July 17, 2020

Consumer internet space fundraising - how does it work and how is it different from other fields? By Jad Esber.

Consumer internet space fundraising - how does it work and how is it different from other fields? By Jad Esber.

In this episode of Fundraising Radio Jad Esber, the Co-Founder at Koodos and a Fellow at the Berkman Klein Center for Internet & Society at Harvard talks about the consumer internet, how fundraising in that space works and what founders in this field focus on.

Here are the links to some of the things mentioned in the episode:

Koodos Hiring a creative developer

Koodos: koodos.substack.com

Berkman Klein Community

Unshackled Fellows

Pear Fellows

 


Transcript

This is fundraising radio, and today's guest speak, just as Bert Co, founder of kudos and a fellow at Harvard incline center. 

And this episode will mainly talk about Internet space fundraising, or specifically consumer Internet based fundraising. So, just a last kickoff by giving us some background on yourself and on kudos. 

Sure. Well, thank you so much for having me really excited. I'm really excited to be talking to. So yeah, my background is I'm an engineer by training. 

I ended up at YouTube after my degree in engineering, working with creators, an artist. So my parents are very confused about my engineering degree. 

I ended up working on a product, compilations product, essentially enabling creators to stitch together videos from across the platform and add a layer of commentary to that content. 

After the building that I left. I came to Harvard, just graduated with my MBA and I'm an incoming fellow at Harvard Institute for internal society, just called department client center. 

Yeah and as you mentioned, I am also the cofounder of kudos. So kudos is trying to build a creative layer on Internet content. And we're currently focused on is building tools and incentives for curators online. 

And, yeah, that's a little bit about me. That's a really big description of the copy. Can we go just a little bit more in depth into what it does because curators on the Internet? What does that include? 

I'm personally can't really imagine who is a courier on the Internet. Is it like someone who curates, like online chats or was that? 

Yeah, 

so actually, 

I I, 

I'm gonna guess you're a curator and most of your listeners are curators, 

because most people who creatively express online are not creators, 

they're not necessarily creating content, 

but they're curating content, 

you're by reacting to something on on a, 

on a social platform. 

Re, tweeting and adding our comments building playlists on by all of that's essentially curating and curating is just selecting content that already exists and adding and adding your commentary to it. 

So, most of us are actually doing a lot of curating online already, but no platforms today. Are really built for, or for curators and that's that's something we're really interested in kind of doing. 

So yeah, first of all, I'm offended I thought I'm creating content here. What are we not creating content right now at this moment? 

I think you are creating content where you're okay reaching your guests. Sorry? I'm both. I'm team one. Okay, that sounds much better for me, but the idea sounds really cool. 
And so let's talk about your fundraising process so crunch base says you raised over six hundred thousand dollars can we go a little bit into that? How do you manage to do that being a recent very recent graduate from a university? 

How did that those two things line. 

Yeah, sure. So happy to talk a bit more about kind of our early fundraise process. It's, you know, it's our first raise as a precedes. 

But I think at the end of the day, these will, you know, all these names precedes all these sorts of things are labels that we attached just to make it easier to understand what stage of fundraising people are in. 

So, yeah, 

we raised essentially around the month ago from various people that we are inspired by and I was sort of our criteria and we wanted to kind of people that know the space that we're in the consumer Internet space 

and our kind of both in on our vision of the world,
and so I was sort of the criteria that we were focused on. 

We're really excited about the people involved, you know, the, the rounds that by to fund. So tq Ventures, which is a fund on. 

Nice which is a, yeah, which is a fund that is led by Andrew marks Schuster, thunder and Scooter brawn. Another fund called Vanya and Ventures led by a guy called. 

Is this awesome guy based out of L. A. yeah, we have a number of interesting folks involved marketing because Lucy go from bucket and back in capital. Joe flurry who started this? 

Go who's investing by Excel and probably for getting some people? Yeah, rough draft Ventures, which is General Catalyst student fund. 

Yeah, and a number of other really cool. Interesting people and yeah. Happy to kind of dive into the process and other and then dive a little bit into the process. 

It's really uncommon for start to raise money to to raise their Pre seed rounds from venture capitals. Generally, it's done through angel investors. Why did you take the VC path? 

So, the interesting thing is most of the institutional investors at this stage are essentially kind of angels right? 

So they are, you know, it's either like a small thunder fund that's led by individuals that tend to invest as angels as well. 

So if you think about Ventures, for example, it's three individuals that invest together. They do have a piece too, but, you know, we were interested in the individuals that were going to be involved. 

And so that's sort of our, our focus. Like I said, in the beginning, kind of our criteria going into the process was we wanted people that we are inspired by and that was kind of our big focus. 
So, folks that have either built something in the past in the space, or the kind of invested. And 
knowledgeable about this space that we're in. 
Right, right, right. So first question is, you were the first time, whether that was your first fundraising how do you reach out to the investors? 

I mentioned that your network was not big enough to have multiple candidates that you can just actually text and ask, like, hey, I'm doing this company. You wanna take a look. So how did you approach that process? Yeah. 

So, a range of things, I think, kind of a focus for me, like I said was wanting to make sure that the people involved are kind of true to the cause. And so I, it was mainly referrals. 

So, I would, you know, I might I didn't have direct contact with a lot of investors, although I have spent some time in the VC world. What I did have was friends that we're connected. And so I would mention that I was interested or starting to think about fundraising. 

And then my particular interest is people that are specifically interested in the space and, or either kind of have been operators in the space, or or have invested in the space before. 

And they'd refer me to people to be like, oh, you should speak to this person in the person on introduce you to this person. And that's sort of how it's when it was my first degree contact necessarily, and investors in the space. 

But second degree was sort of how I was able to reach the folks that I did, that was kind of my main focus. I did cold email people as well. So, my first check in was Joe flurry from Cisco. 

And he is someone that I personally have looked up for a long time. He, you know, he's started this, go a while ago, and he's been very, very focused on this goes mission at all about creativity. And the anchor for us. 

Kudos is also creative expression and so, you know, I felt very, very drawn to what he has been able to achieve and so I called the email to him. 

I told him what I thought about him and his business and what I was working on and, you know, within the first call thirteen minutes and he was, he was interested in investing. 

And I think, you know, many people say, when you have about the first person in it really helps kind of accelerate the rest of the process. And I will definitely the case with us as well from there. 

We were able to get the other kind of smaller checks and our first need areas was an introduction from one of the people that, you know, invested earlier. 

So, he's an and one of the funds that was invested in us very early. And so that's sort of how we were able to get people involved. 

Understood and the question I would like to ask you here is actual identifying that field that you want to find investors interested in. So a lot of my listeners asked me to kind of same question. 

Like, when I reach out to investors, I need to target them somehow. Right. And target them by keyword or something like that. Sometimes itself you have to target them by the industry. And how did you personally identify your industry? 

Yeah, so, for me, the biggest thing was, I wanted someone that has either built something in the space or invested in the space. So it's pretty easy to identify that. You know, Joel has built the scope. It's a company. 
That focuses on creative expression online, 
and specifically what we are focused on,
and I went and it's called emailed and,
you know,
Ventures is very invested in consumer specifically investment, consumer Internet and, 

you know, 

it was again, 

just looking at their portfolio. 

There was like, a very good crossover and match in terms of our thesis and theirs. And so it was a clear kind of, you know, option for us. 

So, I'd say, like, the biggest thing is, like, look for the individual and what they've been able to kind of do in the past. And that's kind of probably going to be an indicator of what they're interested in moving forward or, you know, whether it be interested in your company or not. 

So, that was kind of my. 

Approach, I'm not really sure what you mean by keyword search or figuring out how to target them in that way, but I just look at their history and target based on that. Right? 

Keyword search. I was referring to the recent guest of mine, the founder of founder suits. It's like a software for finding investors. They do have a keyword search, which is kinda rare. So, if someone's lost in terms of, like, finding identifying their industry. 

Because that happens pretty frequently. You can actually try that. That might work well for you, but let's move on to the topic that's training right now as well. What's your advice to founders? Trying to raise right now? What do you think? 

How would I imagine? I I think you close your round before. Depends right? 

No, we were, you were fundraising in the midst of them oh, those around the month ago first couple. Congrats. And second of all, how how did you mentioned do that? 

Kind of phase, we're investors are really confused about what's going on and they've sort of readjusted my my opinion. There might be some that maybe have reduced the number of investments they make, or sort of like, spend more time diligence and companies. 

So it's kinda like one big change. The other obvious big change is no in person meetings. So, for us we raised, I'm based in on the East Coast, and pretty much all of our investors are on the West Coast. 

So, obviously, all of our meetings are virtual resume or whatever else. 

They are in a Google meets or whatever, other platform and that's, you know, obviously it'd be nice to kind of connect with the investor in person. 

But, you know, I think we just made do with what what we had had to work with and we made it work. I think a higher rate than average fail and, you know, there's a really interesting scholar. 
His name is Duncan Watson, he writes about cultural markets and what he means by cultural markets is kind of music, art, film and I think consumer sort of falls under that category. 

Where it's so based on consumer behavior and things that are completely out of your control culture, you know, trends things that are very unpredictable. And she speaks about how truly unpredictable they are. 

You really can't sort of like. 

That's too hard on the direction of whether this film is going to be successful or if this song is going to be successful, it's kind of this whole thing about you can predict birality online in with consumer Internet businesses. 

It's kind of similar. So, it makes investing in them really difficult. I think, at the outset, when you're investing very early. So precedes metrics are important, but they're not the defining kind of thing. 

I think that in defining thing is two things. 

One, the team the team are the ones who are going to be able to execute on the idea and I think with consumer intent businesses, it's really important to look for a team that is grounded in execution and duration. 

Because at the end of the day, consumer Internet businesses are completely they evolve so fast. And so someone who is able to execute quick is really important. 

That's why I think it's important to have a strong technical component, the product components on the founding team in the consumer Internet business. The other thing is the thesis revision. 

So with consumer Internet businesses, like, I mentioned, you change a lot. 

You're evolving all the time, having sort of North star that you're working towards is incredibly important. And I think that the vision or is kind of thesis for the company is really, really useful. 

So, 

for us, 

like, 

I kind of consider myself, 

like a consumer Internet geek, 

or academic I like studying history and thinking about kind of from an academic perspective the future of the consumer Internet. 

That's partially why I'm involved with a burping client center right? About the topic. But so, yeah, that's just to say that fee system team are kind of the core everything else comes second at the earliest stage revenue. 

It's likely that there won't really be much revenue for a while with these companies thinking about social platforms, for example, or media sort of companies in the space. Although that might be changing. 

And, you know, when it comes to metrics, the earliest product might have directional kind of indicators of success and that usually comes with retention. 
So, user growth at the earliest stages I would prioritize it's not about the number of users you have. It's about how much value they're deriving from your platform. It's the very classic leaky buckets that I'm sure many of your listeners are aware of. 

You don't wanna keep getting users and have them leave or not really. 

You know, find value in the product and so yes, a hundred percent at the earliest stages. Retention is very important, but obviously you need the sample size that matches. So, yeah. I don't know if that answers your question. I'll pause there because I feel like I spoke for a while. 

That's good. It was a good answer. My next question was actually, what should founders in the Internet consumer space focus on and I think he'd just respond to that. 

It's focus on the retention rates, but maybe there are some other things that the founders should really focus on. 

Maybe find some decent advisors who are well known in this field, or I know whatever that might be. 

You know, friends, advisors, colleagues about what it is that you really are doing with a company. So I'd say that that's kind of the, the core thing. 

And I think at the end of the day, like, with consumer Internet businesses, it's really about being patient and, and just kind of being really persistence and consistent, persistent and consistent because it's a really long game. 

Absolutely, a persistency is probably the number one identifying factor for me that the value is good. So definitely good advice here and let's move on and talk about a different side of the table, which is investing. 

Basically you were a fellow at. Right? So, what were you doing there as a fellow? Yeah, so I would follow it here. 

I also was a fellow in another fund called and those were sort of fellowships that I did while I was at business school. 

So, 

you know, 

if there are students who are listening to the podcast, 

now, 

there are a number of programs for you to get involved with the venture funds early in your career and they usually take the form of scout programs or venture fellow programs. 

So I do your research there, if that's something you're interested in exploring are getting involved and Mike's my experience parent on checklist is great. They, you know, kind of rule consisted of, I'd say, three core elements. The first is sourcing. 

So, like, being kind of on the ground to the ground, like, what are the company they're coming up on campus and around the area I was in Boston. So a lot of. 

There's a lot of activity around kind of the hardware MIT ecosystem just being in the know in that space was really important. The second big thing was helping with diligence. 
So, There'll be a number of opportunities for you to get involved in diligence and companies that are coming up in the pipeline. 

And, you know, that can involve, you know, researching the space researching the founders, figuring out whether it's would be like, a viable investment or not. And the final thing is, you know, just kind of supporting with investment pieces. 

So, you know, there's space, you're really passionate about delve into it and map out companies in the space, and where it's going. And where you think we should completion. The funds would be investing. 

There's definitely an opportunity to do that with his fellowships and that's something that I did with kind of the consumer space. 

Yeah, so you mentioned, sir, you mentioned several times that, you know, scouting and finding new deals is a big part of that role. And how would you personally find the deals? 

How were you personally sourcing those deals? Basically being present? That's the biggest thing. So. 

For me, I was very the entrepreneurial ecosystem of Harvard. I lead the entrepreneurship club HPs. 

I sat on a kind of cross school boards that focused on entrepreneurship student activities and so had a lot of exposure to entrepreneurial folks and folks that were, you know, either building companies are interested in investing in companies. 

And so being present in those spheres is incredibly important, you know, at the early stages I had, I don't really have a network of MIT and so I literally went and was on campus physically had to work from there. Oh, well, talk to people there. 

And, you know, would get involved and kind of initiatives there, because I thought it'd be useful to kind of, you know, meet people and outside of the river. That's sort of my biggest advice. 

And if you don't really already have inbound, you know, like, you don't have a deal flow, that's is make one be present in those spheres and be focused as well. For me. 

The hardware MIT ecosystem was that I was very focused on. And so I had exposure to the companies that were coming out in those ecosystems and so focusing on ecosystem focus on the vertical that you care about or you have access to. 

That's actually really cool. And Harvard and MIT ecosystems. I Pre. I'm pretty sure those are great ecosystems to be in, but let's dive a little bit deeper into your experience with the, you know, diving into it. 

You said you literally, when in the campus, you worked there. How did you get there? I mean, you didn't just come to the MIT competence set down on the bench and started talking to strangers. Right? So how do you approach that problem? So it's not far from it to be honest. 

So, I might see has a space that sort of, you know, you can, you can go work if you're starting a company, it's called the marketing trust center and they have an open space. 

You can go have a friend there, you could go work from there and that's sort of where people are gonna be if you're thinking of starting a company and so you could literally go there and start talking to people. And I'm on a side that goes to cafes and talks to the person sitting next to me. 

And so I personally don't mind that if I see the person like coding or like doing something. Interesting, I'll probably start the conversation. And so, yeah, that's it's weird. 
But it works, that is a little bit weird, but it really does work. I mean, I have numbers source of how people ran into their future huge investors in bars just. 

That literally drinking withdrew with them. So, there are a number of fun stories like that. So, just being present is really good. Great advice. I would say so, let's go back to your fundraising for kudos. You managed to raise money during this, spend damage. 

Congratulations. In that. But many founders are still struggling with that. So what's your advice to them? How should they tackle that problem? 

Yeah, so I think every fundraise is unique, and at the beginning we did struggle like, we had a really kind of difficult experience, figuring out the angle that we wanted to approach it. 

And, you know, I think a lot of people talk about their fundraising success. And I think maybe one thing to mention for us is he started out trying to fundraise in Boston, which is where I'm based and the boss, the ecosystem isn't one. 

That's very kind of one doesn't really have an appetite for risk, but two isn't really focus based, though. We're N, you know, it's a biotech. 

It's a lot of more traditional types of kind of companies, and we were kind of strange to a lot of the company a lot of the funds here. 

And so we had to re, consider, and that's why we started thinking about more allay and it's kind of West Coast investors, and we found success there. 

So, you know, there's always time to pivot, you know, like you're pivoting your kind of product your business pivots and your fundraise fundraising strategy is also really important. 

I think another kind of thing that worked for us was, you know, there's this whole question of saying, your fundraising versus not seeing your fundraising. And a lot of people say, like, run the process and. 

Honestly, running a type process is, you know, is really good if you have your stuff, you know, really sorted. And if you don't running a type process doesn't really work. 

And so kind of, I think, 

getting to some level of confidence by having some conversations early figuring out how confident are we, 

and kind of our pitch we're what we're doing the kind of traction that we have and sort of like, once we got that confidence or maybe,
we're getting,
like, 

the second meeting with some investors,
having positive,
not positive language from them.
The positive action that to me to start thinking about. Okay now we're gonna start a process and 
actually run the type ship and kinda, just finish this. 
And that's sort of what we learned is, like you, like you said, I'm a first time founder and so that's something we had heard, but been really like, experience and honestly it, it's very true. 

And so, yeah, I just say like, confidence early, like, test to test the waters with the number of investors try and refine your pitch, try and refine what you're doing. And that might be a month long process. 

And then, 

once you really feel like you're ready, 

and you're getting traction with a couple of investors, 

action of, 

like, 

action, 

not just words, 

that's when you start thinking about okay, 

now it's really time to say that I'm fundraising and to be like, 

okay, 

I'm gonna finish try and finish fundraising by this point and, 

you know, 

whatever happens happens. 

It's very scary, but I think it's important and that's why, like, getting the confidence first is important, right right, right. 

And my personal advice here in terms of getting conference would just understand your competitive landscape the best. 

Because if the investor asks you about, like, if the investor knows some company in this field, and he, or she asks you about this, and you don't know, you've never heard that name, that's that's the problem. That's the red flag. So that's great advice. 

And by the way pivoting, the fundraising process is really important nice, move their job. So, let's move onto the last question of today's app as of, which is a call to action was the one thing that you would like the listener to do as soon as the episode is over. 

So this is an opportunity to plug, because it's like an opportunity. Okay. 

So, I think, you know, I think one thing that you can do, is we so I personally right about kind of our culture in the future of consumer Internet. 

So this is something you're interested in and you want to kind of learn more. We have a newsletter so it's kudos. K. O. D. O. S stop stop stop dotcom subscribe, follow along and yeah. 
Feel free to kinda like, comment, live feedback, email, back copy to have a chat with anyone. That's 
interesting. The space sounds good. 
I'll definitely leave a link to kudos that newsletter and to to a bunch of other PCs by the way that you mentioned. So be sure to check in with the description of the episode. We'll wrap it up here. 

Thanks a lot Chad for coming up and for sharing your knowledge in the Internet consumer space. I think that was really insightful episode. So, thanks a lot for that and have a great day. Thanks you too take care guys.