July 29, 2020

Coming up with pricing for your product and raising from Sequoia scouts - Nirman Dave on ObviouslyAI fundraising.

Coming up with pricing for your product and raising from Sequoia scouts - Nirman Dave on ObviouslyAI fundraising.

In this episode Nirman Dave co-founder and CEO at ObviouslyAI explains how they raised their pre-seed round without having any traction and we also go into discussion of raising money from scouts of large funds (such as Sequoia capital). We also talk about how ObviouslyAI came up with their pricing plans and how they acquired their first customers.

Obviously AI: https://www.obviously.ai/

Obviously AI: obv.ai

Obviously AI Demo: obv.ai/predictions-demo

Case Studies: obv.ai/case-studies 

Twitter: https://twitter.com/obviouslyai

Linkedin: https://www.linkedin.com/company/obviously-ai


Transcript

Alright, this is fundraising we do and today's yesterday, whoever Newman Dave Co, founder and CEO at all basically, a, I, that close their most recent round right? Before current events. 

And this episode will talk mostly about raising money from scouts raising minds during current virus. 

And also we will focus on scouts, because part of their most recent round was funded by sakoya scouts and also closer to the end of that. 

We'll discuss the how to plan the pricing tiers for the for the customers before you even have traction. So, Newman electrically called by he giving us some background on himself and on, obviously. 

Yeah so thanks for having me constantly and really appreciate it. 

I'm there, man, I grew up in India and kind of ended up starting the company in India sponsored projects, which we really scanned very well from there on. 

I ended up at a at a small liberal arts college in Boston called Hampshire, moved to San Francisco, and then started obviously, as a quick kinda background obviously, as a no quota machine learning tool for business users. 

So, anyone that has never quoted before never written machine learning or Python code before can actually take a historical data set about their business about the customers and predict something out of it. 

So that's really what obviously enables people to do as a company. You're fairly young. We started about a year and a half back and since then we've grown from two people in a basement to twelve people. Today. 

We worked with fifteen hundred, small, medium businesses, and a couple of large, large enterprises as well. So that's kind of quick and dirty overview. About us. 

The traditional interview, I mean, that's a different, decent overview. What was my language here? 

But speaking of starting as, you know, two people in the basement, when was the time that you've decided that, now it's time to grow the team, it's time to go out and raise money from investors. 

So, I was actually working at a company in San Francisco, and I was the only data science person at the company. Right? So everyone would come up to me, and ask me questions around regression classification. 

You know, I'd often see analysts at my company, trying to learn simple concepts in machine learning from YouTube videos, and they would fail miserably. So that's where the light bulb went up. 

And it said, you know, why is it that these non tech business users they're the ones who know the business. They're the ones who know the data why is it that they are spending hours and hours of their day, trying to learn something that's Super technical, heavy. 

So that's where the idea of obviously I started can we build a machine learning tool that enables anyone to quickly run the algorithms and run predictions on the data set that they have. So I started to work on that, got a couple of beta users. 

A friend of mine who just moved from MIT wasn't working at another company and we both kind of we're living together and we started to kind of see ourselves working on this and really after he came back from my job at 
one point we, 
we learned that the only way we can kind of build something that's more robust is focusing on full time. 

So we decide to quit our jobs we had, I think, you know, six thousand dollars each. So we had eighteen thousand dollars. Each. You pay the rent for a couple of months, and we knew we were gonna quickly run out of money. 

If if we didn't great, right? And we're still kind of building our product. 

So, as immigrants that had come from India and other places, and as students that we're kind of navigating from the school lifestyle to the work lifestyle. 

We've had this phase where we had a product. We had a couple of beta users, and we said, hey, for us to actually grow and focus on this, we have to raise and we ended up doing that. 

That's really cool. And how do you so, I imagine that at this point, when you were just realizing that you will run out of money soon if you don't race, you are busy with four stories. And I mentioned that at that point, you didn't really have any traction nor good MVP. Right right. 

And how do you go with investors? D, how long do you take you basically, to raise that first round when you had when you're Pre revenue Pre project it was very difficult time, because every time we build something. 

So it's so one thing to understand about a tool, 

like, 

this is it's very complicated to build, 

especially when you're kind of trying to build something like machine learning for someone that's non technical and because of the complexities that it has every time we said, 

okay,
we've completely built the tool,
and it's gonna work perfectly fine from. 

Now, we went to a customer and the customer said they clueless about what to do and then we had to come back. We had to redesign it. We had to re, engineer some things that go back and we went through that process so many different times. 

So,
there was this very difficult time where we were kind of expecting a lot of rejection from customers, because the product was kind of half baked and then,
and then we went to investors and interestingly enough,
you know,
when the good things about Silicon Valley investors is they're very excited to hear about new ideas. 

They have very interesting thoughts about that as well. So, that's what they're very well for us because it was a hot topic. It was a hot market and people wanted to listen more about what we're doing. So, we've got a lot of investor meetings. 
Raising our first time we often, you know, didn't have a very clear picture of the product roadmap. You're just building something to solve a problem. We didn't know how it's gonna scale. 

We don't know what the market was and so, as we started to talk to investors, we started to learn about what are some of the things that they really care about? So one of the things that they care about, in the product, one of the things that they care about in the market, and how can we better understand those things as it? 

So,
in a way that worked out very well for us,
because not only did we end up fundraising by the way our first our first investment came from, which is an accelerator based out of Berkeley but not only not only did we end up fundraising, but we also learned a lot about our own business in the process. 

I think that was that was one of the most exciting things we actually plundered a lot of fundraise. We were talking to investors and there were questions we didn't know answer to. So, we'll try to make them make them up on the spot and you blunder those things. 

So, I learned a lot of things about already interacting with people how they perceive businesses and the risks, things like that. So, that was pretty exciting. Yeah, that, that is exciting. 

But also raising Pre, Pre product, Pre revenue is super extra complicated and I'm curious to target some specific investors. 

To reach out to so, was that, like, a specific persona that you were trying to reach? Like, I know founders who may be sold their companies that were focused on the AI or something like that. Where do you just reach out to whoever you found? 

So, we were pretty overwhelmed, you know, when we started working on this company, just like as kind of any immigrant, I'm trying to start a company in the US. 

One of the key things that was on the back of our head was, you know, can we find an investor that can help us figure out how to do this? Right? We, we had no clue, you know, how do you kind of the company and how to set up the infrastructure all of that? 

So we started with investors looking for investors that to do that very quickly. We learned that you don't need an investor that that can help you do that. 

You need an investor that can help to grow the business and things like things like the logistics part is very easy to handle. 

So we started looking at investors that were specifically investing in outside founders, but then we quickly realized that the logistics team can be easy. So we started to look at all the early stage investors that people typically talk about. 

So, we would apply to actually does, would apply to accelerate as mercury, which is the one that we ended up taking up. So we looked at the accelerator. The pat. 

From the way it's really all started was there's a, there's a company in San Francisco, 
and one of the founders suggested that the best way to get started is kind of jump into an accelerator because they'll kinda help, 

you understand, 

the landscape they'll help, 

you understand, 

the processes and how to kind of get your first few customer insights. 

So we started to apply a bunch of activators and eventually that's kind of what we ended up taking. 

Right. That's actually a really good path and probably the most realistic bath for Pre prod Pre revenue. 

So, whoever it was listen to this, if you don't have a product yet no revenue accelerators, incubators and ventures studios is definitely place for you to go to. 

So, let's keep forward to the second round that you've raised and part of that round. You've raised from scouts. Can you go a little bit in depth into this? How did this happen? How did you get in touch with them? 

So, kinda, just to kinda add to the previous part. I don't think we were fully Pre product. 

We were Pre revenue, but I think one of the key things that actually helped our process with the accelerators was the fact that we could show something. 

And then we can show the fact that we have enough commitment and drive that we're actually building out the testing it, which, which actively really helped us in the process. If we were Pre product. If we are no beta product. No. Beta users. 

I'm not sure how it would have gone. So, I think I think there is there's definitely a lot of value and kind of making sure you have a product and the user. 

It it really just shows how you are mature as a founder, but talking about the next one, the next one was pretty exciting. 

We actually did kind of start thinking about that after the accelerator. 

We kind of took some time to kind of build out the product to get more customers, get more paid customers, although we were kind of early on where we do a lot of pilots. 

We want to kind of close in full, and the customers are doing a pilot with large enterprises. And I think there,
the goal was to kind of really,
you know, 

figure out the best kind of messaging market fit, which means what the best kind of message, 

and you can tell it to the right and the people and figure out the best kind of customer fit so that that was really the goal of our next phase, 
but I was working at a company that was required funded before I started. 
Obviously. Yes, I had a really good relationship with the founder, and he didn't really jump right into investment. But actually we had the product after we had the users. He saw the commitment that I had. 

He saw the fact that they were pulling through and then decided to invest. 

So, I think, you know, I think we've briefly touched on this before, but the difference between just any angel and a scout, it is typically that a scout still has accountability to other people. 

So, that they don't have to even look in front of them, have to come back with a really good foundation and the reason, whereas an angel can just like it that just put money in it. Suddenly, that's the, that's the little bit of a difference that we see there. 

But but I think, I think overall that's that's how it came to be. 

So, basically you got an introduction to Sequoia scouts, right? 

So I'd say along with him, so you actually got basically introduced to those counts. They did not reach out to you themselves, or you didn't reach out to them. No, so, we, we, we actually, so he was my boss in my previous company. 

We always had this working relationship when I left the job, I had a conversation within,
like,
hey, 

this is what I want to do, and I'm gonna, 

I'm moving forward on this part and he actually appreciated and respected that he was a founder who had done similar startups, 

and had been in the past before, 

so he really knew what it means to kind of, 

what kind of startup. 

So I think he was very supportive from early on and the investment came when we grew at a certain a certain limit. Right? 

So, it didn't come right away, but it came from him when you said, it was, it was just a product of the fact that we had this relationship. 

We kept it even after the job, and that he was also deeply invested in kind of the work that I was doing and, you know, having worked together. He also was very. 

Very supportive of all the other things I did got it, got it, so let's go back to both of those rounds that you raised. I'm curious. What's your major takeaway? 
So, was there some specific strategy that maybe work best for you specifically? 
Maybe, 
though is just basically reaching out to everyone on CrunchBase or reaching out to everyone who left some comments on some vc's post on Twitter or what was that 

was there some sort of strategy that really worked out for you. 

So, I think I'll tell you about the very first accelerated around. Right? And the fact that we got into Berkeley was kind of close to close to a miracle or something I would say oh, here's how it happened. 

Right? The Berkeley Skype accelerator applications that closed, and we were kind of applying left and right. To as many accelerators as we can because that's the only avenue to move forward. 

So we are planning to accelerators, Berkeley,
static,
application of closed, 

and we actually emailed the email the info at email actually saying, 

hey, 

I know the accepted applications have closed. 

But can you make us an exception? And we've got two responses. One person said the applications are close, you know, we can't do anything come next year. 

Any other response said, hey, sure why don't you send them and we totally ignore the first response and we just and we send our deck and the next thing, you know, we were in the process they asked us to fly down to Berkeley. 

We were in Boston at the time, and we moved to Berkeley. We did a presentation with them and I think a day later we went in I think that's kinda how it worked out. Really? 

Well, the only thing is to really kind of just ask. I think that's something that I've learned very early on is not only about fundraising, but a lot of other things is just the ability to ask. 

It's just so powerful and so underrated that sometimes, if something is not possible, the fact that we can ask and be like, hey, can you make me an exception or hey, is this still a chance this can happen? I think that is very, very important. 

So that played out pretty well for us, I think that was super helpful when it came to the other rounds. I think the way we got introduced to a lot of institutional investor early on was through our activators. 

So, they, they connected us with a lot of different funds one of which was our insurance, which ended up investing in us and a bunch of different kind of angels as well. So they made these interest and connections. 

They actually do this thing where they kind of curate a list of investors for you and for your business, and try to kind of connect you with them. 

But the real goal as a founder there is that you get this you get this wave of investors that want to meet with you, because the market is because what you're doing is interested in. 
So, I think one of the key things there is to understand and learn, right where these investors are coming from. I mean, at the end of the day, everyone's human and so it's very important to be a little empathetic. 

I feel like and really understand what is their perspective about the market? What are the biases about the market? Maybe they like a particular type of approach in a product then they don't like the other one. What are the benchmarks that they want to see? 

I think these kinds of things were really important as we started to talk to investors, and it really helped us narrow down kind of how we want to move forward. 

For example, 

if you have enough revenue, 

but probably not a high amount of revenue, 

which we're kinda most startups and that bad after a few accelerate around is it's a good idea to target investors that are invest in companies that are earlier than you. 

Right so what we did was, we were at a point,
right after the accelerator, 

we had spent a lot of time building the product we haven't hit to really good revenue goal at the moment and instead of targeting investors that are investing in in a large revenue rounds we start to target investors. 

I've been investing with no revenue expectation. And so because of that, what would happen is we would get much more. 

Interesting leads, and the fact that we were already high revenue generating in the companies that they will typically see what develop what diagram for us. So it's really important to understand. You know, what are the companies that an investor is going to see on everyday basis? 

A preceded investor is not going to see the same companies that a series and master Series B is going to see on on everyday basis. They're not gonna be tracking the same kind of companies that the large investors will be. So, it's very important to kind of. 

I understand where you are in that place and target people that typically don't see the federal companies that are you, which might just give you a big boost. 

That's something that right so he mentioned revenue and that's the next topic I want to discuss to do with you, 

I'm looking at your pricing plans here and I'm honestly not sure how, how do you come up with this pricing plan? 

So, if your first tier is free, so zero dollars per month, and the next one is seventy five. So, how do you come up with those like, first, two tire tiers? That's a great question. 
Actually, I think from the start, it was very hard for us to to kind of come up with an interesting pricing. 
Because part of the reason was when you're going to larger companies and selling a tool like this, that they've never seen before that. They don't know how to compare this tool with something else. Right? So pricing can be very difficult. 

Because there's no point of anchor, right? There's nothing that people know where to start with. So we did a lot of experimentation with our pricing and, you know, we had a tier eleven from free to a thousand bucks a month. 

We had a different here, you know, so, and so forth. So we did a lot of experimentation there and eventually we started to learn what are some of the key things that are our users care about and very quickly. 

We learned that if the users don't care about building the machine learning model, as much as they care about taking action on that model. So a lot of the pricing that we built is kind of built to to focus on on the action piece. 

So, if you want to just go ahead and build a model, you can go ahead and do that on the free time. At the moment. You wanna take an action on it. You want to kind of use that model to, to, to kind of put it into your workflow, connect with Zapier or something like that. 

That's when we start. Let me start charging you. So, I think that's something that we eventually learned and kind of settled into pricing. Is an answer that we typically don't get early on, but it's something that we only learn from from customers. 

Now, let's speak about customers done, because, you know, getting a CO acquiring the first customers is probably the most. The hardest thing that you do is third world. So, how do you manage to do this? 

How do you acquire your first, like, ten or hundred customers? Yeah, so when I quit my job, I asked my boss. Hey. 

By the way I do, you know, anyone that does analytics work, you know, besides your company said the company that we went back, and he said, hey, I know this other guy, this other company's my friend who is an analyst. 

So, I think that was like, the very first starting point and this was even before we had a product so just kind of getting those connections was super helpful. 

I think your first customer is always typically come from your own network and then, you know, people talk about it and then you get a community on Twitter, which is what happened to us. And people really, really get excited about the things that you do. 

But the very early customers came from our own network. That was kind of the first wave of customers. The separately customers was from the network off the accelerator. That'd be great. 

So, Skype had connections of previous companies of partners that they were working with things like that. And those connections became super helpful and it took us a while. 

I think, in twenty, nineteen we started to kind of. 

Build out what we call our content strategy and that really helped us build a recognition among people that would never talk about us that would recommend us to other folks, things like that. 

But, you know, before we had all of that, and just just our network. So here, you know, we're gonna move from the discussing your past, basically, to discussing your future, which is the acquisition. I'm curious. What's your view on that? 
So do you think founders should plan for the acquisition? Like, really early on should they show their investors in a pitch deck? Like, here are the five costs I mean, the five companies that we believe my acquire our company in five years. 

Do you think that makes sense? So, typically, I think we just my personal opinion. Is that as ponder? 

You're starting a company not because you want to start a company, but because he's strong strongly feel about a problem that deeply resonates with, for example, automating machine learning, deeply resonated with me. 

Because, like, all these, these analysts of my company are bugging me and they're taking me away from my job of what I'm actually supposed to do. And so it was really annoying for me. And I wanted to really just focus on my job and let them do their thing. 

So I think it really starts from that point. I want to build something that I can really, really solve. And I really think. 

Can can help people, so no, founder really starts with the idea that I want to build something that you can get acquired. There are certain companies that might do that, you know, that we've seen companies, which would be a spin off from a large enterprise. 

And then they would sell back to that enterprise, things like that. But, 

I personally feel that the key focus should be on solving a problem that people people deeply like one thing that kind of has helped me is we've had we've had several position offers in the past, 

and as we ended up declining, 

pretty much all of them. 

And as we kind of navigate to that process, 

one of the things that kind of helped me was one of advisors said that, 

you know, 

it could be that they're acquired for you four hundred million or zero million, 

for example, 

or like zero dollars whatever, 

what we need to really think is, 

is this a company that I can build to be a billion dollar company something that we can really solve problems for people in the future and how much passionate am I, 

to build this company as a founder? 

The often one of the most important decisions you make is, do you want to sell this company out and focus on your next other things? Or are you so passionate about the market itself that you can continue building. 

Regardless of the office today and really, really kind of within this market. And if the answer is the latter, when you think you can continue building and really been in this market and you have that, that 
empathy and the connection with the people, that you're building it for. 
I think acquisition kind of goes out of the window, regardless of how big the check sizes if you feel that that is not what you want to do, and you just wanna move on with your life and figure out the next thing. 

You want a million that is also completely fine and in that case an acquisition makes sense, but on the latter case, which is what I strongly feel is, we can build this product and really nail on this market. I don't think acquisition makes sense at an early stage. 

Right? That does make a lot of sense and that's something that everyone should take really personally. So to take time to think about this stuff. So now, from the future, we're going back to the past, just jumping back and forth in time here. 

But my my question was, if you could travel in time and go to the very first fundraising that you had for obviously, what would you change? 

Would you maybe change the pitch deck or maybe the way that you approached investors or the way you talked to them? Would there be something specific that you would love to change? 

Oh,
boy,
I think as as a first time founder that kinda starts off in Silicon Valley being a founder in another place, which is what was the case with me,
but the entire ecosystem in the environment was made in Silicon Valley.
One of the key things is,
I think there's just this,
this,
this way of,
when you talk to some of investors,
you might feel that the investors have very strong opinions about the product in the market. 

And as you talked to them, you might start to feel that they know more than you do. Even if the only thing that done is look at a pitch that for five minutes. I've done it for years and months. And you might feel that. 

So one thing that happened with us was already on, we were talking to an investor and we said, hey, we're building the tool that can help your own predictions and on the data set. 

And they said, what about a salami that comes in? Will you be able to predict that? And we were like, oh, no, we're not got it. It was just predicting from. 

And then and then he made this insanely convincing argument. 

About why it's important to do that and as a as a founder that you just started off, you just have a couple of beta users. You don't have really a lot of feedback to rely on. You start to feel. Oh, maybe that's the right thing to do. Right. 
And then we started to think in the direction of building something in that sense and it was really complicated. But I think what really helps is having a focus. 

I think when even if it investor says that, hey, 

this is what it should be building knowing the fact that the investors not the one that's under ground twenty, 

four, 

seven, 

knowing the fact that they don't understand your customers the way you do and knowing the fact that, 

you know, 

you have experiences product first, 

and you work with the customers first and so what you should be building comes from a place of focus. 

So when you can reject an idea from an investor, that's about your product. I think that that really says a lot about you as a founder, and I think that is being the most important kind of learning from the early investor raise, right? 

Where we, we ended up kind of going into the spiral that we followed everything that an investor want it to build thinking they're gonna be next to us and very quickly. We realized, you know. 

We should not focus on that at all and just focus on what our customers really care about. 

I think that was that was everyone tells you this thing, but you only realize it when, when it happens to you and you only have to take that step back and be like, oh, my God. 

I'm going into the spiral of building something for people that are not my customers and it's taken. That's a wonderful device. 

I've seen way too many people being super submissive to investors and their advice of course, investors do give advice. 

I mean, tons and tons of company, all different fields, but your point, it's really grey here just listen to your customer not to the content. Unless your customer is the investor that happens. 

So, let's move to the last question of today's episode, a call to action that one thing that the listener should do as soon as the episode is over. I'm sorry what's the one? What's the one thing that the listener should do? 

As soon as the episode is over so call to action for the listener for this episode right now I could just kind of I. 

I think this kind of focus on building something for your users. 

One other thing you should all do by the way is obviously not and check out our product and give it a shot. 
It's one of those one of the things I had to say it but I think overall, you know, this just focus on the product. I think it's something that we learned early on. 

I think the more better the product you have it, it really works. 

Well, especially if you're building a product that's aimed at a large group of people, it's very important to nail down the experience of the product, which really can can impact how people feel. 

And kinda like, at the end of the day. Great that's great. Advice and decent call to action. I'll definitely leave a link to obviously, in the description of this episode and my personal call to action would be go to the description of the episode. 

I will leave another link to the event that, and make it to your organizing together. It's called students, third Bell. 

So it's basically a no BS conference or we'll discuss step by step approach to solving. I mean, to bringing an idea from bringing just an idea to being a fungible company. 

So if you're tired of experts telling you to get the building or stuff like that definitely, definitely joined during the conference that we're organized because it can be no BS. So we'll wrap it up here thanks a lot for coming up. 

And for sharing your knowledge, sharing your great advice, especially on the customer focus, I think that's really helpful. And a lot of people still ignore that. So thank you for that. And have a great day. Yeah, thanks so much for having me.