June 2, 2020

Who are the strategic investors, what are the pros and cons of working with them and how to reach out to them - by Emilie Mazzacurati, founder and CEO at Four Twenty Seven

Who are the strategic investors, what are the pros and cons of working with them and how to reach out to them - by Emilie Mazzacurati, founder and CEO at Four Twenty Seven

In this episode Emilie Mazzacurati, founder and CEO of Four Twenty Seven talks about working with strategic investors, what are the major benefits of strategic investors and what are the common pitfalls. Emilie also explains how to reach out to early stage investors if you don't have a large network and were to start your fundraising process. Also we talked about the acquisition of Four Twenty Seven by Moody's.

In this episode Emilie Mazzacurati, founder and CEO of Four Twenty Seven talks about working with strategic investors, what are the major benefits of strategic investors and what are the common pitfalls. Emilie also explains how to reach out to early stage investors if you don't have a large network and were to start your fundraising process. Also we talked about the acquisition of Four Twenty Seven by Moody's.

Four Twenty Seven: http://427mt.com/

Invest in your host through an IPO: https://humanipo.app/id/konstantin.dubovitskiy


Transcript

This is Fundraising Radio
and today's a guest speaker.
We have Emily Mazukurati, right, founder and CEO at four 27 that was acquired by movies and vestry serves.

this episode we'll mostly talk about working with strategic investors where the pros and cons because most people think that, strategic investor is always good and Emily will tell us, why is it not always the perfect solution.

We'll also talk about reaching out to investors if you're not sure which category your star belongs to.

if you're thinking that you're disrupting and you a completely new industry, that probably doesn't even exist, what should you do in that case? Because that's exactly what Emily did.

we'll of course talk about fundraising specifically, fundraising for females because it's still a sexist world, so we'll touch onto that as well.

if you're a female founder, keep leasing until that, making sure that the retention rates are high. Emily, let's keep cult by you giving us some background on yourself and on four 27.
sure.
And thanks for having me.

so I'm French.
I've been in the U S for over 15 years now and I have a background in political science and public policy. I've spent most of my career working on environmental issues and climate change.
not exactly your typical take sander profile.
I come from a femini of entrepreneurs, so I think that plays a role somewhere.

how did I find myself funding a company? Might you ask? I started out, I, I worked on climate policy on carbon markets for a number of years and I realized that we as a society, we're not moving fast enough and that climate change was catching up for them.

I, so a need a market opportunity, to help companies prepare for the physical impacts of climate change.

I knew from my work that there was a lot of science and research and models that could help support decisions around how do you prepare, what is your exposure to flood, to storm, to drought and what might be the right thing to do to prepare for that.

I was surprised to discover that companies and investors did not have access to this kind of information, not because it was expensive or anything.

It's all open source data, but because it was really hard to use.
that's why I found it for 27.
that's our core expertise is where, we're translator, right? We're bringing science to markets.

We extract and process and package climate data and science to help corporations and investors make decisions around climate change and risk management.

Nice.

That's really interesting.

B before move on to actually, no, let's move on to that topic right away.

how do you reach out to investors if you're not sure? Which category do you belong to? So for example, in your case, I'm not even sure right now.

as you got acquired by a financial firm, if you are aligned more to a financial fear of fields or to more of an environment fields.

how do you, when you first create this company and you decide to start reaching out to investors, how do you find them?

Yeah,

yeah, that is a great question.

I asked myself that question for a long time.

It's it can be challenging because investors tend to see the world in, predetermined buckets that they're familiar with.

They invest in tech or in ag or in KinTek or in health. while we work on climate change, we're not Cleantech.

they're not a lot of startups that are environmental startups and the thing that were focused on, this idea that we need to adapt to the impacts of climate change was a new idea for a lot of, folks that we took to investors and corporates.

it was hard, because then they didn't know what to do with us.

what we found is that, we did of a dual approach in that, on the one hand it was important to us and it remains important to the States and the markets.

there are investors that we know well who are just really focused on creating adaptation as an investable space or industry.

At the same time, practically speaking, we needed money before the world came around too. You got a patient as an investible face.

once we figured that FinTech, that are the segments that were focused on, the market that were focused on was the the right anchor for us.

were able to describe ourselves as environmental, Syntech.
you could see people click and be able to understand where we fit. that helps get the conversation started with investors.
Got it, got it.
I'm just curious how much intelligence you raise.

Sorry, how much, what,

how much in total did you raise before you got acquired?

I'm sorry, that's private.

Got it.

Removed that part.

I'm sorry, I forgot to discuss that with you prior to the interview and that, sorry for that question.

I'll cut that part completely loud.

that question never happens unless let's move on to, how was your fundraising process? So back in 2012, how was it different from 2020, if it's been eight years, things completely changed now.

what do you think, where should founders now start specifically now during the coronavirus? they can't go to normal means they can go to the meetups anymore.

What's your innovation into them right now? Well.

I think there's a lot of, efforts, as far as I can see, made by, the folks who run the ecosystem that tries to connect startups to investors.

the accelerators and the events, the networking, it's never going to be the same on the online and on a video conference than it is when you're in person.

we're also not going to be in this situation for ever.

I know not everybody has the luxury to wait another three or six months, but the reality is you will get a lot easier.

going back to how do you approach investors? introductions and so networking, networking, working with all their entrepreneurs, networking with investors, network with your professors to find yourself in accelerators, find yourself advisors.

Right.
there, there is that, it's not fun.
I mean, when I first, so your invitation to be fair to participate in that podcast.
My first reaction was, Oh, yeah, no, I'm done with fundraising.
Never want to talk about it again.
it sucks.
Really sucks.
You pitch, 20, 30, 50 times over and you get blank stares from people who don't understand when you do. And it's hard.

Perfect.

That's a perfect description.

I love that.

And thanks a lot for being here.

I know on our pre-interview cold you said that you don't really like fundraising.

I really appreciate that you're here talking about that pain to help other founders go through this pain easier.

let's talk about the other part of fundraising.

Fundraising from strategic investors.

I personally recommend that strategy a lot because I believe that a strategic investor is someone who can give you so much more than money.

it's not like VCs who say that, Oh yeah, we'll give you a lot more than money.

We'll give you the expertize, et cetera, that the strategic investors are really giving you that strategic experience.

what do you think are the pros and cons of services? You can miss her.

Yeah, and maybe I'll speak to how we came to working with a strategic investor and then, maybe some quarter lessons aren't.

I, I've pitched to God knows how many and I just kept being disgruntled and, and not understanding the disconnect between the blank stare that I was getting from a number of smart and it'll be people who just didn't see any future for my company.

the fact that at the same time we have clients, we have interests.
We were pulled into all kinds of events.
We had the white house at the time, previous white house obviously, but saying, Hey, this is great. You guys should come speak about your work.
I could not reconcile those two things.
The obvious market traction and the lack of traction with investors.

the the waterfall moment, the watershed moment for me was, the day that I pitched to a female investor who specializes investing in female founders, especially with companies with a social focus, climate change being one of her team.

she didn't give me a blank stare, but she walked me through the numbers as to.

The way my company was set up, the growth best, that weren't on a margins, we're just never going to work for her because she had investors herself, right? That she had promised a certain turn around return on investment.

what I learned was that VCs are really looking for a very specific type of startups, which are in the end to save the obvious to a lot of your listeners, but the very high growth startups, and so they're willing to take a lot of risks because what's interesting to them is out of a portfolio of 10 company, maybe one becomes extremely successful and it doesn't really matter what happens to the other one.

for me as a founder, I'm, I, it matters to me what happens to my company, right?

I'm not necessarily interested in having the biggest growth in the world and, crazy turnover or whatever.

I was more interested in us being able to grow and do what we wanted.

We had a mission, we had a market.

We were in a way the less risky, but also with a lesser growth potential, which I was comfortable with personally.

so, and so then realizing that working with folks who understood our market and corporates as investors don't have the same expectations.

There's also going to look for safer investments, in that they're not willing to see 10 of their portfolio companies go belly up in the next five years.

That's not what they're investing in for.

I things investing because they want the solution, they want it to work, they wanting to add value for the corporation.

there is a world outside of VC and VC funding is not for everybody and you're still a legitimate entrepreneur if you get funding from somewhere else.

And that's really important.

There's something psychological here about the role model of the Silicon Valley and this idea that if you're not that, then you're not part of the cool kids.

I, I think that's something that must be addressed. Go ahead.
I believe, keep going.
I'm sorry to interrupt you.

No, no, that's fine.

we did get some really sound advice before we engaged in conversations with strategic investors and that I want to relate here, but is to be really mindful about what are the terms that you sit with your strategic investor, right? So it could be anybody in your value chain.

It could be a supplier, it could be a partner, it could be a competitor or who you thought you might, take over and kick out as incumbents.

But maybe really they're your best partner.

it could be a client and in any of those, relationships, you're going to need to figure out, make sure that you agree on terms that allow your company to continue to grow, to its full potential.

say if it's, if it, if you were taking a client as a strategic investor, then make sure that they're not, the terms that you sit with them with regard to access to data.

Or in my case, this is the world I live in, right? Or what they have access to.

How it's positioned with regards to your other clients doesn't scare away your clients. make sure you're very clear as to what the exit is.

The strategy is for both parties, is it understood that at the end of the day you really want to be fully acquired by this company.

Do you really want to keep your, the oceans open in terms of going elsewhere? That needs to be discussed and we just figure it out in terms of, terms of the agreement upfront.

if you do, you have a big powerful, assuming the right partner, you want to target a very large company.

Those are the companies that have the phones to invest and they have OCS, they know how to do that, their development office, and then they have distribution networks and they may have, alternative things that you'd like.

Maybe they have deeper tech or maybe they have a marketing and branding department or who knows what they can bring, right? They can be your first client and help shape your product.

there's a lot of great benefits from working with strategic. Absolutely.

that's exactly the reason why I have the whole section called alternative sources of capital where you just write about that, finding something besides VC funding.

because I think that PC is definitely not the only option.

you touched on two topics that I wanted to go deeper in, and it's a, you pitch to a female founder who really explain you what's the problem with your company is, and I wanted to talk about this female fundraising, so I know that's, startup world is,

wait, wait.

But let me rephrase that.

She didn't tell me what the problem was.

My company, yours told me why my company was not a good fit for VC funding right now.

And that framework is important.

There's no problem with that company.

It's just not a good fit for me.

Perfect.

That's that's, I'm sorry for not listening carefully enough, not different enough for freezing my sentence is careful enough.

my question still remains, a female fundraising is tougher than fundraising for males because it's still a pretty sexist world.

for example, I'm really proud of that number of mine.
I have over 20% of listeners who are females and I'm proud of that fact and the fact that I'm proud of that fact.

Thanks.
It really sexist.

what's your condition to those 20% female listeners of mine? What you recommend them doing first? Who should they reach out to? Should they try to seek for specifically a female founded VCs or annual investors or should they follow the normal track?

Yeah, so, I hope this, applies and is helpful to anybody who experiences discrimination for whatever reason, or who may experience the time doubts about whether they're capable and then the right person to do what they're doing.

that could be any gender, any color.

Right.

just know that if everybody goes through this, or at least certainly, I, I did and a lot of people do.

I haven't really encountered blunt sexism in the way that you can read about it the way that we're, I mean, burkini is a little removed from the Silicon Valley, so maybe that helps.

I have wondered a number of times whether it's a hypothetical male version of me would have been more successful in raising money from a certain type of investors.

Right.

something that I found interesting was actually the same female investor, once, on a panel explaining that from her perspective, women, investing in female founders were great because women were much more conservative in their projection.

They didn't have this kind of brash, we're going to grow by 2 million X times what we have right now. they were more reliable, more profitable investments.
and, and I think that might be true.
I was never comfortable putting protections in front of investors that I didn't truly believe in.

And and that felt reasonable to me.

sometimes to raise money there is a game, right? And being reasonable, when you're half someone on the other side of the table who assumes you're not being reasonable and they're going to discount everything you say by a lot, then, is part of the disconnect.

generally I will say, try to find investors who have that kind of specialization now because you need to be constrained to receiving, if you're a woman, money from women or whatever, but, those investors will have advice and pointers and they can also be a source of, introductions to other, falls on investors that might be suitable for you.

Perfect.
I got it now.
I actually interviewed recently several female founders as well. female founders.

There's cows for several VCs here in Los Angeles, and the other one I think is in Austin. I'm not sure where the second one is, but, the point remains great answer.

you mentioned another thing earlier on in this episode, which is, discussing with a potential investor, everything about the exit strategy.

where are you aiming for an exit from the day one or did it just happen naturally?

in the grand scheme of things, it was clear to me that four 27 was always aiming for an acquisition and not for an IPO.

we were a proof of concept that there was demand in the financial sector for the type of data climate data that we provide.

to me it was clear that the fastest way to disseminating this data and to having the protest reach the broadest impact, which has a mission driven company was important to us that we should do that through an established financial data providers.

we had a short list, the conversation, the, the acquisition from last year, originally what was the long tail of, trying to fundraise, what I described earlier of realizing that VCs were not good.

Okay.

VCs are no good cause we're not risking off, but we're too risky for banks.

Right.

that leaves us with strategic and for strategic.

they ask themselves the same question, right? If they invest in a small company with the product or service that they're very interested in, they just want to own it.

They're not really interested in, having a stake in a while and then walking away.

it was a natural evolution of the discussion that it went from, so we received a majority investment, from these, but there is an understanding that we're going to be part of Woody's for the long term.

got it.

Yeah that definitely answers my question.

another thing that I forgot to ask you about in terms of fundraising.

most people, most founders actually have either financial or technical backgrounds and you are nontechnical a nonfinancial person.

Do you think that affected your fundraising process? Have you heard any investors having concerns about that? Yeah, so I definitely know of investors who set up, look, we don't invest, when there isn't a technical cofounder.

and, and I understand and certainly for us, the moment that were able to bring, people in the team who had the right level of technical skillset, that was the big turning point.

I will say on the other hand that I've been in a number of accelerators where you spend a lot of time talking about how you need to get out of the building and talk to customers and understand the product market fit and

are you solving a problem? And I find it ironic because we started from what these are problems talking to clients, what does the market need? And then we built a technology solution, right? Not the other way around.

there is of a self fulfilling prophecy.

If you expect the funders always going to be the technical person and you don't recognize the value of people who really understand the market, then you're going to have that disconnect at times, right? So, I think a number of other investors, so the value of having the company led by someone who understood the market.

we need drove the technology to meet the market's needs. That's perfect.
By the way.
Here's someone doing it the right way,

here I want to ask you a follow up on what you just said, which is green technical people with technical expertise.

When exactly did this happen to you, happen after you raised some money or who are you actually able to bring them early on when you had, just idea some traction maybe and only then you raise money.

What's the, what's it, time's kit time? they say this time. What was the tenure?
Yeah, what was the timing? Perfect.
Yeah.

that is something that we struggled with for a while.

because there is an element of, if you're not part of that world, you don't have a network, you don't have the right people.

there are, matchmaking, websites where you can meet your ideal CQ. which I, I didn't engage with.

it was the funny blocker to raise money for good reasons, and at the same time, we needed money to hire someone of the right caliber.

it was resolved for me, thankfully by, the the ideal co founder coming in a little late.

He's not a cofounder, but saying, Hey, this is my skillset.

I'd be giving your mission.

How can I help? Right? And then were able to have that person go see investors and, and then things fell together.

That's really interesting.
And and.
how do you find that person? Do you have advice for founders specifically to find other co-founders? So one of

the questions that I get pretty frequently is how do I find a technical cofounder or financial co-founder? Where should I look for them?

Are there some per week.

applications that help you match with the.

go founders?

I don't know that I have great advice.

I know there are some websites that will help you find your match.

Right.

And, and I don't know if there were local, there's quite a few in the San Francisco Bay area, there are a lot events for startups and opportunities to meet and you go to hackathon and you meet people.

there's an element of luck and of working in network.

In our case, what works is, our work getting some traction, in media and social media reports and analysis that we did that, got some publicity.

that attracted attention from people with a certain talent and skillset who said, Oh, this is a cool company. I wonder, Oh, and they're just down the street.
you see if I can be part of this.
? Right So that's how we've recruited a lot over the years.

It's people knocking at the door and saying, I believe in your mission. I really want to have plenty to change.
What you guys do is really cool.
do you have room for me? And it's worked out great.

other times we didn't have a role for that person, but, that's how it's worked for us.
That's really interesting and probably stays really important for it.
if you're not getting any public attention, hackathons is actually a great place to find technical co-founders. A lot of bright people go there, especially for, a university specific hackathon.
I know for sure that UCLA does, I think like hackathons like every quarter or something like that.
if you're looking for a technical cofounder that's a great vice from Emily co to hackathons.
That's a, that's a great place.
last thing that I wanted to discuss with you is, it's not even discussion.

there a request for a call to action? this the thing that I've started doing recently with all my speakers, it's the small thing that you want the listener to do as soon as this episode is over.

what is that one specific action that they need to take as soon as this was taken by to each other?

well I, I'm going to say go home and spend time with your friends as time money and give yourself of Slack because you're, I'm going to guess working really hard, long hours and worrying about your business and trying so hard and there's a lot of expectations and goals for when you start a business as an entrepreneur.

So yeah, it's true.

Ask yourself what you want for your company and for yourself.

Ask yourself what will make your company grow into a business that you're going to be happy with over the long run and, focused on what will serve your company and what will serve you as an individual best and not the this, fantasy of what a tech startup must be to be successful.

There's there's a lot of ways to be successful as an entrepreneur and yeah, be proud of what you're accomplished and keep up the good work.

I think your advice is not quite right for these times.

when everyone's staying home saying people go home, rephrase.

that.

Then embrace being with your family.

There will be many more times where you are in a conference and events and in the long hours.

Yeah, I agree with you, but only partially.

I believe that if you're not quite happy with your work, with what you've accomplished yet, probably should work more.

once you feel that, today I've done a lot to date, I've reached out to 20 clients. I'm good.
I've done everything to do this company better to bring into success.
So I believe in that.

by the way, that's my advice for you.
Find a goal for a day.
Small steps.
Don't like think that you're going to Cole Haan requires because it's impossible.
Make a list of 10 clients that you want to call or 10 prospects you know that you want to call and just do that. if you're done, perfect, you're good to go do whatever you want to do.

on this note, on this great advice from me and from Emily, we'll wrap it up. Thanks a lot Emily, for taking your time to participate in fundraising radio. I think that was really insightful episodes, really tons of great insights here.

Thanks a lot for that.
My pleasure.
Thank you for having me. Absolutely.