you're if you're 2 years down the road, still still messing with your product.

And you're not on a J curve in terms of revenue. There is something wrong. So you got to take revenue seriously. I mean, just take it seriously.

Right. That's most important thing right?

100% 100% very, very, very much agreeing with you here. You are I just remembered that you are also a founder of the company called neural sales, to be honest.

I forgot what it does, but it sounds like a test to do something with sales. So, can you tell us a little bit more about that? It's an AI sales platform. So, what you do is you go into the system, you create an

audience.

We have all the data so you get 50000 economic buyers and then you create use template ad campaigns. And it does email and LinkedIn outbound.

So in 5 minutes, you can create an audience and send an outbound series of campaigns that, and then analyze it. So, it's yeah, it's funny. I have a company in quantum computing and then a company in sales.

And you've got to be good at hitting as many people, prospective buyers as possible and you need to do that on day. 1.

Build up your LinkedIn network I have 30000 linked in connections, build up your LinkedIn network if you have less than 20000 LinkedIn connections.

You got to work on it, right? So, um.

It's all about the network effect quick question on LinkedIn by the way before, before I move on to talk a little bit more about neural sales. So why is it so important to have like, over 20000 connections on LinkedIn? For me? Personally, I personally will love LinkedIn.

I use lots most of my guess, come from my interactions on LinkedIn, but.

Why do you think is is important to have over 20 K connections?

Because in LinkedIn, you can linked in your 1st levels for free.

Right so, every day every day you should be on that on LinkedIn, adding new contacts in the space you're selling into.

Get everybody, every economic buyer should be in your LinkedIn then you set up campaigns within LinkedIn, and you can message them for free.

If they're not a 1st level, you have to pay to communicate with them.
So, there's a lot of really cool tools and approaches right now where you can literally, like, send out.

Bulk invites to people in your space that are economic buyers, but it's all about touchpoints and it's all about the lowest cost for touchpoint.

If they're in your 1st level network in LinkedIn, you can touch them for free you can reach out to them for right?

Absolutely, and here, I'll actually recommend 1 tool that I've been recommended for, like, a really long time called Octopus. That's 1 of those tools that allows you to send out invitations in bulk really helpful.

Couple of our portfolio companies are using that and is just great for sales. So. Quick question on neural sales and then we'll move on.

Get back to the fundraising part so when neural sales, how much can the founder expect to spend on that?

Well, I think there's 2, there's kind of a managed services approach and then there's a, you do it yourself but I think you, you should expect on the outbound marketing side. Well, 1st of all.

On the inbound marketing side, you need you need kind of solid landing pages SEO optimization on day. 1.

Right on the outbound marketing side expect to spend a couple 1000 a month.

On outbound marketing expect to hit.

You know, 40000 people a month is a combination of LinkedIn email, et cetera, et cetera.

So say, 3000 months, expect it 40 50000 people on it.

And do that on day 1, I mean, just get out there and get out there and create the brand, create the brand. It's about brand equity.

Right. That's very true. So, let's go back to our early stage founders and 1 thing that we've discussed in our preinterview call is that you mentioned that you believe that founders should have an exit plan really early on. So basically, like.

Early days of the company why do you think that's important?

Know who your buyers are I know who's going to buy you.

Because it affects the decisions you make.

Mm, hmm and and, you know, I know this is where I'm kind of a downer for people. I know everyone's like, I want to create a 1B dollar company, but the reality is, you're not.

You want to grow as quickly as you can and then so.

And know who your buyers are right? Investors are going to be happy with that. You're going to be happy with that and it helps you orient your product and your go to market approach.

And then strategic investments really important, right? Like, you want to see, you can go to venture, but if you have strategic investors, they're the best investors, they help you build your product and architect it and they're pretty lease on the terms. So.

Just, it's really important to create that strategic network.
And that you can exit into. Absolutely. That's 100%. Correct. I personally.

Really love the idea of when they found has an exit in mind, because they don't have no expectation to build 10B dollar business because most likely it's really unrealistic.

I love seeing founders who are being realists and say, like, yeah, the skills of being a founder, and the skills of being an enterprise are very, very, very different.

So, I mean, it's just the reality of this situation is, if you're lucky enough to build something quickly, you're not the.

Person who's going to take it to the next stage just to understand that new candy. I mean, there is a slim number of people who can.

But it's probably 5%, right?
5% of the 10% founders who succeed so let's move on and talk a little more about.
How you personally mesh to deal with your work so you are the founder of 3 companies, and you are

the CEO of 1 of them, and you are also in the band of angels. So how, how do you manage to mix the 4.

Um, I think that's a really good question. I mean, you know, I believe you have an infinite infinite amount of time if you focus.

And you delegate and you work intelligently like, so I think it's all about really. It's really about focusing on the things that matter.

And this is where people struggle, they, they don't focus on the things that matter. So focus on the things that matter outsource the rest, get people who are really good. So entrepreneurs, a lot of times, want to do everything for themselves.

And they're not good at those things understand your weaknesses.

Focus on your strengths and feel free to just outsource that stuff. So I listen to a lot of podcasts right? On history and science and stuff right? 3 hours a day.

And people were like, well, how do you get the time to do that? And I'm like, you just have to be efficient.

With with what you do, you have to be mentally efficient and, um, so just really focus in. And only put your energy on things that will move the.

100% that's again, we're on the same page here. Like, when people say, you know, I'm working 16 hours per day. Usually I'm like yeah, sure. You're working 5 hours working 16 hours a day. You're blowing it. Yep. Yep.

You know, there's this whole kind of outage about K through 12 and education that you're getting a year and a half a school.

In that 12 grades and it's the same as business, right?

It's the same in business working long hours generally means you're inefficient and you're not focused on the wrong thing on the right things.

Working 8 to 5 and getting amazing things happen done and.
Really focusing absolutely 8 to 5 personally love that schedule following it in a.

Pretty much every single day, including a weekend. It's great. That means your thinking is efficient, right?

Hopefully, I would not say that my thinking is yet efficient, but I'm trying to get there and how we've touched on to a bunch of subjects. And here I actually went to sugar coat a little bit, because we've talked a lot downsides. falar etc etc.

So question, you see a ton of deals coming your way through the band of angels. Do you remember any deals that are just outstanding? We crazy. Something really fond something that you still remember even maybe 2 years later.

Well, I mean, what I like, and entrepreneurs, I like people who are infected, like, excited infected and just energetic, like only work with the infected. And so it's funny.

The best investment I had was a fitness app. I was in it, like, 60, it has an 80M dollar cap.

So, I want to know you're solving a big problem. I want to know you're really excited about it, like, genuinely excited. So, the companies that I see do really, really well.

Are where they're solving any problem they're really energetic about it and they've got a balanced team of the right people.

And they're doing this because they have a passion for creating beauty. I think this is 1 of the challenges in entrepreneurship is like.

Your motivation, we know your motivation, right? If you are motivated by creating beautiful things, we know if you're motivated by money or status. We know.

So be motivated by creating beauty, beautiful things that's his ethos of being excited, being focused and being curious.

So those are the kinds of companies that do really well, they're doing this because they have a deep belief in what they're doing.

And they're really passionate and really excited and their infectious about it.

Got it so quick question slightly below 1% of violations are actual investors in the starts. So question made for those people.

How how do you personally identify know if the person, or if the founders during the startup for money or actually, because he or she loves what they're doing.

You know, here's the thing.

Great storytellers are always successful.

So, I look at are you a storyteller? Do you understand this? Can you tell it? There's, there's an old story that, you know, the average attention span of a goldfish is 9 seconds, and the average attention span of smart phone users. 8 seconds.

So, can you tell your story to me? Passionately.

In 8 seconds, and those are the people that get it and are in it for the real reason. So when people are over technical, they're confusing. They don't understand their message. They don't know how to communicate their product.

I look for people who are passionate and can tell me the essence of what they're doing quickly. I know those people are in it for the right reasons.

Perfect Yep, that's and that's also a question for the listeners for founders, prepare your elevator pitch. That is really short done. Really cool.

So work on that next question, and we are wrapping up so 2 more questions, and then we'll wrap it up. So.

Question since you have 2 companies pretty much in deep tech, what is your advice to founders in deep tech right now? Specifically for fund raising so, a founder is working on some deep tech project. What's your advice to them?

In terms of fundraising?
Yeah, you know, detect can be hard because the, the time to create a product can be longer. So, what I

would look for is participants in the funding round that are that are more interested in detract like, you know.

The government has some great programs with zippers with with.

If you're in deep tech, I would, I would definitely as a channel of non deleted fundraising and I would definitely go.

Go take those avenues cause there, it's material amount of money.
And it's non dilutive, and then on just the general fundraising Pre revenue.

You know, you're gonna have to find someone with the money who really believes and what you're doing and it's hard.

I mean, it's just hard because most investors, 1 or not technical.

And and they don't like making science project that so you have an extra burden if you're if you're doing a deep product.

And so you've got to do 1 or 2 things go for go for funding where they're going to give you the lead of money also go for strategic partnerships.

Like, if it's in the telecom space, go to Samsung, work out a deal with Samsung, go find a strategic partner in that industry because they'll invest in you Pre revenue.

And there are some of the best kind of funders.

You know, the seed guys are not the best if your tech Pre revenue, because they want revenue. So I would say, you know, governmental money, strategic money and then people, you know, or people you meet, who are really, really invested in.

This particular technology perfectly advice, right there and,
by the way,
if you want to hear more about,

you know,
that kind of funding definitely checkout on our official website,
there is a category called deep tech and alternative sources of funding for startups.

Those 2 should be real help for you and here, we're moving on to last question of today's up as a. we choose a call to action. So, Dave, what's the 1 thing you want to start to do? As soon as the episode is over?

The 1st thing I want you to do.

Is is figure out how to tell your story in a powerful short manner. So I have a 2 minute video where I, I explain everything about quantum physics, quantum security. My markets, my products patents, et cetera in 2 minutes.

And it's if you listen to it, you'll be like, wow.

That's pretty darn cool. So, just stop everything else you're doing and go back to the drawing board and tell your story and, you know, in the average attention span of a smartphone user, which is 8 seconds.

So, just stop everything else and step all the way back.

And figure out how to tell your story passionately and in, in the shortest matter, everything will flow from that.

Absolutely perfect connotation. It should not take you too much time, but it will take you sometime. That's for sure. It's right that 1, man speech it might take you a few hours. That's that's normal.

I don't know if I'd tell you for a technical founders, it can be really hard telling the story like a human being. Just I think that's the hardest prepared to spend some time.

So, if you spend way too much time, probably, you're doing the right thing, because that means that before you did not really know how to put your stuff in the rewards. I said Einstein said nothing is so complicated that it can be explained simply, but it's hard.

It's hard right my is going to go to the description. If this episodes, I'll leave a few links, I'll leave links to the companies that Dave runs.

I'll also leave a link to the band of angels, and also a link to.

Maybe someone else, maybe not, but definitely check out the description of this. Something cool is going to be there and as usually have a good date.