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March 26, 2021

Silicon Valley Show in real life? Sure! Epic story of Distil Networks by Rami Essaid

Silicon Valley Show in real life? Sure! Epic story of Distil Networks by Rami Essaid

Rami Essaid, CEO at Finmark, venture partner at Pioneer Fund and partner at IDEA fund partners and previously the founder of Distil Networks that was acquired for over $100million tells the story of Distil Networks. Absolutely insane similarities between the story of Distil Networks and Silicon Valley show, great advice from Rami to early stage founders and much more in this episode.


Rami's LinkedIn: https://www.linkedin.com/in/ramiessaid/

Pioneer Fund: https://www.pioneerfund.vc/

IDEA fund partners: https://www.ideafundpartners.com/

For those who need to build a financial model for their startup, Finmark: https://finmark.com/

sxsw pitch competition we discussed in the first episode: https://www.startupofyear.com/

Transcript

Alright, and today's a guest speaker, we have Romy partner at P and your funds and partner at idea fund partners.

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And in the past, he was the founder of these steel networks that got acquired and that has gone through an absolutely epic story. So, basically, rami's life is pretty much like Silicon Valley.

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They show for those of you who have not seen the police watch it for those of you who sides police enjoyed the episode.

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So, Rami, let's kick it off by you giving us some background on yourself and onto steel networks as I mentioned, I was found to distill networks and 2011, this still detected the difference between Boston, real people online.

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We were the 1st to kind of in the space. We sold that company to improve in 2019 and now I'm the CO, founder of Finn mark, which is financial planning software for startups. I also moonlight as an investor.

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I did that after selling distill. I joined a couple of different firms as a venture partner to help other entrepreneurs get funded.

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Nice that sounds like a quick background love it. And by the way, I completely forgot to mention that because romney's running fee mark as well.

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There's going to be a 2nd episode in this exact day, which is going to be an educational episode on building financial model. So, we're going to have a whole different conversation on framework and how early stage founders can use it to build those.

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Financial miles that investors sometimes required. So, after you listen to this 1, only send to the next 1 with a tag.

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Educational all right so now that we're covered left, let's move on and talk about, um.

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There's still networks how it started, how went and why is it so special? So you've mentioned that you've done a ton of peach competitions in the beginning for diesel networks to get this the 1st check in can you tell us a little more? Why did you decide to go through pitch competitions?

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Instead of the standard direct outreach to investors.

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Yeah, so we were actually having a hard time fundraising, we were having a hard time getting traction in the market. We knew that we were onto something. We knew that bots were doing a lot of malicious things online, but nobody had heard of bots before online.

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Nobody knew what they were doing. Nobody, nobody cared about blocking bots. They just thought that's just part of doing business on the web, right? After all google's web crawler and every other search engine is built on top of bots.

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So it was just a commonplace assumption that bots are. Okay. And so we didn't know where to go we didn't have a lot of dollars to spend on marketing and 1 of our hustles wants to do a lot of pitch competitions.

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I literally did over 25 pitch competitions in 1 year,

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and the idea there was,

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we noticed,

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after we did 1 that we got free price journalists are always there and if we won,

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which we got very good at winning them,

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journalists wanted to write about us.

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But investors were in the audience, so investors would come talk to us and every, once in a while, depending on the conference, customers were there too. So, after we had success at South by Southwest than doing the pitch competition and winning that, we just kept doing them.

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I apply to any pitch competition. I could flew across the country. I would literally fly to Tennessee to do a pitch competition and fly home the next day.

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Nice, absolutely love it. And yes very unique approach. I have not to be completely honest. I have not seen many founders being so focused on those actual page competitions.

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Can you tell us a little bit more about your experience with competitions in terms of how we're choosing those? I know there is a huge variety, especially now in 202020.1 right now.

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Maybe not as much because there is but Pre cobit or even in Los Angeles, which is not the type of the world, but still a pretty big 1 or I know.

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5 page competitions happening every single day. So question is, how were you choosing those pitch competitions? How were you making the decision? Is it worth flying to a different state to pitch that your company on that specific competition? And another question.

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On the same topic, free versus page competitions, which ones are better.

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Okay, so so, 2 part question, the 1st part, how did we pick any industry pitch competition where we thought customers were going to be there?

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Let's say, you have a, we were big in content, helping publishers and so any, any publisher conference or any security conference. We were a security company that had a pinch competition angle automatic. Yes.

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That made sense for us because we could get customers. If you think about a customer acquisition costs, right? A 100 dollar hotel room night and a 200 dollar flight yes, it was wear and tear on me.

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But at the end of the day, a 300 dollar customer acquisition costs for getting exposure to customers, just made perfect sense past that it was. Is there is this a big startup cockpit competition? Is there going to be?

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A lot of press is they're going to be a lot of notoriety. We tried to get into those. So, tech crunch, Disrupt Web Summit.

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Some of the bigger startup conferences, the ones that we would skip were the mourn each local ones right?

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I wasn't going to fly from the East coast where i1st started my company to, let's say, Los Angeles to do just a local pitch competition from Oracle meeting.

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That was a little too hyper local, but we would do maybe like the regional area that we were in a couple of states that surrounded us there. We would drive those.

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As a follow up the other 1 to address your 2nd question, the other thing of paid versus free, we always skipped paid ones right?

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Screw that, right if you're providing, we're providing the show the conference, whatever with free content right? So, paying on top of that to participate to me, seems disingenuous.

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Seems like those those conferences are just trying to make money off of you not necessarily be beneficial to you as an entrepreneur, which means that they probably aren't thinking about getting you in front of the right.

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Audience are probably not thinking about, it's not going to be beneficial to you. Right.

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The only caveat to that I'll say is if you're paying for exhibit or a space and part of paying for exhibitor space, you get access, you get to pitch on the competition. So Web summit was that right?

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For example, they have an alpha program, and it was cheap. It was a 1000 dollars to get a small little table as a start up with a poster behind you, but part of that, you have to do the pitch competition that made sense. Right?

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But to pay specifically to be part of the pitch competition hard pass.

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Very true. So, based on that experience, you know, you've gotten to over 25 companies in 1 year. Which 1 do you love the most? Which 1 do you think was the best time and money investment for you? Personally?

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I think the best time in general, for me had been South by Southwest. I still think fondly back to South by Southwest. I actually recently did a panel last week for virtual South by Southwest.

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I was on a virtual South by Southwest panel, and it just brought back all these feelings, especially sad ones this year because I wasn't there in person, but South by Southwest is so much fun.

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It has such a huge group of people that show up and you get synergistic meetings that you wouldn't ever, ever dream. Right? People come in from all across the country and world to be at South by.

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And I think that's 1 of my favorite conferences to go to as an early stage startup.

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Nice this is really cool. And yeah, by the way after the call, I'll make sure to follow up with Romney so that he shares a link with me to that fish competition.

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So, that everyone who is listening to this episode can actually check it out themselves and maybe, hopefully participate and get as much use of it as I did.

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So, now we are moving on to the very, very exciting part of this conversation, which is the story of the cell networks from the perspective of basically Silicon Valley show ceramic. You were actually sued by your previous employer.

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Can you tell us a little more about that? What happened there.

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Yeah, I'm watching Silicon Valley after being through that exact same situation. So.

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I was working for a big security company, and the idea of starting to still actually was a genesis of my customers customers of our security company, coming to us and saying, hey, we have a problem with bots.

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I listened and I heard that problem. I looked around and nobody was providing a solution to mitigate against bots.

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And so I actually ran it up the chain internally. I said, guys, like, we should build something for this. In fact, Here's how we would build it. I, prototypes what we should do and nobody internally, they said, hey, this isn't a big market. This isn't a thing. We don't want to do it.

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So, I said, fine, I'm going to run and do it. And so I quit my job, you know, lived on my friend's couch and started still.

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I truck along, getting accepted in the TechStars and get initial funding, get some press around us and all of a sudden right? Before demo day at TechStars we get served with a lawsuit. Not a cease and desist. Right.

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A lot of people saber rattle with a cease and desist letter,

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but we got served with a 150 page affidavit lawsuit that said,

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hey,

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you came up with this while you worked for us,

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you prototyped it while you worked for us even though it was after hours even though it was off the clock in your own time,

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you prototyped it while you're work for us.

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And so this idea belongs to us, and you signed a piece of paper that said that any idea that you come up with belongs to us, it's called an assignment clause in your in your employment contract.

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The exact same thing that happened in Silicon Valley. Right? So what ended up happening is that we weren't allowed to to pitch at Demo day and no investors would talk to us anymore.

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Effectively, we had a multi 1Billion dollar corporation that said you're going to be buried. In fact, I went to the 1st, the 1st, 4 law firms. We went to told us don't even bother fighting this.

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It doesn't matter if if you, if you are right or wrong, it doesn't matter if you win even because if you win, you don't get to recoup any of the damages.

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The only way you get to recoup damages is if they file an injunction and big companies know this our legal system is broken. They don't sue you because they think that they're going to win and they're going to get a lot of money out of you.

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They sue you, because they know that they can just stop you with legal fees and back you up for years lawsuits, take years to go on and they know that they can outlast you in terms of financial spend on lawyers.

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And so that's the 1st, 4 attorney has told me just don't even find it just hope that if you shut down the company, they let you off the hook person so that you don't have to claim bankruptcy.

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So oh, my God, it's the foundation of that story. Now now I was stubborn. Right? The 1st, 4 attorneys that told us that we didn't.

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We didn't listen, we kept going, we found a 5th attorney that said, okay, how much can you pay me? We had about 70,000 dollars left 80,000 dollars, left in the bank account from the initial investment that we had gotten from tech stars and a couple of other investors.

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So we said, hey, listen, you can have all of what we have left and he was like, well, that's probably going to cover just the 1st, couple of months. It's going to probably go back up even more, but tell you what.

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I will do the 2nd half on contingency that you raise your next round.

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And so he took the 1st, chunk of 150,000 dollars, and then kept racking up a, a bill, a tab for us after that.

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And what ended up happening is we, we kept fighting it for for 9 months.

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Oh, my now now the crazy part of it is.

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We, we actually got out of it. It was a little bit of luck and probably a little bit of gumption. If you will. The reason we got out of it is because.

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The exact same thing that happened in Silicon Valley it's crazy to me and the parallel. So, there was a very specific clause that was very broad in their employment and employee agreement.

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And in the state of Virginia, where I resided where I worked for them, that clause is not enforceable. But in the state of not only is that cause not enforceable.

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If 1 part of an employment clause is not enforceable, it voids the entire employment agreement.

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And when you are ruled against it, when in court, if somebody invalidates your employment agreement, it invalidates your employment agreement for all of your employees that had signed this.

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And when our lawyers discovered this found this, pointed it out and said we're going to fight this all the way to the end, our client has deep pockets and they have lots of heavy investors and they're going to keep fighting this because they believe in this company.

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They back down and they let us off the hook and we just walked away.

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Nice are you 100%? Sure. That's who did not consult the Silicon Valley show producers are you sure about that? Because it's literally the exact same thing. That happened early.

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It is crazy to me watching the show because it it was just de Java. What's funny is 1 of my investors was an investor had a cameo role in Silicon Valley as well.

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David Cohen was 1 of our investors he had had a cameo in that show. And so the similarities between us and that show is just uncanny.

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This is this is just insane. Absolutely. I love it. I'm just trying to figure out how to call this episodes, to make sure that people understand that it's literally the story of Silicon Valley show in real life makes sense. Insane.

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Absolutely. Love it. And it's just so unique. I've never I've never seen that happening to be honest. All right now that we're covered that, let's go back to the.

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I'm saying back to the real life, we just didn't discuss real life. It just doesn't feel like it's real life. It feels like we're discussing, still, still discussing the show back to the conversation about the company and how you got out of that.

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So you've got out that lawsuits you got back on your feet, you raise some money and what happened later on. You mentioned in our plenary called that.

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I think he's, I forgot what exactly you mentioned. I have absolutely horrible memory and did not write it down but you mentioned that you had to scale back because of some mistake that you've made. Can you tell us a little more about that? What happened there.

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Yeah, so after we got sued, we were then able to eventually raise money after talking to a 100 investors. I literally pitched 100 investors about this still.

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And the problem is, they looked at us and very few investors wanted to pay the bill of that lawyer. Right? So, we're just investing in the company to prop it up. We were starting and a negative number. Right?

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We were literally starting the company with no customers with a product with a prototyped product, an early stage product, but no customers no traction.

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We had already spent a couple of 100,000 dollars that we had raised before, and they would have to pay the bill of a previous lawyer that had racked up a couple of 100,000 dollars. So it was a pretty hard. So, we had to dig ourselves out of the hole.

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We somehow managed to do it by, by luck that 1 of the investor that led that seed round was actually on the panel at South by Southwest, which was the 1st pitch competition that we pitched right talk about serendipity.

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This is why I go back to pitch competitions and my love with pitch competitions.

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The investor that led the seed round after a 100 other investors said no, was the 1 that I pitched it was a judge on that panel at that pitch competition.

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So, he gives us money we go and we go and take that money start spending money on marketing, spending money on customer acquisition and funny enough. We were right it starts taking off. The company was tripling. Every year the year a year later.

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We raised a 10Million dollar Series a year later. We raised a 20Million dollar growth series. B.

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Right. So we were just tripling every year things were going.

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Gain busters, but then we raise that 20Million dollar Series B, and we get ahead of ourselves. Head of our skis.

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Our CFO at the time we were probably 120 people, 140 people and our CFO at the time made a mistake in the financial model.

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They, he effectively double counted cash and by doing that, we, we got ahead of our skis at really? The wrong time. We went in a matter of 4 or 5 months.

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We went from 10,340 people to over 200 people almost doubling the size of the sales team. Investing a lot in marketing, because we thought we had a lot more money than we did and we were just going gangbusters.

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Well,

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when we discovered that error in the model 4 or 5 months later,

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we realized that,

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hey,

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we're going to run out of money a lot sooner than we thought,

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and if you know anything about customer acquisition or hiring sales people,

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it takes,

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you,

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6 to 9 months maybe sometimes 12 months to really see the returns off of that investment.

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Um, we didn't have another 12 months after high ballooning, the sales team that much, and we had to do an immediate workforce reduction. Like, we cut a 3rd of our employees. All of a sudden.

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And that was painful, right? So it was, like, pouring money down the drain all these salespeople, all the stuff that we had spent money on. We had gotten bigger offices.

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We had gotten new, you know, everybody knew computers all this money that we had just spent a lot of money on just down the drain because we had to downsize.

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And now it was a painful, painful pullback.

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And that's again, we're going back to the Silicon Valley show. That's exactly what happened there. Did you did you feel your company based on the show?

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Please tell me all of this happened before this happened in the show all of this happened before this happened in the show, you follow the timeline. I had a different experience watching the show than everybody else.

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Everybody looked at it, especially like my friends and family.

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Looked at it and we're like, oh, my God, this is so much fantasy. And Silicon Valley. This isn't funny fantasy story. And the thing is, if you actually look up and look up interviews with with the writers of the show, they say, no, we interviewed a bunch of people.

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And this is this is based off of true things that we heard about in the valley that we exaggerated for me. It was not just true things that they were because it was like, this is just real life documentary.

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So,

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like a documentary,

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I cannot just people you have not seen Silicon Valley he should watch it right away just so,

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you understand how many similarities or between Silicon Valley the show and the story of that,

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where he says is just absolutely insane,

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but there is 1 that you're different,

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Silicon Valley did not and well,

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for the main characters for you and well,

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you've sold your company for over 100Million dollars.

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Can you tell us a little bit more about these happy ending and how you got there?

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Yeah, so, you know, every startup, I think has ups and downs, it's, it's a journey. It's not a straight line and, you know, for us, we did the, the downsizing and we tried to regroup.

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I'll take a quick side note. It's just a piece of advice to any founder any that has to do our workforce reduction always cut deeper than you think you need to.

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Right we said, hey, we're going to cut and we're going to cut deep, but we're going to try and just the cut fat and not maybe a little bit of muscle, but not to cut the bone always cut deeper than you needed to.

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Because we actually ended up having to do another smaller lay off after that, but once we did that, once we got down to a really course, team of about 10,110 people, we were then able to re accelerate. We still had a good product.

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We still had good customers, and we still had a pretty big market to go after. So we started continuing and chugging along.

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And and things were starting to pick back up for us as, as, as those things matured. Right? So it took a couple of years to set for things to settle out. But we continue to grow 40, 50% year over year.

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And eventually the hard work that we had put into building a world class product was recognized by Forrester Gartner,

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they put us as the top of their magic quadrants,

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the top of the Forrester wave in this category,

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and bought mitigation against against big players against big companies.

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Multi 1Billion dollar companies they ranked us as the number 1 player in the space, and that got the attention of a number of people and and 1 person came in and offered offer to acquire us when we did that. We said.

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Okay, well, let's shop this around and we started shopping that offer around, ran a whole process and ended up with a couple of bidders and soul to imperfect.

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Nice and this is great and I absolutely love it. I love that. There was a happy ending opposed to the Silicon Valley show, so congratulations. You've, they show so we're good work, man.

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All right now that we've covered all that, tell us a little more about what you're doing now. So, after you sold the company, you are working on Finn, Mark, your, a partner at P on your funds, your partner at idea fund partners chance also about more about that.

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Yeah, absolutely. So financial modeling for startups literally the pain point that almost killed my last company.

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I want to make sure it never happens again to any other founder and so after taking a little bit of time off learning how to fly, I wanted to solve this pain points. So that no other founder miscalculated.

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So, other founder almost runs out of money and not realizes it and so that's that's my my core job. My main passion right now is making sure founders understand their finances understand their model and be able to have the runway.

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They need to make sure they build a successful company at the same time. I'm also working with Pioneer fund and idea fund partners to help fund. Early stage startups.

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I started off angel investing, but I realized that I couldn't.

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Both put enough money to work that that I wanted to and, and I wanted a little bit more structure to how I was making the investments.

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So, I decided to to be a a venture partner across these 2 funds to help, bring deals in and help get more founders funded.

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I really want to help grow the entrepreneurial ecosystem as much as possible and I love talking to founders. So this is that's what my side passion.

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Perfect love hearing that and speaking of again reminder for people who are listening to this, maybe you skip the 1st part. I know why you would do this, but if you did, there is going to be a full app episodes on and specifically on how to build financial model.

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So, if you're trying to figure out what numbers should you put on your pitch deck to show it to your investors the next episode is definitely the 1 for you. It's going to have.

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Educational tag on it, so just search for that keyword and you'll find it and.

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Now, that covered all that. Well, let's go and talk a little bit more about your advice to early stage founders. So you already gave great piece of advice to those.

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Who might be an unfortunate situation where they have to cut work workforce of their company's cut deeper than you think you need to. Absolutely great. Love it. And is there something else you would recommend?

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Early stage founders, especially those who are trying to figure out how to raise their very 1st check right now, what would you recommend them?

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It's 2 pieces of advice, the 1st is really be passionate about what you're doing startup life is hard, and you're not going to get through it. If you don't really love the idea. The premise, the foundation of what you're doing.

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That's what kept us together. And the hard times, and me and my Co, founders, we really believed in what we were doing. Otherwise it would've been just easier for us to just quit our job, quit the company and go get a real job again.

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And we didn't want to do that, because we believe we had conviction. We had passion behind what we do that passion is is palatable for people. Right? And that's 1 of the biggest things that investors look for.

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That's what I look for and entrepreneurs that I want to fund is how passionate are they about? What they're doing. Why why why should I back them at an early stage? You're mostly backing the team.

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And the thing that I would say is the passion becomes contagious and you get people excited about what you're doing and that's when the checks get written.

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If you if you don't if you are,

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maybe an introvert,

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if you're a typically a quiet person,

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not as gregarious as I am,

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perhaps 1 trick that I used to do at pitch competitions is,

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I would chug a Red Bull or 2 before I would go on stage,

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I would Chuck,

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a Red Bull or 2 before I would go into an investor meeting energy gets translated as passion sometimes.

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So you can kind of fake it a little bit, but passion number 1, other piece of advice have a good financial model, right?

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From an early, early days care about the numbers that you're putting together and hold yourself accountable to that. I see. So many companies early stage founders run out of money and not realize they're running out of money. That's the number 1 reason.

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That startup companies die is because a bad financial modeling, and I just encourage everybody it doesn't have to be complicated. It can be a really, really simple, but put numbers down on a spreadsheet on a table.

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Somewhere and then hold yourself accountable to those numbers every month.

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Nice allow that advice, especially the advice of chugging some red bulls before the meeting again.

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Going back to his so Kimberly showed the 1st episodes based on the behavior of the main character. You probably don't need red balls, because you might just as well have a heart attack right there.

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So, if you're afraid of that, maybe maybe you should think about using some extra read both, but yes. Might be a good option there. Alright. So now that we've covered all of that we are moving on to the last question of today's up as a, which is a call to action.

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So, Rami, would you want to do as soon as the app is always over right now? Self promotion I genuinely am passionate about this.

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We're building Finn, Mark 4, founders, and we're giving a lot of freebies early stage companies that are coming out of accelerators. Get Finn mark for free it's 25 dollars a month for early stage companies after that.

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Go checkout com sign up. We're going to make keeping track of your numbers a lot easier. So we'll automate the process. We're going to make it. Beautiful. Give you lots of dashboards.

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And designs, and we're going to connect into your systems of record and pull in all of your information. So you don't have to spend a lot of time updating your numbers.

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You can put it put together your assumption in 30 to 60 minutes, have a full blown model and then at that point, we'll do the rest and that way you can keep yourself honest, but not spend a lot of hours doing it.

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And yet, by the way my notes.

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Those these kind of tools are really useful, because it also simplifies direct communication with your investors. Because, as I continuously tell people keep your investors updates, send them.

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You know, at least per quarter, some new results and if you have this kind of modeling going on the background, you just send them update numbers like that. Just copy paste. That's it. So, yeah. Check it out.

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I'll make sure to leave a link to mark in the description with this episode and for people who are seriously considering to use it who want to understand more about financial modeling, go to the next episode. Listen to it and there we're going to discuss financial models.

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Who needs them how much time you should spend using it? I mean, developing it and specifically how to use to do it. So, do that check the descriptions this episode check out the next episode and as usually have a date.