January 11, 2021

To Market, To Market…Home Again, Home Again, Jiggety-Jig: Part 4 of our Venture Finance Academy Case Study – How to Raise $1.35M for Your Tech Startup During a Pandemic

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January 11, 2021
By Aery Advisors
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Going to Market - The Long Journey Ahead.

Raising money is a lot like having a baby. You can’t really speed up the process without messing it up.

In this part, you are going to learn:

  • Why it usually takes at least 3-6 months, and sometimes up to 12 months or more to raise money.
  • Why raising money is like climbing a mountain
  • Why you should approach investors like a sport fisherman
  • The importance of finding a good lead investor
  • Smart vs. Dumb money (is this really a thing?)
  • The two primary fears of investors (Losing money and FOMO)

In Lesson 4, co-founder and CEO Sam Cook and Brad Furber talk about how seeking your first round of outside funding is a lot like climbing a technically difficult mountain. Brad grew up in the Pacific Northwest (Washington State, USA) and made his first attempt to summit Mount Rainier when he was 13 years old.

Climbing to the top of a big mountain is one of the most challenging experiences you will ever have physically. If you encounter difficult terrain and weather on your way up or down, there is a good chance you will find yourself in trouble. .

The story of how the first explorers reached the summit of Mount Everest in 1953 is instructive. Sir Edmund Hillary of New Zealand had the wisdom to engage a local Nepalese Sherpa (the name for an indigenous ethnic group steeped in mountaineering knowledge), Tenzig Norgay, to act as his guide and companion. Climbing a mountain may be the perfect analogy for your fundraising journey. It will be one of the most intense, challenging experiences of your business career. You probably won’t get to the top of your mountain without an experienced guide. That is the essence of Lesson 4.

Sam shares all the twists and turns and ups and downs of his mountain adventure, and how the Venture Finance Academy methodology and team guided him every step of the way.

If you prefer to digest the case study PART 4 in video format, please click on the picture below:

If you prefer to digest the case study in written form, please continue reading below:

Sam Cook

All right. So welcome back to the fourth and final part of the case study of how the Venture Finance Academy helped SanityDesk raise $1.35m in pre-seed funding during the pandemic. So Brad, this is where we're going to fill in a lot of the gaps in the stories that I've been starting and not quite finishing.

We’ve talked about where you should raise the money, getting your house in order, and creating a compelling offer. That's really the kind of suiting up. It’s like the mountain climber. He's going to base camp, getting his kit inspected. But really going up the mountain is going to market. And you would never actually try and climb Mount Everest without a guide, a sherpa. The reason Sir Edmund Hilary was able to get to the top was because he had local guides who showed him the way he needed to take to avoid catastrophic failure. 

So in this part we’re going to talk about going to market. I remember when we started, you told me you need to plan on at least six months for this to work out. And six to 12 months is really the standard range. I raised my first check, I think, within three months, but certainly wasn't out of the woods really until about 16 months in. And you're never out of the woods when you're running a startup, but at least we reached our goals for raising enough money to reach the next milestone. It took 16 months from flash to bang. 

I think what most startup founders underestimate – I know I certainly did – was the pain or the struggle of the journey up the mountain. And I don't want to say that to scare anyone off, but I do want people to be clear-eyed and realistic about how hard this is, because I definitely would not have done it without a guide, a sherpa: someone who's got so much experience in raising money as you do guiding me. 

You've seen this over 200 times in terms of your investment experience. Let's go back to that. What are the expectations, realistic expectations, startup founders should have when considering raising money or is way down the road and wondering how long this is going to take?

Brad Furber

Yeah, the, the question I get a lot is, “How long does it take? And I was telling you the story of the shortest I've ever seen. It took a guy who was kind of a rock star in Seattle 1999, which was the peak of the dotcom bubble. And from the time he called me and said he wanted to do the deal till the time when he had a term sheet, it was less than 48 hours. Okay. But that's the fastest I've ever seen it. Now, even after that, we still had to do all the other stuff. It's not like he got a check in 48 hours because he needed to incorporate and all that. The reality is, in my view, if you're committed, like it's your number one strategic priority, and...

Sam Cook

Job number one of a CEO is not to run out of money.

Brad Furber

Yeah, that's right. Especially for a tech, a pre-revenue tech startup. If you don't have gas in the tank, you're done. You're going to hit the wall. It's over. But I guess the point is, if you're lucky, if the market's right, if you've done all the things I just talked about, you've got your house in order. You have a compelling offer. It's a reasonable market based offer and you have a strategy to go out and pitch it, to present that offer. You can do it in three to six months.

Sam Cook

But that's doing steps one through three before that. And just to be clear, how long do steps one through three usually take? 

Brad Furber

You need to do it. All of those are preconditioned. But the flip side is: it's not uncommon in my experience that it takes six, nine months or more. And in some cases, if you've structured, like you did, with the SAFE, where you're rolling it out and you're pitching and bringing in money – you're keeping the ship afloat. And at some point – in your case, once you demonstrated to the advisory board and the board of directors that you had mapped out a product roadmap – you've solved the issues. That's when the light bulb went on and people were like, “Okay, this is a real startup. And that's when everything became fully subscribed. And now I think there's more demand and you're taking down additional money. So your situation is in my experience, not that uncommon. There’s no magic thing. And, and in your case, keep in mind, you were pitching this deal from Kiev, Ukraine. Most of your investors, pretty much all of them, are in the U.S. 

Sam Cook

Yes.  I've been out of the country for five months due to Covid. Well, I am about to travel back to the States...

Brad Furber

We're comfortable now, I think, taking those kinds of calls. Obviously you have to do it on Zoom. So raising money remotely is not only not uncommon, it's like the only way right now.

Sam Cook

My story got really crazy and kind of fun. I think, you know, it reminds me of a British army officer evaluation report that said, “His men follow him out of sheer curiosity over what he's going to do next.” I think that's part of the reason why people like Brad and others stuck around when things got a little bit crazy – because it was an interesting journey.

Like you said, it is not uncommon to have all of the drama that we had. One of the lessons I want to drive home is all of these decisions about where to raise money. The United States with my background in the army and my connections was definitely the right place to go raise money. Getting your house in order, having a board of three, to have reverse vesting, having an advisory board...all were absolutely critical. Without the Venture Finance Academy, all those things wouldn't have been in place. So I'm going to just fill in the blanks as to why those things became important. 

Let's talk about a couple of points that go back to your old fishing analogy. We started pitching the deal in May [2019]. I landed my first lead investor in the United States in Texas in August. I remember flying back to my company in Kiev and saying, "Hey, we found our lead investor." And I remember you talking to me and saying, yeah, congratulations – you're just getting started. And I kind of thought I'd finished. 

Brad Furber

You were ringing the bell. 

Sam Cook

Yeah, I was ringing the bell.

Promises, promises, you know. We've got the money we need. And obviously we'd, like all startups, probably underinvested and underestimated how much we needed to raise. And you were just saying, “Hey, wait a minute. You got one investor, that's good. There's promises, but there's nothing on paper. There's a lot of uncertainty still.” And one of the things that you said we need to do is to "fish where the fish are".  What do you mean by that?

Brad Furber

I like to fish. I fished my whole life in Puget Sound [Washington State], and as a boy I used to get up at six in the morning to go fishing in an aluminum rowboat, and the kind of fish that I could get in Southern Puget Sound were sea run cutthroat trout. And if I came home with a sea run cutthroat trout, which is, you know, maybe 15 inches, it was great. I was super happy. On the other hand, as an adult, I like to catch big fish. And to do that, I typically either need to have a guide in the State of Washington, or I need to fly to Alaska. Okay. So the point is, when I go to Alaska, I catch big fish. And capital raising is no different. And so if you know that, you have access and you have a network. Obviously the deepest source of capital for early stage financing anywhere in the Western world is Northern California.

That's where the money is: Seattle, Texas, Boston, New York. There's other places, too. Boulder. But that's where, if you want to catch fish, big fish, you've got to go. And you did. You went to San Francisco and you slept on somebody's couch for a couple of weeks. And even though you didn't catch fish in San Francisco initially, because you're a southern boy from Louisiana, when you got down to Texas, that's where you made the connection. There’s a lot of money in Texas. Yeah. So you can catch fish in Texas and you can actually catch fish anywhere, if you have the right connections. Let's say you're from Timbuktu. And that's the thing. It may be that you're not in one of these tech centers, but for whatever reason, there's somebody down the street who believes in you. You can catch those fish, too. I'm just saying the probability of success goes way up when you can present the offer to multiple different parties. Because it's just supply and demand. That's all I'm saying.

Sam Cook

Yeah. And the thing that you pointed out to me was, “Hey, congratulations, you have an investor. Every check he writes, he's more obviously interested in protecting his investment, but at the same time there's going to be limits.” We determined very early on that we were going to judge actions, and when money came in and if it was on time, and if there was a willingness to have promises so that we could have stability – and we weren't getting that. And you said, “Hey, until you get that stability, which is either cash in the bank or written commitments of exactly when to expect what cash, you don't have a stable lead investor.” And I had a hard time accepting that because I'd kind of told my team I did have one, but you were right. You said, “Hey, until you've got options, until you've got the money in the bank, it's not in.” Verbal promises are really not reliable.

And even written promises, if you get them in the US, there's an enforcement mechanism. What are you going to do? Sue? Are you going to sue someone for not giving you a speculative investment? So I swallowed my ego a little bit, and obviously that's the big challenge of founders. You have to have a healthy enough ego to do something crazy that most people never try, but also have enough coachability or humility to listen to people that know a lot more than you do. 

And I said, okay, yeah, you're right. We're still hand to mouth. We're still waiting on checks from investors and some money from my agency. Yeah. I need to go to California. And I didn't know anyone really in Silicon Valley, aside from a friend of mine who was my roommate at West Point. And he happened to be running a very successful company, but he was doing security for tech startups.

Sam Cook

Now he's a member of the advisory board, Brian Sweigart. 

Brad Furber

I remember... And now he’s an investor. 

Sam Cook

Yes, now he’s an investor, which we'll get to that in a moment. But I went and slept on his couch and it was just dusty. So he has a, an apartment which is also an office in downtown San Francisco, right by the stadium. But there's there's this other building or floor to the building they bought that had no bathroom and a couch in the middle of an area where it's under construction. So every morning, or every night before I'd come back from prospecting, I'd have to take out a Windex and some paper towels and de-dust the entire couch because of all the construction that was going on. And then during the day, the construction crews would come in and I'd come back at night and clean my bed, get under a blanket and hope I wasn't inhaling too much dust, get up every morning, pretty early and just go out and shower at the local gym.

Sam Cook

I didn't want to go knock on my buddy's door early in the morning, or when he had employees and I would be that, you know, house guest trying to intrude. Yeah, exactly. Because downstairs is all dusty. So I'd go to the local gym and just shower there. Paid for membership. And I was just completely lost in San Francisco. Not knowing anyone. He wasn't an investor, even though his company is doing really well. He'd never invested before we became his first angel investment. But I knew then, you know, he was like curious.  But he sensed the desperation, and I didn't push him. I didn't really ask him to invest, but he's like, "Oh, I might be interested in the future". And I just went out. I went to...

Brad Furber

Not to interrupt you. But one of the things for people that haven't been to the Silicon Valley is when you go there and you look around and you're like, this is it? Yeah. I mean, did you have that feeling?

Sam Cook

I thought, you know, San Francisco is kind of a small town compared to, and I did actually have a couple other contacts, John Kim, who founded Five Nine, which is a decacorn now. It's like a $10 billion valuation company. He'd been over to Kiev and gave some, some talks. And so I did have a little bit of a network in San Francisco. And John was incredibly helpful introducing me to some YC founders and getting into some dinner parties. So I went there with two contacts and then a third contact came up, Rory Kilmartin, who's an ex-client of mine, who's also now on the advisory board. Rory said, you know, I got this friend of mine from the UK who is living in central San Francisco. And his profile says he's an investor. I never knew it. We just used to hang out and party together, but you know, back in their younger days, but he connected me with him and I ended up meeting the investor.

Sam Cook

We got along really, really well. We set up a followup meeting and actually my lead investor at the time flew out and we had this new offer or this idea for this offer or valuation that we're putting together. We formulated a pitch deck. And, and I remember meeting with Sandor who, who, you know, looked at the offer. And after that lunch, he just, he gave me that first sign. I wasn't really listening at the time, but he's like, yeah, that, that valuation is a little bit rich, you know? And, and, I kind of, you know, asked my current lead investor who said something, like, yeah, yeah, he doesn't know what he's talking about, blah, blah, blah. But I knew that Sandor’s family had a family office, they were investors, but I just thought my existing lead investor knew, you know, he had experience in raising money, and a lot that he talked about did sound credible to me at the time. He had book. So I said, okay, well, I just kind of didn't hear that. And when I went back and thought about it, you know, that kind of bothered me. But I was out there hustling and, and in the fight and meeting a lot of people, you know, pitching and refining my pitch, getting feedback. But I got a little bit disillusioned because, you know, I didn't walk into San Francisco and raise money and right away, you know,

Brad Furber

What, you didn't just fly in with a briefcase and fly out with a bunch of cash? Yeah. Funny thing,

Sam Cook

There were about five weeks and I made a bunch of contacts. I went to a lot of dinner parties and I met... Now I can go back there and I'm actually looking forward to going back there and I have a bunch of people to visit. Right. So, but what it taught me was: is this is a lot like farming and harvesting. I mean, I had to plant the seeds, get in there and make connections, go to networking groups. But those seeds that I planted back in October, September/October of last year, over 12 months ago now, it really, really paid off in the future. But the next idea I had was: come back to Kiev, visit the team, let them know we're still alive. The lead investor visited us. So we, we were.. That's where we all met in October [2019] and made all of these critical decisions about the DNA of the company.

Sam Cook

We incorporated SanityDesk. We made all these decisions about the boards, reverse vesting, and then went back to America with the new offer that we made. And I actually just, you know, I kind of caught fire and I went to Texas of all places, somewhere where I had deep connections in the army. Thomas became one of our angel investors or.. No, our original board member, Thomas, he came in and agreed to become a board member. He ended up investing more money after he became a board member, which helped because he knew he was more involved. I got an old army officer buddy of mine, Derek who used to work for Amazon. He invested. Got a couple of new investors who were very savvy. Ax, who's a digital marketing agency owner, immediately saw the potential of the tool.

Sam Cook

We really connected. He liked me, trusted me. I Introduced him to, to the, to the deal we were pitching then. It sounded really good to someone who'd not invested before. Hey, I can get my money out and I can let the free equity ride. And then I got another guy from Florida, who'd been part of a Silicon Valley startup before, you know. He'd been a business business development guy in a tech startup. So he really knew the game of investing from an outside perspective being, you know, in cap tables and stuff like that. So, these weren't unsophisticated like, you know, fools or anything like that. 

Brad Furber

And they weren't widows, they weren't widows or orphans or people that couldn't afford it. 

Sam Cook

They were accredited investors, but it was just our first investor. So all of these people made investments on the instrument that was too highly valued because they really saw the potential in the product.

Sam Cook

And they trusted me, which I felt good about at the time. But then looking back, I realized I didn't have the right deal. But you were, you know, we were on calls all, all the time talking about this and we get into December on a pretty high note, have raised a hundred thousand and, you know, the lead investor, still, still meeting some, some funding, like not in significant enough amounts thinking, wow, we're going into the New Year. Things are looking good. You know, things are looking good. I decided to come back to Texas, which, you know... Screw Silicon Valley. That, you know, they're, they're, they're too arrogant or maybe they don't see the value in the deal. And I'm in Texas, I'm building momentum. I go to the gathering of angels in Austin, Texas. I met a super angel guy, super rich, has exited a couple SAS startups: Joel.

And he's the guy who, you know, was the second confirmation that our valuation was too high. The two super angels I'd been in touch with – one out in San Francisco, now Joel – both said, Hey, this is too cute by half. Like, you're, you're trying to jack up your valuation. What's going on here? And this is where a lot of interesting questions started to come up. And I was talking to you about, this. With sophisticated investors, they want to see is your house in order. What's the cap table? You know, what's the shareholder agreement? Who are the partners? What are all the partners doing? How much time are they spending on the business? And this is where it got interesting because I started to move from the friends, family fools – not not saying any of my investors were like, like I said, affectionately – but people who just started investing, to people, who've done this many times and the whole game changed.

And I realized I don't have an offer and my house isn't totally in order, even though we'd put in a lot of work on that. And this is where it got really interesting. January/February, 2020, what starts to happen? We started to reach this moment. COVID barreling down. It's, it's not yet totally apparent that it's going to shut down the entire world economy, but it's clear that it's going to have an impact. You know, investors are starting to ask questions that are... We're not ready to answer because we just had not finally cleaned up our, in our... Our co-founding team was dysfunctional. We did have some people who were not working full time and the cap table wasn't balanced properly and all kinds of things, which you'd been warning me about and saying, Hey, you have to get this in order because sophisticated investors are going to want to know the answers to these questions.

And we'd been pushing it down the road, avoiding it. It all came to a head and you were totally right about house in order. And I finally started to listen on that and we had to go through some very tough meetings with the key stakeholders. Who's on the co-founding team? Who's not? You know, who, who's in the cap table, even though potentially they haven't done what they said they were going to do and earn their shares? Who is worth sticking with? And we had to make some really tough decisions. And, you know, the book by Horowitz or Andreessen? What is it? The Hard Thing About Hard Things. This is one of those moments where it was just really gut-wrenching decisions, board level decisions with a board member who, you know, Thomas, my old commander in Iraq definitely knew me and believed in me, but also was someone who, if I was not doing the right thing, definitely would have said, Hey, let's, let's get a new CEO in there.

So I agreed to put myself at the mercy of a three person board of which I was only one voting member. I'd put myself at the mercy of reverse vesting. I could have lost all my shares if I didn't perform as a CEO, but we just had to get together and you were advising us and saying, Hey, here's who should be on the co-founding team. Here's what the fair equity split is. Now that we've seen what we've seen in terms of people's performance there, the value they're adding to the company. And then some people saying, yeah, you know, I'm not ready to stick around. And, and it was... We went from five co-founders down to just two, the right ones: myself and Tyron. My partner has been with me for seven years and we also set the cap table at a distribution where the investors would come in and say, Hey, all the investors have the right deal.

All the co-founders are properly incentivized and there's room for me to also get a fair deal, right? Because if you treat one investor better than all the rest, who's really not doing anything that other investors wouldn't naturally do, who are good angels, then all the angels either want the same deal and the cap table's completely gone because there's nothing left, or they're just not going to touch it. And I realized that I had created a situation with this offer, and this was where it came to a head: that I had put myself in a position where I could only rely on one lead investor who'd promised to sell the deal he designed but had not done that. And, and it was just a really tough situation. So we had to, we had to really go find a new lead investor and we had to also make sure that our co-founding team was the right people that needed to be there. And, and you know, Brad, it, you know, for you, it was probably just like, I've seen this movie many times before.  But from my perspective, I was just sitting there thinking, holy cow, I can't believe that I'm in this situation but also that I have an advisor that can help me through it. So you remember that and you were...

Brad Furber

I have seen the movie more than once. Startups are just hard and you were able to navigate through that. And fortunately, because we were within the six-month reverse vesting cliff, it was still possible to make the decisions that were made and the decisions were made with considerable deliberation. I mean, it wasn't like one meeting. It was several meetings, a lot of feedback. I think you got feedback from some of the people who ultimately became a part of the advisory board and the feedback was pretty strong. We were actually forming the advisory board...

Sam Cook

At this moment and they all came back to us and gave us the feedback that we needed.

Brad Furber

The feedback the advisory board added. I mean, the people who subsequently became part of the advisory board, gave you, in no uncertain terms, feedback. And that was good because they were like, look, if you don't take these actions, I don't want to be involved, period. Yeah. I mean, you got that from a couple of people. Right. And, so, you know, you did what you had to do to stay alive. Yeah. And it is, you know, on my website. I, I like to talk about Ernest Shackleton and in a way you were stuck. Yeah. The ship was stuck. Yeah. And there was a global meltdown happening all around us. And those decisions would have been hard enough without the global meltdown.

Sam Cook

But then we had Sandor, who became our lead investor ready to step in with a significant six figure amount and...

Brad Furber

Total White Knight, total White Knight. And just, you know, to be fair to the the original lead investor, he didn't have bad intentions in my, in my opinion. He probably earnestly thought he could deliver on what he said, but he didn't. Right? 

And, and I think, again, I don't know why things didn't turn out the way they were supposed to, but I think the COVID situation impacted him. Oh, sure. Yeah. I mean, so part of the reason why he wasn't able to do what he originally said he was going to do was because the world melted down. Everything was changing. And so, you know, this is where, when you look at sources of capital, I guess the question is, do they really have the capital? I mean, is it sitting in a bank somewhere and all you need to do is convince them to wire the money, or is it over here, or here, or here? And, you know, it's like, it's...

Sam Cook

Somewhere. It's in the mail. It's somewhere. Where is it?

Brad Furber

You know, I'll fax you the check. I mean, not that, that was... I mean, it's just that you ended up with somebody who is a super angel slash micro VC.

Sam Cook

Yeah. So what they do. Yeah. Yeah. And, and, and what we ended up doing was, it was March [2020] and I got a call literally the day I was supposed to get the answer: Hey, I'm ready to be the lead investor. The due diligence had gone really well. And then I get a phone call that says, Sorry, the house I was going to sell in London, like, the buyer backed out literally today and I can't make the amount that you need for me to be a lead investor. But he said, and this was a silver glimmer of hope as I'm locked down in an Airbnb in Austin, just, like, watching the world contract. He said, I can't put in a couple hundred thousand, but if you can find $200,000 from other sources, I will put in $50,000, because I know that will get you six months down the road.

And hopefully that will bring us through not the whole crisis, because it, it looked like this was going to last a while, but at least get us through to a place where we can understand what the new normal is and whether the next burst of capital.

Brad Furber 

Are we there yet, the new normal?

Sam Cook 

You know what, I don't think so. I don't know, but I think what, what the world has... It's interesting. I, I, I don't know what the new normal is, but I think people have definitely adjusted to the turbulence, let's say, and investors are starting to write checks again, as we've seen. But, you know, I was stuck and I, I started circling the hat or passing the hat among everyone that I knew who'd showed interest before. And it was funny. I looked back at all the people who put in money and I bet I knew that none of them would have put in money in 2020 compared to 2019.

Like that's how tight things have gotten for everyone. I mean, the world capital pools, everyone said – and Joel, who's considering investing and he's a super angel and it would have been nothing for him to write a big six figure check – he's like, Hey, I, he said, look, I got capital, obviously, but there's so much opportunity out there because everyone's selling in panic. He's like, it's like shooting fish in a barrel. I don't know what to do with all this. Like, I don't even know where to deploy my money right now. And I can't say that angel investing is where I want to do it. You know, because stocks were going way down and everything. And I was just, I was like, Wow, this is, this is pretty bad. And then we got wind from Thomas, who's on our board, that, Hey, wait a minute, there's some weird things happening. He, Thomas is the old legislative affairs liaison for the US army and Capitol Hill said, you know, they're writing a bill right now where there's going to be money for small businesses. And I remember calling you Brad, and you know. The PPP. The Payroll Protection Plan and also the small business loan programming. And you said to me, I mean, what did you say at that moment?

Brad Furber

Probably, Hey, it's manna from heaven! It's once-in-a-generation. Yeah. Yeah.

Sam Cook

It's once in a generation where the government is making money available where startups could access it because you almost never get that. So I went and did the research. I talked to an accountant, I came back to Sandor and I said, look, you know, the US Treasury is going to come in as one of our sources of capital and the team is willing and they had agreed to take a 30% pay cut. And I said, I'll take no money so that we can get our runway to that six months. Because that's the condition you needed. And he, I remember he said, Oh, screw it. I'm in. Okay. All right. Because we'd made that gesture and I was able to rally the team and say, Hey, do you guys believe in this enough that we're willing to show the investor we're serious? And then I get on a call with Sandor. And then his brother's on the call. And so his, his father is a very famous inventor technologist from the UK. And they've done very well as a family investing after their father had done really well. And in CD-Rom technology. And he also invented the technology that went on to be the touchscreen and they were professional investors and his brother gets on one call.

Sam Cook

Here's the whole thing. And Sandor calls me up the next day. He says, congratulations, my brother also wants to invest 50,000. And then I was able to go back to him and say, Hey, is it okay if we don't do the pay cut? He said, Yeah let's take care of the team. They're into conscious capitalism and really care that all stakeholders, you know, employees, investors, and customers and everyone are well-served. And it was just, it was a head-spinning three or four weeks. But again, I had a great board member who had the inside track on the government because if I wouldn't have heard that and knew that was coming, I probably would have just mentally quit at a certain point. And we got that inside track. You advised me to get onto it. We did. We were able to get some money from the government and also investors.

Sam Cook

And, you know, we made it through the summer and then I formed the advisory board. Right. And the advisory board, Brad was your idea. And we brought in our lead investor onto the board of directors. We also brought in another highly qualified SaaS, you know – 25-plus years in SaaS business, former developer, SIS ops manager, business development manager, COO this guy had done it all, and an investor – just a rock star board member. And you know, we started doing board meetings every month during the pandemic. We started doing advisory board meetings every month. And you know, what happened is we went from not having our house in order and chaos, just flying by the seat of our pants, and I'm sitting here. Okay. Wow. I've got really solid investors who I know have more, but are watching. They're on the board.

Sam Cook

The lead investor is on the board and I also got another great board member who just gave me great advice, great feedback – who's who's been there, done that, knows the entire path ahead all the way to IPO. He's done that before. I've got my old commander who's got tapped into the government on the board.  I've got you sitting there as our advisory board chair and our lawyer. And what started to happen was, you know, twice a month, I had a meeting, you know, the 15th, and then the end of the month, I had a meeting and I remember the first meeting of the board and the advisory board. It's kind of chaotic. There was no agenda published ahead of time. And I said, okay, well, I'm, I'm a former history professor at West Point. I've got a good writing background. Let me just start summarizing the memo of, you know, for the board, our financial governance issues and for the advisory board.

Sam Cook

Okay. Here's the strategic questions we're working on. Here's what we've done. Here are the questions we need answered. And we started doing that and I spent, you know, a good weekend every two weeks, you know, working on these memos and sending them out to the board. And the advice you gave to set up a board that the quality of the board we chose not selling seats, not saying pay to play, but like pick you based on your merits. And if you invest, that's great. I had to show up every two weeks with my game on strategy, finance, governance, reporting. It was just a game changer. And you know, you've obviously...

Brad Furber

You did a great job actually. I've served on a lot of advisory boards, but I think that maybe it is your, your background as a former professor and you are good at crystallizing, you know, the strategic issues and presenting them and sending it to the board, at least, at least 48 hours ahead of time. I mean, sometimes it was even more, but, but that's key, right? Because if you start at the board meeting and everyone is already up to speed, then you don't have to waste time reporting. Yeah. Because sometimes you go to these advisory board meetings and the CEO's just talking about all the things that happened last month. We didn't need to do that because people are already up to speed. And that's where I think one of the keys with your advisory board, I mean, we've tackled some pretty big things, you know?

Brad Furber

I mean the first one was just let's hear Sam give the pitch and is he any good or not, you know, so at least everyone could say, Okay, if I was an angel, this is how Sam's giving the pitch. And it was okay. It wasn't, you know, it was fine. We got to record it. You know. The next one though, I think the next one we tackled was the vision/mission. Yeah. Which was really good. That was pretty... That was important. What's the vision? What's the mission? Then it was culture. Culture. Yeah. The next one was, we were basically always tackling, the white elephant and the next one was the product roadmap. No, what was the next one? It was a...

Sam Cook

After culture it was the product development process, right?

Brad Furber

The process.  That's correct.  Which was interesting. And then,

Sam Cook

Then after that it was a product roadmap. Yeah.

Brad Furber

And let's be honest, once you got the product roadmap and people felt like it was legit, you know, you didn't just do it in an evening.

Sam Cook

Yeah. We spent, yeah. We spent months.

Brad Furber

It actually is when the round became oversubscribed.

Sam Cook

Yeah. Yeah. And you know, it was fascinating to me about it was when you have real investors, a lead investor who's who, you know, has the capital, but then they're being disciplined. You know, that that's your real audience for the next check and it's, it's good to go out. And, and interestingly enough, Brian Sweigart, my buddy, whose couch I slept on in San Francisco, when he saw the structure and the change from October of 2019 or September, 2019, when he saw me slough off his couch and, and go back to Kiev and then go down to Texas and that the new structure of the advisory board with memos and, and recordings and all that kind of stuff he's like, This is an easy investment. It was just, it became...

Brad Furber

Yeah. I mean, and so that's when, one of the things that we asked the advisory board members, it's not a requirement, is if you like this story, please refer talent, customers and prospective investors. Yeah. And at that point, I think I told you, okay, I feel comfortable now I'm introducing you to some prospective investors. And those guys, when they did the due dil, I mean, we don't need to get into it, but I mean, they actually listened to all the advisory board meetings. And they were impressed as hell. And, and I've invested in a couple of other deals with these guys, which are great investments that are much further down the path, but they were like, the visibility that they have with this company because of the advisory board meetings was pretty deep.

Sam Cook

Yeah, no. And the memos, and we were just opening the kimono and saying, okay, here's all of our board memos. Here's all our advisory board meetings. Here's our roadmap. Here's our vision document for the company. Here's the, the, the vision for the roadmap – everything I'd ever written, you know, as a historian. I realized that as a CEO, I'm writing the history of the company before we make it, right? That's how I view these memos. This is what we're going to do. This is what we've done. This is what we've not done and why this is why we've adjusted. So, so I just view it as the memoirs of the company and the history of the company. And little did I know that when I shared that with all the investors in the last three-four weeks who were interested in investing, some of them read and watched, some of them read all the memos. The ones you referred me to watched every single video and took notes and sent me like a 30-page due diligence questionnaire that I answered. I mean, I think he sent me 40 questions that when I answered it became 30 pages of writing. Of course

Brad Furber

I knew that might happen,

Sam Cook

But, you know, I will tell you that, that process where you finally said, Hey, I'm open to, to, I'm open to opening my Rolodex. I knew I'd gotten somewhere at that point.

Brad Furber

Well, it wasn't just me. It was also Sandor.

Sam Cook

That's when he introduced me to his partner.

Brad Furber

Yeah. I mean, it was like, okay, you're ready now. Because part, part of the thing, I think it's important about the pre-seed stage, is it's just super risky and...

Sam Cook

We had no revenue until February.

Brad Furber

Well, no, it is risky. And so when people ask you, you know, what are you doing? You know, it's like, well, you know, I'm working with this company and it's not that clear, you know, but when it becomes clear because you made it clear, then all of a sudden people are okay, I'm willing to take this to people that, that I really respect, you know? And if you take it to them, when it's still kind of messy, you look bad. You do. It's like, yeah, what are you doing? You know, what happened to you?

Sam Cook

Playing with this dirty little startup that doesn't have their stuff together. But it is messy. It is kind of.

Brad Furber

Yeah. And so just, you know, it's, it's fine.  You know...I used to do a lot of pottery and you know, if, if you get in there and you're making a mess and you're having fun, it's great. But if you're going to finally show somebody your ceramics, you want to know it's fully baked. Yeah. You know? Yeah.

Sam Cook

Well, and that's what... So, so just to cut the long story short on closing the round, we, the advisory board, made it very clear. We asked them, What is preventing you from investing? And they, and Sandor said, and other people said, I need to understand the roadmap. So I, I stopped my team's development process for three weeks and said all of us are just going to roll up our sleeves. I'm going to call my advisor, Frank, our CTO, who's on our advisory board – best decision I ever made to bring in an advisory level CTO early – who are now going to start paying to bring in, you know, on the books, and said, okay, teach me.  Our board of director member, Tony, CTO, Frank, teach me how to do this product roadmap. Boom. They showed me and my co-founder how to go execute – spend three weeks on it.

Sam Cook

Here's the roadmap: one slide. And that kind of feedback, which was just: okay, we started selling in February. Okay. Here's the feedback from the board. We need to fix the onboarding. Okay. I'm going to go fix the onboarding. We'll go fix the onboarding. All right. Now we need to understand what's the churn, what... you know all these different things every month. It's just feedback: things to fix for next month. And as soon as you did that, three, four, five, six months in a row, because you had accountability, you had people who either could put in money or had access to people who could put in money. That's how you close. And, and it was, you told me, and you said, set up a board of directors, set up an advisory board. If you want to be really sexy, set up both. And those people will sell this deal. And that's exactly what happened.

Brad Furber

And we're just getting started.

Sam Cook

I know we haven't even, as you like to say in Lord of the Rings, we haven't even left the Shire. Right?

Brad Furber

Pretty much. We're still in the Shire. We're still in the Shire.

Sam Cook

Which, which is amazing. So, Brad, I'm looking back at the journey and, and I'm thinking through a couple of key points. I just want to, you know... Toolkit, right? You, you gave me a lot of feedback through the program: executive summary pitch deck, you know, agreements, types of documents to raise money off of – you have all of that in the Venture Finance Academy. You have examples of what, what good things are. I mean, that's like the tools you put in your pack when you're going up the mountain. You know, lead investor, knowing who those super angels are, who can serve as lead investors who can... I mean, that's huge. And I went through two. Yeah. To get to the right one. And he ended up not only investing himself six figures plus, but also getting his brother in. And another brother just made a commitment.

Sam Cook

And the family fund. Well, the pater familias, the father, the very famous technologist ended up putting in a hundred thousand dollar check. And he's retired from investing. He just got on the call to support his son and said, I like this guy. This is a good story. Yeah. And then his, his, his father's fund that he founded, his partner is now Sandor's partner. They came in. So we have a micro VC as really effectively the lead investor now. It's critical. I mean, you know, so, you've got to have the right things and executive summary, pitch deck, legal agreements in your toolkit. Know where to go fishing. Fish, where your story as a founder, your technology, your team is going to resonate. I was able to bridge that gap from the United States, with my army background all the way back to Kiev. Because I taught Russian history. It was an interesting story. I was able to tell it well. Finding one lead investor, knowing when they're not doing what they should be doing, and then go on to find another one. Smart versus dumb money. You hear that a lot. What is your opinion? I mean, you know, you have some people who really want to be involved. Some people who are new. I think a mix is good, right? I mean, sometimes you don't want anyone to...

Brad Furber

Right. So if you need to fill the coffers, you know, you know, money's money, but no, I think you want smart money, particularly because basically money comes with either strings attached. In which case it's negative...people who are kind of a pain in the butt

Sam Cook

Or too much of a price or an unfair deal.

Brad Furber

There's a lot of different reasons why, you know, I mean. Or it's value added, right? So preferably you want value added money.

Sam Cook

And it took me a while to get to that value added money. Yeah.

Brad Furber

One of the things that I I think is happening with the emergence of the angel and pre-seed – I'm sorry, a micro VC – is there's a lot of really smart people that are willing to make angel investments and also be "value added". And, one of the companies I invested in, he purposely decided to go with a seed round of about 25 Silicon Valley based really sophisticated angel investors. Plus he has a micro VC and I asked that CEO, so why would you rather do that versus say two or three micro VCs? Because he probably could have gotten two or three institutions. He said, Brad, this is like having McKinsey consultants who have invested in your company. So instead of me paying them, they paid me. And when I call them and ask for advice, they pick up. They're happy to pick up the phone.

Brad Furber

I mean, it's not like he calls him every month, but he knows when to call. And this is one of the ways that this CEO, which is also based in Eastern Europe, it's one of the fastest growing companies in America right now. He will, when he does his monthly reports to investors, he will have an ask like, "Hey, we're looking to hire a CFO that can take us from where we are to an IPO. If you have suggestions or you want to talk about it, call me."  And likewise, you know, when he was trying to hire an in-house counsel, their first in-house counsel, he's like, "Brad, please take a look at these applications. And I would like you to interview."  Which I did. So that's, that's valuable stuff that you can get from your angel investors.

Sam Cook

And you know, now that we've oversubscribed a round and we're still taking down a bit more money at this valuation, I've actually taken a step back and saying, okay, well let me just stop chasing anyone with money, but say, okay, well we only have this much left. Who can we bring in? That's really going to be strategically adding value. We just got one this week, who's got, you know, exited a SaaS company and just called me out of the blue. It's the easiest close. He said, "Hey, I spoke to one of your advisory board members and one of your investors. I'm not going to tell you who because of confidentiality. But they said, they're just so impressed with the work and the growth that your company has done. I'd just like to invest. And he said, is there any way I can help you?" 

Brad Furber

Like I said, the next note that you send to the advisory board is going to be, "Hey, we're oversubscribed." I mean, that's totally different than the one, three months ago, which is like, you know, "I'm dying."

Sam Cook

Yeah, we're going to run out of money soon. Do you know anyone who...? And that brings us to the last point. The two greatest fears for investors is fear of losing their money and looking dumb to their spouse or friends or everyone. And the other one is FOMO – missing the next unicorn that goes off into space on its way to Mars. And it's fascinating to watch when that dial tips from like, eh, I'm going to, like Sandor likes to say, I kind of invested a little earlier than I would like to as just kind of a punt, like rugby, just to see what would happen. But then now, the, the motivation's like, Oh, we're going to miss out. I mean...

Brad Furber

Don't count your chickens before they're hatched, as they say, because at this point you're still in the Shire. But at least you've got a full tank of gas. Yep. And a good team and it's getting stronger and it's a good story. You know, there's a vaccine on the way. The markets are booming. So frankly you weathered, you know, knock on wood, you weathered the storm. Yeah.

Sam Cook

So, well, and look, we're, we're finished with the case study here.  I really enjoyed helping bring to life the principles you teach. It was very fun having that discussion. I'd just like to say, if you enjoyed this case study, you got a lot of value from it in terms of, I think, hopefully bringing home the principles and how you can take the lessons that we learned working with Brad and his team and applying it to your own startup journey. I just have to say that, check out the Venture Finance Academy, answer the questions below this video and fill it in. Watch the video on the next page where Brad's going to explain the entire program. Because it's worth it. I mean, if I look at the less than half a percent of what I raised as my total investment in this process for the Venture Finance Academy....

Sam Cook

I think you probably should up your rates in the future here, Brad!  But your heart's, your heart's with the entrepreneur. You want to make it affordable and a no-brainer even with payment plans, because it is a 12 month program. You know, you can either pay up front for a small discount or actually a good discount, or pay over 12 months. And you know, for like less than the cost of an hour of legal, legal advice, you get a library and everything in there and you know, way more time with you than if they were paying you as a lawyer to get your advice and pick your brain.  Plus the peer group, which to me is valuable.  I'm in there. There's other great people in there that are, you know, some potential investors that are starting to join the Academy. People who have great experience. One of my advisory board members joined the Academy to vet a deal that he was going to invest in

Brad Furber

And this probably saved him a lot. Yeah. He he's...

Sam Cook

going to be an investor in SanityDesk. So it was a really eclectic group. And, so hats off to you, Brad. It was, it's just been amazing to watch what you've done in terms of creating, I think, the best venture finance content library out there. I've been a part of a few accelerators and seen other options on the market. And I can say that definitely the level of interaction people get with you rather than, you know, someone who's not at your level and your level of experience, it's definitely the best program I've seen out there on the market for a founder to get the guidance and the resources and the documents and videos that they need to understand the startup venture finance process.  And, look, the education, watching the 42 videos...is really helpful. And if I were a better student, I would probably make myself sit down and watch them again.

Sam Cook

But I like to learn by the school of hard knocks and then come and get the advice from the teacher. And you provide that forum, too. So whether you learn by, you know, doing your homework and filling out the worksheets and avoiding the mistakes, or you like to get hit on the head a few times before you realize your mistakes like me, and get advice from someone like you. You've got both learning styles covered in there. And you know, it's just a great program. So I'm going to just sit here and plug the Venture Finance Academy because I believe in it, I've benefited from it, and it definitely helped my startup raise a lot of money. And I would encourage anyone watching this to take the next step, to apply, go through that process. There's some videos that you can watch to get a sense of it. It's a very good process to go through just the application, have the conversation and see if you're really serious about raising venture finance. You'll either do this or you'll say, Oh, I know who can do this for me, which has guided me up the mountain as my Sherpa. Because you won't get up and down there alive without someone like Brad on your team, guaranteed.

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