Sept. 26, 2020

2 weeks for fundraising - how to raise a fast round, by David Yaffe.

2 weeks for fundraising - how to raise a fast round, by David Yaffe.

David Yaffe, Co-Founder at Estuary, Previously Co-Founder of Arbor (Acquired by LiveRamp) talks about closing a very fast round (2 weeks only) and how that happened. We also discuss the best strategies of gaining new connections and assembling the right network to accelerate the fundraising process.

Estuary: https://estuary.dev/

David's LinkedIn: https://www.linkedin.com/in/davidyaffe/

Fill out this form to get connected to investors and mentors: https://form.typeform.com/to/vT8gVQDG


Transcript

And today as a guest speaker, we have David Co founder at previously Co, founder and CEO of our board that reads nine point one million dollars and was acquired in late two thousand and sixteen and lease up. 

So, we'll talk about the acquisition, the fundraising for our board and David's plans for. So, David, unless he calls by giving us some background on yourself and on our board. Sure. No problem. Thanks for the introduction. 

So, I've been an entrepreneur for a number of years now across a few different companies. The last of which was was Arbor and Arbor was a platform in the marketing space myself. 

And my Co, founders started in and two thousand and fourteen we all came from Google. And we saw that Google and Facebook were eating the world, and they were taking about eighty percent of every new marketing dollar that came into the market. 

Our philosophy was that that was most likely because Google and Facebook had really great identity assets. 

I had a first party relationship with their publishers and their users that actually use their their sites and that first party relationship led them to be able to monetize in a lot better way than than most companies out there. 

So, 

we created Arbor with the belief that publishers also had that same data asset, 

albeit a smaller at a smaller scale, 

and we were hoping to be able to band them together through platform in a way that would help them use their data assets together. 

And so, Arbor was definitely at the right place and the right times it took off and we ended up sounding it in two thousand and fourteen and selling it for nine figures in two thousand and sixteen. Thank you. Most. 

Most recently I. Co founded, and we're more in the tech infrastructure place space. 

We build technology that allows companies to create manage and maintain their data flows using a simple cloud service and not having to manage infrastructure. 

Go ahead, and here I want to start with our board. We'll talk about fundraising first, and then we'll move onto the acquisition part. So, first question is when was the moment when you were, like, okay, now it's time for us to go out to investors and actually raise some money for our work. 

It's just necessary. So, good question. So, I've always had the philosophy that I like raising raising when I know exactly what I'm gonna do with the money. 

And I haven't never wanted to take people's money. Unless I was a hundred percent confident in the idea. 

Because as soon as you take money on, you have you have you basically signed off that you're going to run and do exactly what you said. And, and of course, investors understand the companies pivot and they changed. 

But,
you know, 
I've,
I've always wanted to at least,
be pretty confident of my own something about six, 

six months before we built up our product that was after having maybe a hundred conversations with different marketers in this space and publishers in the space to make sure that we're onto something that they'd actually buy, 

we had signed our first couple of clients,
and we were actually delivering the value on the platform at that point. 

So we decided to go out and raise money at that point. Nice. That's a really nice strategy. I personally absolutely love it, but. 

Next question is the speed at which your worries defined at the rate of the first round. So, usually, in my personal knowledge, it takes, like, roughly three to six months. In your case. How long does it take to first to raise that first round? 

You know, with that initial correction and that interest from marketers. 

We were a pretty quick process. I don't think we spent more than two weeks funders in the first one. Nice. How how exactly do you happen to be like, two weeks? Because two weeks is just like Super, super, extremely fast. How did that? 

There's a couple of reasons, you know, the first is that we were just experienced entrepreneurs we had been part of start up companies before we had actually known some of the investors through that process. 

I think it's unique to be in a situation where you've built a significant chunk of your products as well and some customers are using it. So that obviously played a part. 

And then I think the biggest part of our strategy has always been, when I, when I raise money, I like to get really warm intros to VC. So we've lined up a whole bunch and we just fire them off all at the same time. 

And that allowed us to get up and get a lot warmer introduction to the, the venture community, which made the process, like, really, really tight and deliberate. 

So, you know, I think all of those things allowed us to pretty, pretty quickly to waste. It's insanely fast. 

But how long did it take you to get the list of people you want to get warm intros too so, the whole process, prior to the actual, you know, we're raising parts. How long do you take you. 

Not too much longer. Honestly, it was nice. We had some really good warm intros and a good networks so between maybe five or six entrepreneurs that I know very well. We got warm intros to all the, the firms that we wanted. 

That's really great. And, you know, I bet most of our listeners are super jealous right now, because most of them are in the early stages printers with the not that much experience. So what's your advice to those people? How can they accelerate the process of fund raising? 

Maybe like, you know, a couple of years before they even decide to start a company there should be, they should be doing some specific networking or go into some specific sort of events. And what's 
your advice to those people how to accelerate their fundraising process? 
In the future yeah, I think I think the good planning around who which venture firms are gonna wanna be for the, for the space. And the thing that you're doing, that that really helps. 

So,
you can figure that out in advance and then,
based on those firms try to either meet entrepreneurs who have they've invested in, especially on entrepreneurs,
who've had good outcomes. 

My my tactic has always been get get entrepreneurs like that to be angel investors and get them to make the intros because a warm intro from an angel. That's gonna be investing in you as well speaks louder than anything else. They're putting their money. 

So, I like going that route. I've never directly done a cult reach up to a venture capitalist and I think that's clearly and achievement in the star fields. 

But in terms of growing the network going back to that question what's your? I assume that a lot of your network came from your previous experiences, right? Working on other companies. 

Would you recommend others start founders to actually work at another startup before starting their own? Or is that not as helpful as? It may seem? I think for me, it gave me the skills that I felt I needed to start a company on my own. 

So I, I worked for two start up companies at various positions. Both of them were successful. 

They got acquired by public companies, and for me, that experience gave gave me the understanding of the different pieces of a startup company we need to be built. 

And I had to have a mental mapping of that in my head to understand the whole process around raising raising capital around how to develop a product. And how to. 

Hire an engineering team, how to work with an engineering team, how to work with a sales team and so on and so forth. 

And I think those skills are more valuable, especially, you know, there's more to a startup than just forming the startup and creating a decent product that people want you actually have to scale it over time. 

And and I think that process is kind of lost on a lot of founders that they go into without that experience. Right, very click and click answer a quick wrap up to your question. Which formula answer was that? 

I, I do think it's important to to have a previous experience and start up companies before starting your own. That said I've known people who've been successful without doing it. It's just a lot easier to have a better outcome. If you have. 

Absolutely, I'm totally on your side right now, because I think that, you know, just looking from something on something within that thing, it's just going to help you so much in the future, but anyways you've done so many great things, you know, super fast fun reason. 
Great accents and always great but now, looking back at that first round, that you've raised looking 
back at that process, what do you think was your major mistake? Did you actually make any mistakes there? Would there be anything that he would like to change in that fundraising process? 

Basically. 

I wouldn't change anything in the first round of fundraising that said Arbor raised to two rounds, and the second round happened to close two months before we sold the business. So obviously, that's not ideal. 

You're giving away twenty to thirty percent of the company, right? Before you sell the business, so, you know, looking back at it, I don't have regrets, but it certainly isn't the way you'd want it to play out. 

I think they were actually positive pieces of it. One was that the round allowed us to really prove that we were going out to build and that we wanted to be build a big company. 

So it allowed us to command a bit of a higher multiple it's gotten. 

So, you know, I don't think that the, it was net negative for our outcomes, but it definitely it doesn't feel right to raise money right before you. 

So, right so, here, we're moving onto that part where I'm gonna ask you, how did the acquisition happen? I assume that you didn't really know that he's coming in a few months because you were raising to how did that happen? Do you just randomly pop up. 

It didn't fully randomly pop up. So, Arbor was in a pretty specific market in our product was relatively specific. 

The time we sold, and the reason we raised that round was, we can see that the revenue on that product line was kept and we'd have to build for another six months to year to get to the next the next thing into market. And that would increase the cat. 

So we raise money to enable that. But at the same time, we got around the offers from a pretty persistent acquire starting before we were is that money? 

And we said, no, every time, but they kept on coming back double the last time we said, no as in August and we ended up raising right afterwards with the expressed intention of building about seven million dollars at that point. 

And then we expected depart ways. But two months later, the acquire came back and they offered us more than a thirty X multiple on revenue. 

So,
at that point,
we even though we just alluded ourselves,
we felt like we had no choice,
but to accept it,
you know,
the combination of how much time it would have taken into the to grow into that valuation, 

combined with execution risk and increasing regulatory pressure made it pretty obvious for us and the Congrats on that exit that's just great story right there. 
But your actual want to move back to. 
Our first question, which is, you know, with your first round, how you managed to raise it, when did you decide to raise that first round? And my question is when should you quit your day job? So, most star founders really start. Those starts as a side. 

D, while working on an actual job, right? What is the point that we recommend founders to actually quit their day job and make their startup a day job? Should there be some breaking point like fundraising after a fundraising? 

You should definitely quit your job, or shouldn't be the first customer, or which would be. 

I think that it's it's gonna be difficult to fundraise. If you haven't quit your day job, most venture firms, who want to see that you're a hundred percent committed to the projects. 

And furthermore, if you have a day job, you probably have an invention assignment agreement, which is a little risky as a, as a startup company. So, I personally like to quit earlier when I start a company. 

I guess it's a bit of a luxury to be able to do that, but I like to develop myself a hundred percent. 

And for me, the real interest that made would make me quit in my day job would be putting together the right team that I knew. I would want to start a company with I mean, maybe I come at this from a little bit. That'd be different Headspace. 

But my. 

Usually, I'll do, so before I have an idea, it, at least the right idea, because I think it's more important to figure out the space that you want to get into. 

And once you have a hundred percent of your day devoted to researching a space, you're gonna come up with something in that space pretty quickly in my experience at least. But it takes that devotion. 

It takes devoting your time to to a space to really know what the problems are and how to solve them. So, my personal philosophy around that is just rip the bandaid off as soon as you can it's early. 

And and that's how you can maximize the outcome. 

Absolutely, a great point. I think that the team construction, when you have the team, that's really the moment when you can yeah. Okay. I'm done with my day job. That's just perfect advice right there, but moving on and talking about. 

I had some question some follow up question that I want to ask you. Oh, the thing that I want to ask is the team building. So how exactly do we build a team? Where do you find those people? 

Should you have them in your network already or can you actually go out and, you know, search LinkedIn for potential perfect fits or some specific apps for that? 

Team is one of the, the most critical things, and it's also one of the things that takes a lot of startup companies. So I like to have worked with someone for a number of years. Honestly, beforehand before I'm gonna start a start up company. 

It's like, marrying someone. You wouldn't wanna marry someone right away that you met off, linked in. You probably wouldn't wanna start a company with them either. And so, my experience is that. It's really good to just believe that. 
People to make. Sure. That you've fully understood. 
How, how you're gonna work together, how you fill in each other's gaps, you know, that you have a complementary skillset, because you don't want to be, you don't want to have the same skillset. You wanna be doing things that each other can't do. Hopefully. 

So all of that takes some time and I personally like to meet them through work or I could imagine school or something like that where you spend time actually diving into problems with that good point. Good point. 

That's one. I think one of the major value proposition of off University, but now we're moving onto more current situation. 

So now you're working on as cherry wood does as George was that a straight kind of aims at solving a problem that we saw when we build Arbor? 

Alright, at this point, I'll pretend to understand what that means. But and then we'll just move on without getting to the technicalities. But what's your plan for? Are you playing to fundraising anytime soon? Or what are you planning to do? 

Anything different from what you've done with our board, or are you just complained to do the exact same to play the same strategy there? 

Yeah, we're, we're doing it a little bit differently. We're already about a year old and this is a company that requires a lot more tech than in our previous one. Luckily, we're based on tech that we built at Arbor for the last six years. 

We've been actually building it in and refining it. And that allows us to start in a on a much more solid foundation. 

So the last year of work that we've put into it is it's gotten us to a point where we're about to release our first version of the product and work on that with some customers. We haven't raised any money yet. 

But that's partially because we've managed to fund ourselves on revenue this time when we were gonna be looking to scale soon after we build out that MVP and test it with some clients. And at that point, I could imagine that we'll probably raise. 

To follow up here in terms of revenue so you mentioned that he didn't roll out the MVP yet, but he already managed to support yourself through revenue. How how does it work? That's a good question. 

So the MVP is an MVP that's built on top of the previous open source project that we built. We have companies that use that open source project, and they pay us to manage some software on top of it. 

Oh, okay. I got it. Now. Actually, it's probably one of the first times I hear that nonprofit, I mean, that an open source brings money. That's really cool. 

And good work there but let's move on again, back to the current situation, which is, you know, after the exits. Or do you doing any sort of mentorship advisory for earlier stage startups, or so major investments? 

Yeah, I've been doing that for a number of years. I'm also on a couple boards. 

My my core investment thesis is that I I invest in companies that have some sort of software advantage generally. 
So it's generally software companies, but other than that, I pretty much invest across the board. I 
almost went to the non operating angel investment group, but it ended up getting a little bit bored on that and realized that I had another startup company. 

And me.