Sept. 16, 2020

Acquired for $780 million - lessons learned about Fundraising and moving to the US, by Zain Jaffer.

Acquired for $780 million - lessons learned about Fundraising and moving to the US, by Zain Jaffer.

In this episode we talk to Zain Jaffer, Partner at Blue Field Capital and previously the founder and CEO of Vungle(acquired for $780M). Zain talks about how he moved from the UK to the US and about the mistakes that he had made during the fundraising process.

Blue Field Capital: http://www.bluefieldfunds.com/

The Proptech VC podcast by Zain: https://open.spotify.com/show/5DBlKyYaVcuNv8uFq4LCfJ?si=_Jbm0oT1SWWMGaRYQ5pikw

Episode on Proptech by Fundraising Radio: https://www.fundraisingradio.com/Zach-Aarons/


Transcript

Zain Jaffer Introduction:

Konstantin: Today as a speaker we have Zain Jaffer, currently a partner at Blue Field Capital and previously the co-founder and CEO at Vungle (vungle.com). That got acquired in 2019.  So in this episode, we will talk about the acquisition and how Zain got funding for his company. So Zain let's kick off by giving us some background on yourself and on Vungle.

Zain Jaffer: So I’ve been causing trouble with technology for as long as I can remember. Probably the age of 14 always pitching people my big ideas and it wasn’t until the later stages of my career that people took me seriously. Actually, I take that back when I was 16 my voice broke pretty early and I was able to pick up the phone, bore people, and convince them that they needed a website. Always interested in technology, ran numerous startups that have been big failures, and had quite a good outcome with my last company, it was acquired by Black Stone for $750 million dollars. And we were pretty capital efficient having only raised $25 million dollars.

Zain Jaffer on Vungle:

Konstantin: Nice, that's impressive and just a great intro, I absolutely love it. We will start with Vungle and then discuss what you do now with Blue Field Capital.So Vungle, how did you start it and why did you start it.

Zain Jaffer : Like many companies its the outcome of many pivots and Vungle is based on a simple idea that people watch video and when people watch video there is only one way to make money really and that’s to either charge for the video or to show ads. And so we were focused on that and son when apps started to gain momentum, we realized if people are watching videos online on Youtube and people are watching ads and if people are watching videos on Tv and they are seeing ads why can’t we build a platform  where people watch video on their mobile phones and we power that. So we got to that through a series of pivots, but the idea was always videos were going to be big so let's figure out how to make money from video and at this point in time when people were building mobile apps, people looked at the way they looked at console gaming where you pay for your games, you buy a Sony Playstation, you buy a Nintendo Switch, your paying for the cartridges, your paying for the CDS. People thought well if we build an application for the mobile phone lets charge for it and I was horrified at that. I thought content should be free and when I said to developers to make content free the obvious answer was no we need to make money. So that is when people started experimenting with in-app purchases and in parallel some people tried to put ads, but the ads were so horrendous honestly.  When you’d play these games the ads would pop up and you’d crash the app. You wouldn’t be able to get out of it and it was a frustration for most people, that was the state of the industry at the time and that led me to build a really beautiful ad format and It was unique to because we wanted to show ads you are not seeing on tv you are not playing a game and seeing ads for coca - cola, a  Mercedes, a deodorant, or a shampoo or whatever. Here we thought why don’t we show an ad for another application, so you are playing the Candy Crush Saga game and you might see an ad for Angry Birds or Super Mario or whatever it may be and that idea took off like crazy. 

Konstantin: hmm got it, that idea is a really interesting start and the concept is great now its kind of obvious in 2020.

 

Zain Jaffer on the idea behind Vungle:

Zain Jaffer : Well it wasn’t obvious then, I mean people were like I understand you have a video ad on a website because you just scroll up and I can’t get my head around how you are going to get an ad on a mobile phone the screen size is small, really logical by the way this is mainly VC’S telling me this right um, always the VC’S who had a hard time understanding this idea. And I understand that because if you are playing a game where are you going to show the add are you going to pop it up, so we had to be really intelligent and what we did was we engineered a process so that maybe when you die there’s an opportunity for you to pay a dollar to revive the character or watch a video ad and then you get a free life. Or if you want to get gems or if you want to buy a sword or unlock a level, you watch a video ad, so you really find that people were redesigning their applications for the use case of video ads, but at the time when we were pitching it did not exist and people could not get their head around this concept.

 

 

Konstantin: That’s awesome because now that concept is literally everywhere like I’m playing on my phone the same thing I’m dying and there is an ad.

 

 

Zain Jaffer : I ‘m sorry for that I know that there are far too many ads now and I am somewhat responsible for that.

 

Zain Jaffer on moving from the UK to the US:

Konstantin: no worries, no worries, I completely forgive you completely. Anyways let's move on and actually I want to ask you this question for quite some time. You mentioned that you are originally from the United Kingdom and you moved to the US . My question is when did you decide to move to the US and why?

 

 

Zain Jaffer : I moved across in 2011 , 2012 somewhere around that period and the real reason we could not get funded, people in the UK at the time couldn’t understand our idea. And there was too much focus on revenue and we were the type of business where you needed, a little venture funding to build out the product, so we got accepted into an incubator in San Francisco. Sort of very similar to Y Combinator , when we got that lucky break we packed our bags and moved across and the rest is history as they say.

 

 

Konstantin: Right and that’s a nice move it has worked out really well so congrats. A lot of my listeners are foreigners, well no actually I would say only about 15% of my listeners are outside the US, but a lot of them are thinking about moving here and the question I get frequently is when should I move? My general answer is once you get accepted into some sort of accelerator or something like that. But do you think there are some other things that should move a person to the United States?

 

Zain Jaffer :  So you said most of your listeners are abroad or they are in the US but not inSilicon Valley?

 

 

Konstantin : Most of them are in the USA, I don’t exactly know the specifics of the landscape in the US, but 70% of my listeners are US based.

 

Zain Jaffer on moving to Silicon Valley:
 

Zain Jaffer: So if you are asking when is the right time to move to Silicon Valley , huh I agree with you its good to have some platform like an incubator to be part of, but I did think to myself many times if I were to start another company from scratch would I do it in Silicon Valley? Um  if you were asking me this a few years ago I would say no way I would never do another company in Silicon Valley . Too expensive, very hard to hire engineers, your employees are constantly getting poached, but at the same time uh VC’s, this is where the magic happens. There is a wonderful feeling here and there is a great and as someone who thrives on competition you are a nobody here. You got Mark Zuckerburg who made his wealth at 24 and you’ve got people that have just absolutely made it right , have blasted through the goal post so to speak. But its pretty difficult to run a company in the valley, because of the labor cost now.  I don’t know what the future of Silicon Valley looks like amidst Covid-19. Um hopefully this 19 thing stays in the past.But yeah I am not sure to be honest um it contextually depends on what your startup and what your doing, but a lot go the time VC’S want you to be close to them. It is quite inconvenient for a venture capitalists to have to jump on a plane and fly across again COVID, perhaps we are in a situation where we can do more video conferencing. Also VC’s are limited by where they can invest, so some have geographic mandates.

Zain Jaffer on fundraising:

Konstantin: Right, Right absolutely just like you. I hope that Silicon Valley being the center of the tech world stays in the USA and the center of the tech world moves to Los Angeles where I live ha ha. But the next question I wanted to ask you is your initial seed rounds. At the time that you raised your seed rounds that was the largest seed round raised at the time. How did you manage to do this?

 

 

Zain Jaffer: Well that was a struggle to get there for sure. I’ll walk you through the whole story for sure and I’ll try to be succinct because there was a lot that happened before that seed round. We were in the UK and we applied to an incubator and the incubator was Angel Pad, https://angelpad.com/  so an accelerator right. And we really wanted to get into the point that we researched who the judges were and we built video ads targeting those judges and we advertised them all throughout the internet.

 

Konstantin: Nice!

 

Zain Jaffer on the AngelPad story:

Zain Jaffer: One guy Gokul Rajaram now a dear dear friend and we work together now. At the time Gokul was one of the guys who was looking over the applications for Angel Pad and we wanted to get his attention. So you are browsing LinkedIn and a picture of Gokul’s face would pop up. You would be like why is there an ad about Gokul and the ad would literally say Gokul needs help to click now. And so people would click on it and um it was a video of me and my co-founder pitching the concept and saying hey Gokul you know Zain and Jack hungry entrepreneurs from the UK, look at Facebook we are going to crush Facebook. We literally said stupid things like that. So obviously that went viral. It ended up in Mark Zuckerburg’s inbox and old Gokul got into a little bit of trouble for that. We got a call for um one of the other guys in the incubator and he said is this Zain and we said yeah how are you when we start. He said take those ads down right now you are causing so much trouble for us. Like go from the typical process, apply. We did apply and we did not hear from you that is why we built these video ads. Um so he is like alright I ‘ll get back to you a few days passed and I did not hear back from them. So we built more video ads targeting the judges. So in the end they called us and told us to take the video ads down. We told you just jump on the plane and come out to America. We came out to the US and we were the joke of the class. We were two Brits, we had weird accents and we were at an incubator and we weren’t engineers and we were pitching an idea that did not make sense at the time and we had to refine it. Um we did not come from Google, Stanford, or MIT. So we were the joke of the class and people did not think we’d raise anything. So constant pressure to pivot. Until we started speaking to customers and we got pre orders and we went to one meeting with a customer and we said look if we can help you get users and if we can build you a video ad , how much will you pay us for the user. And they said oh we will pay you a dollar. And I said great so if I bring you 5000 users will you pay me 5000 dollars? And they said yes. Then I went to the next meeting and increased the number to 10000 then 15000 and then before you knew it I had thousands in preorders. Um  we didn’t have a deck though, I mean we had a deck but we did not have a product. We didn’t even have an engineer.  But we went up to investors and showed them the look we have preorders here. Then one of the investors was another entrepreneur. He had actually started a competitor and left the competitor so he invested in us. Introduced us to more investors and it just took off. And we were planning to raise about 2-300 thousand dollars, so Demo Day came at Angel Pad and I went out and horrified everyone and I said at the end of my pitch we are not raising, we are done raising. And everyone was like then why are you at Demo Day? You know we were supposed to take a first look at your startup. Look we are pretty much done fundraising and I meant this with integrity just a few hundred thousand dollars we’ve raised. If there is anyone that can add strategic value I am open to exploring how we can work together, I might be able to increase the round size. Oh my god I was swarmed after the pitch, literally people came up to me and they were like a great presentation. I got a check in my pocket how much can I invest? Just like wow this is easy and 200k turned into 500k turned into a million and at this point were kind of at the point where we raised a million at 5 million 3 now we are at 1.5 million now this is getting quite dilutive.And back then five was the standard valuation damnit. And I wish all these entrepreneurs who are raising at 10  million,  it's crazy. So yeah I ended up raising two million the round ballooned . I am glad I raised the money would not have made it if I wouldn’t have raised the money. Uh we got Google Ventures to come in as well, we got Tim Draper, we got Uncle Capital, we had. A really good base of investors we probably had, we called it a party round we probably had some of the people that invested in the concept.So many investors probably like twenty or thirty investors. Um but it was awesome everyone added value in the end and it was probably one of the largest seed rounds at that time.

Now you know it is quite common to see seed rounds at that scale.

 

 

Fundraising mistakes and successes:
 

Konstantin: Right that is true now it's common, but this story has some bold moves there, the video ads specifically targeted to the judges, that’s insane, I love it. Now looking back at what you have done, what do you think you would change in that process, basically you wouldn’t make as bold moves or …, would you change something?

 

Zain Jaffer on his fundraising mistakes:

Zain Jaffer: Yeah I wish I knew the terms I was raising, I wish I understood the term sheet because it was more dilutive than I would have liked, but fair enough I needed the money at the time. There were some terms that were not standard, were not good. There was a liquidation preference, there was quite a high interest rate that was accruing. There were just a lot of nasty things in that term sheet that I didn’t really appreciate. It was buried away in the language. Now today, I wish there was the YC or the Safe Note or whatever these standards terms are that protect entrepreneurs. So yeah that is something I probably would like to have changed. Um otherwise um it worked out well right? And that’s why I’m probably on the podcast.

 

 

 

 

Zain Jaffer on his fund raising successes:

Konstantin: That’s actually true. That’s why you are on the podcast and I am really glad that it worked out well. Great work there. But now that we have talked about some mistakes that you’ve made, what do you think are some of the best things that you’ve done? What’s the thing that you were really really proud of in your Fundraising process specifically?

 

 

Zain Jaffer: Uh I think it is the fact that we had customer validation, I got to thank the accelerator for that they really forced us to pick up the phone and talk to customers and the hardest thing was what our customers said wasn’t things that investors understood. Investors were questioning is there a need for the product and I was sick of that to the point where I was like you know what investors don’t get it, the customers are begging me to build this solution now. Investors on the other hand think I should build something different and that’s why I went out and got these pre orders. So I think the preorders were the success. I think just going to customers and being aggressive and telling them look if this product is really valuable for you I will build this, but I need a commitment by you that you will spend the money  with us if we build it and here is an LOI and I want you to do reference calls with investors and that helped. And de risked it and once a few investors came on then everyone else followed them.

 

Zain Jaffer’s advice for early stage founders:
 

Konstantin : um hum That is actually pretty true that LOI’s are pretty strong. Um and here we come organically to your advice to early stage founders, what would you recommend them do, the first thing to do for early stage founders, once they are trying to start fundraising?

 

 

 

 

Zain Jaffer: Ugh so much advice I’d give to the early stage founder, right? Including myself there are things I did that were amateur mistakes. That I can’t believe people invested in me oh my God! I mean the way I , makes me cringe. More so, how I , I looked at some emails from my inbox and I harassed investors so much.

 

Zain Jaffer on what Blue Field does:

You know? Like please I want to jump on the phone with you to explain why or whatever. But you have to be like that right to succeed. Um you know, I’m a VC now, I’m an investor uh, I probably made about 12 or 13 investments to date. At Blue Field Capital we are Prop tech venture capital fund, so we invest in real estate focused startups at the seed round at the series A. I even have my own podcast on this topic where we interview people, Prop Tech VC, just go to Prop Tech VC . And I get asked this question alot, what advice would you give to a first time founder. And each time literally it is different, right? Um here is some age old principles that have worked, raise more than you think you need and raise when you don’t need the money.Those two are very very true . Raise more than you think is true because my if I had not raised those two million dollars, wow I would have been in trouble. When we closed the series A we only had a few months left of cash left in the bank.  So imagine if I only raised $1.5 I probably wouldn’t have been able to make the moves I made, to raise that series A round that we raised right after that seed round. I would um also say be obsessed with customers. Uh use the investor fundraising process to get introductions to customers. I found it amazing when I was trying to get the attention of um customers and when I went to investors I’d ask them you know can you introduce me to your portfolio companies maybe it's good for you to get feedback from your portfolio company and we’d appreciate the introduction, it shows us the value we can add. Next thing you know you are talking to the founder and CEO of a great portfolio company you want as a customer, so if you are in the B2B space or you want to do a strategic partnership, check out the portfolios of investors and ask for introductions. Investors generally like making introductions if they are serious about you so that works well. Here is one to um founders like helping each other, but founders do not like it when you swarm them and are like hey I want to catch up with you and then the conversation starts can you introduce me to investors.Well build a relationship with a founder and appreciate that. If the founder starts introducing every entrepreneur that comes to him and if he introduces the person to one of his investors, if that keeps on happening over and over again then eventually you are going to start referring to low quality startups. So founders are usually respected when they vet things.And when they on introduce when there is a true fit, so appreciate that if you are asking a founder for an introduction she or he um that is a big ask for the founders.So build a relationship with the founders make sure there is a fit because it is quite awkward when you are asked because you are asked all the time and it is very awkward because you want to help but sometimes it is like you are contacting me out of the blue I have not talked to you for so long this is our first conversation now you want me to intro you to every investor that has invested in me well it does not work like that let us build a relationship let's make sure it is a fit and make me excited about your product to the point where I am proactively recommending you know and um yeah and just appreciate that. Um I am not sure that was said before, well I was never given that advice. And founders are amazing people to get intros to their investors, but just be respectful for how you ask for it.

 

 

Konstantin: Absolutely great advice both in terms of asking VC’S to introduce you to their portfolio companies and to make sure founders you are trying to become friends with are actually your friends.

 

More fundraising advice from Zain Jaffer:
 

Zain Jaffer: Yeah it's kind of a douchebag move to just reach to someone for an introduction and then ditch them after that. Generally, like explaining why it would be a good fit to do the research or homework, right like I’ve noticed that you raised from these investors, this particular investor is really interesting  for us um , no pressure if you don’t think it is a fit right? Also you could ask them to check with them if they’d like an intro right? Make it easy, I definitely think founders need to help each other. So I do want to make that clear, just uh be respectful  and put in the hard work. Don’t leave it to the founder to uh kind of do all of that and don’t ask for the intro just necessarily the first time you meet them.Um it is just , I know it is convenient but it is not cool.Founders like helping other founders but um they feel kind of used if you are like thanks for the advice, I’ll forget what you said introduce me to investors now.

 

Zain Jaffer on Vungle’s acquisition:

 

Konstantin: Hah right yeah it all boils down to don’t be a douchebag damn it. Just be respectful. So here now that we have discussed all those super important things to be honest uh um and thanks for that great advice by the way. Yeah so  my next question is really quick about the acquisition. How did it happen? Did you actually plan for that acquisition from the early days or did you just or did it just happen?

 

Zain Jaffer:  Vungle had a lot of acquisition interest throughout even in the earliest days we had  you know interest from great tech companies and the offers were never high enough to go after right but I felt good knowing we were a really profitable company. I think towards the end we were doing 60- 70 plus million in profits every year which was crazy . It was 25- 30 million we were literally getting that in the bank, so we knew there was a value to the business, and um that put the minus value in place and um we ran a good process we had a good process in place and the outcome was fantastic for all shareholders. You know it was a life changing outcome for so many of our employees and even some of our earliest angel investors. This was a huge return. I mean you invest in a four - five million dollar valuation and then the company sells for 700 -800 million dollars.  Seven years later it was great.

 

Zain Jaffer’s call to action:

 

Konstantin: That was great, it sounds like an epic exit. Let’s end on this super positive note we are coming down to our last uh question which is a call to action. So what is the one thing the listener should do as soon as the episode is over?

 

Zain Jaffer: So if you ahh umm are you know we look at Prop Tech investments, so you can go to PropTech Podcast and you can see on there some great interviews with uh, you know we got a YouTube channel  ( Prop Tech's Youtube Channel ),we got our own podcast to  so if someone wants to kind of build a relationship and get to know what we are up to subscribe to that. Also it is a great opportunity to hear  founders in that space specifically, so uh real estate technology. And the other action point is get back to work and start building your company um it is going to be a long long process it is not an overnight success it is a lot that happens, people only read the headlines so much happens before that. You know success 99 % of it is so much effort and then that one last percent it looks easy and then that is where all the returns come from. Uh that is also the case with scaling revenue. Get in that first customer, getting the first hundred thousand , getting the first million dollars is really hard, next million dollars, the next 50 million, the next hundred million, the next three to four hundred million in revenue come way way easier than that first initial for any listeners that are in that first situation, huh hustle it is going to be hard work it is going to take time but remember  it's worth it.

 

Konstantin: Right, it is really worth it. And by the way I will make sure I leave a link in the description of this episode to your podcast so that everyone can check it out so everyone can check out what is going on in the Prop Tech field. And yeah my call to action as usual is go to the description of the episode take a look at the podcast of Zain and I will probably leave a link to another um PropTech VC, to another interview I had with another Prop Tech VC it is for those who are interested in Prop Tech.  Go take a look at the description of this episode. There should be something interesting for you and don’t forget to have a good day alright.