VIDEO: Make or Break Moments in Early Stage Funding – Chloé Giard & Phil Chambers26 min read
VIDEO: Make or Break Moments in Early Stage Funding – Chloé Giard & Phil Chambers
Chloé Giard Investment Director at Idinvest Partners and Phil Chambers, CEO and Co-founder of Peakon talk about ‘Make or Break Moments in Early Stage Funding’. It’a all about finding the “right match” and “the most important thing is to choose your partner well” says Phil.
In this video you will learn about:
- When is the right time to write your seed round and grow your company?
- Raising Investment, what’s the right amount of funding?
- How to seek funding from business angels and government grants and startup funds
- Why having too many business angels at your cap table can be a risk or a red flag when talking to series A or series B investors
- Why the team focused on getting 20 new companies using Peakon before their Series A funding round
- How they made a ‘freemium model’ to work in the early stages, and how they shared this strategy with their investors
- Phil also talks about the early days – meeting investors, working with VC’s, tapping into their network and recruiting a management team.
It’s a great insight into how funding, and VC investment helped grow a SaaS business, click play below to hear more…
* This keynote was presented at SaaStock18 in Dublin. If you are a Startup based in the West Coast wanting to change the SaaS world as we know it, Our Startup Program is for you 🚀. Don’t miss out – applications close next Friday, 23rd August.
Chloé Giard is an Investment Director at Idinvest Partners. She is involved in the origination, analysis and carrying out of investments in the digital sector, both in France and in Europe. Prior to joining Idinvest in 2014, Chloé participated in fundraisings and mergers & acquisitions in the Technology, Media & Telecommunications sectors, at Clipperton Finance and then Bryan, Garnier & Co. She also worked at AXA UK in London and helped develop the international business of a French start-up, Digimind, in Boston. Chloé serves on the boards of several companies, including Botify, Wefox,+Simple, Ogury, Onfido and Meero.
Phil is co-founder and chief executive at Peakon. Prior to Peakon, Phil was head of technology at some of Europe’s most successful startup businesses, including Gumtree, Qype, and Podio. After joining Citrix through the acquisition of Podio in 2012, he went on to lead the company’s GoToMeeting product line. He now enjoys daily interactions with Peakon’s customers – incorporating this knowledge into a long-term vision that has so far created one of the most unique and impactful analytics products in the HR market.
Start of Transcript
– So, I’m Chloe Giard, VC from Idinvest. So, we are here today to discuss seed and series A strategy. So, well, maybe Phil, if you can introduce yourself.
– Yup well, got a fairly comprehensive intro there from Ben, but yeah, my name is Phil Chambers, CEO and co-founder of Peakon, people analytics platform, Currently we did all funding stages, we’ve done quite a lot of funding in the history of the company and we’re gonna talk about that, so we’re kinda up to our past our B round now. But yeah, we’ve raised quite a few rounds in the past then.
– Okay and well, just to give you a bit of background also on Idinvest. So, we have formed a one Million Euro fund investing in tech startups in Europe. And so usually, well, invest really in the long-term big series A, series B. But we also sometimes, when we meet a great team, wanna invest at a really early stage, pre-revenues. That’s we did actually with Peakon. Yeah, so I mean we don’t have real focus, so we just wanna back great entrepreneurs. And I think that it’s always a question of moment just conviction of teams and founder, so we are trying to understand at each stage what’s important and what the tricks from founders to get this tension, competitive tension and also connect with the best person at each stage to grow a company. So maybe starting from the beginning, so Phil, well so when you started your company, so what was the timing, the right timing to write your seed round?
The right timing to write your seed round and seek funding?
– Yeah we started the company in January ’15, we were four founders, so we kind of put 25K in each. So we had like enough money to kinda exist and pay some rent on the first office and stuff. We then, we rapidly wanted to put a tech team together and we couldn’t hire those people for free. So the timing for us was around the first three months actually, from like kind of the initial PowerPoint deck that we had to closing the seed, like kinda end of March I would say.
– Okay, and how did you assess the right amount of funding?
Raising Investment & Funding
– Yeah, I don’t think we did that particularly well. So I think that’s one of my reflections on the process for us was we assumed it would have been very very difficult to raise money on a PowerPoint presentation. So we kind of put together a plan to raise $250K. And then when I went out into market, it proved really really easy, to get money into the company and I think then, therefore we raised more money. And actually, probably the right think to do was not to do that. because, we, as Peakon ended up raising two and half times as much as we initially thought, and if you think about big round now, you wouldn’t go and raise two and half times as much, so why would you do it at that stage but we also, the future is very very unclear at that stage and it’s not always that easy. Obviously we didn’t really know, like will we be able to get developers to work for less than market rate in Copenhagen, there were loads of unknowns in that equation and we felt, well do you risk the business, could you have optimized that process? I think we probably could if we had done a bit more planning.
Tips for optimizing funding
– And so, do you also have some tip just to optimize, well the funding? Do you only raise VC money or also like debt or just subsidize from the government?
– Yeah we did a combination of a lot of different things. The fist thing I did friends and family, so I kinda of actually went out to people like my brother, ’cause he had some money and various mates, to be honest. And then we got some institutional money in as well, SunStone Capital joined the round and that was primarily driven by the fact that they were the only institutional investor in Podio and we had a reasonable exit, or they had a reasonable exit from Podio in the not too distant memory, so they were pretty much like we don’t wanna see a pitch deck, we’ll just give you some money. And that deal was literally signed in Mikkeller Bar in Copenhagen. In Denmark, there is also quite a lot of government assistance for start-ups. So we took a product called Vaekstlan and Syndication loan, which basically matches any institutional money you have from authorized VCs, with, and they will 2X that with some non-secured debt. You don’t have to pay back for four years, in fact we’re still not paying that money back. So that was $370K-ish of capital, that effectively came for free. So it was extremely, some of the best money we’ve ever raised, I would say. I would advise anyone who’s thinking about it to explore what the options are. I know there have been other companies in the Danish Ecosystem who’ve, I know of one specific one that’s raised like $10 million from government grants and funds. So, it is possible, it can be complicated.
Raising funding from business angel investment
– And did you limit the number of business angels in your cap table? Did you have that risk in mind?
– We did limit the number of angels, we ended up taking probably actually 15, just rough numbers.
– Still. That’s a lot of angels, but–
– That is quite a lot.
– There were some super Angels, so we got some founders of a famous ticketing system. So there is, like, people with larger check sizes, but for me, I actually wanted to allow my friends and family who didn’t have a lot of money, who never get to invest at this stage, if they wanted to, to invest in the business. And, I think actually when I look back on that many of the people have got the opportunity to sell over the years and that’s been the best, very very easy money for them that wouldn’t have had the opportunity to make otherwise. So I think it’s a double edged sword and you need to be careful.
– Yeah, I think that’s really something that founders should have in mind at the real beginning of their start-up journey is that having many business angels at your cap table is a risk, it’s definitely a red flag when you arrive at the series A or series B investor and you see like 30 people having like, invested 10K in a company. So you really have to make sure that you can manage them, that you have close relationship with them, and all that the provisional business angels, that they know the rules and yeah, they can behave accordingly.
– So I guess we broke the rules then.
Milestones before Series A Funding
– Okay, so did you set some milestones or big goals until the series A funding round?
– Yeah, we struggled with this a little bit. The first year, at least for Peakon, and I think for many seed businesses is really a difficult year and when you haven’t got a product or any customers or any traction, you struggle a little bit. The milestones, the milestones that we settled on which worked really well for us. We wanted to get 20 companies using Peakon for free by the end of the first year. And we kind of drew this big board out, we called it sort of, the magic peaks kind of thing. And there was like four stages, like a bit like a pipeline, effectively. But the end of it was peak happiness where they’d say they were very upset if they couldn’t use the product and that proved a great milestone for us, because we concentrated on making individual specific customers happy. Fixing all of their issues. And one of those customers was Delivery Hero and I think that was instrumental in the growth of our business. We got into Delivery Hero early and we’ve grown with them.
Setting internal Goals
– Okay, so each round do you have like, internal goals, like well, things that you commit yourselves and your team and also like, external goals for your board?
– I think that at the seed stage they are very much the same thing. We were just focused on getting 20 companies to use our product by the end of the first year. And we were pretty clear with our investors that that’s what we wanted to do and we felt that we would have a decent series A funding case, if we did that. Now, of course what I haven’t talked about is revenue, so, we actually, I think, made another misstep. Is that I was getting incredibly frustrated in that first year that we couldn’t sell our product and we ended up going out and selling this effectively a PowerPoint presentation, where we would do a paper based study of your company and like, prove some of the concepts that ultimately have been built into Peakon. I think we shouldn’t have done that. I was like, oh yeah, we sold a 1000 Euro deal, this is amazing, but actually it was a distraction, you’re not selling the thing you’re ultimately going to sell and nobody gives a shit about that revenue, to be honest. So, we did that for a couple of months and we decided it was a terrible idea, and we said now everyone can use if for free and all we’ve got to do is just prove that they get value and if we can prove they get value, then we’ll believe they’ll pay. And we were looking off in Idinvest to find an investor who shared that belief.
Raising Pre-Revenue Funding
– So why were you raising pre-revenue, I mean?
– We didn’t really have a choice. We actually ended up hiring a bigger team than we had thought and we were running out of money. so, and we hadn’t made any revenue yet. We couldn’t see any foreseeable way that we could make any revenue, ’cause we weren’t really any good at selling ’cause we hadn’t hired Neal at that point. So, it was a bit like, it was also fortuitous, I was sat a co-working space Guillaume, who’s the primary IDinvestor on our board came to that co-working space and he just really believed in that PowerPoint presentation and the vision. Like the vision for Peakon has not changed since day one, right and he really bought into that and said I think these guys can build this. But he didn’t, for some reason, need to see any revenue. Maybe you know more about the internal dynamics there, Chloe.
When to raise funding?
– Yeah, well If you take some steps back, do you think it was easier to raise at that moment then six months later when you started to have revenue?
– I think in many ways it was, because we did an A and then a kind of A plus because we raised four million in our A right and we, I think not immediately but then we started to try and sell the product and then we realized we didn’t have anywhere near enough money to get to series B funding, ’cause we really didn’t realize how much sales people were gonna cost. We opened a London office. We really didn’t know what the sales motion of Peakon was, because we kinda naively assumed it might be self service or something. And of course it’s not at all right. I think 40% of Peakon’s staff working sales these days. So, to raise series B funding everyone was saying well Phil, you need to be at 250K MRR. And I was sorta scratching my head in Excel thinking, there is just no way I can get to 250K MRR on four million Euros with this cost structure. And now I understand that so then we ended up doing this bridge which we got. We were slightly surprised by the valuation uptick or lack of.
The funding ecosystem for a Saas Startup
– Okay, okay well so on my side to really understand, so who has a great business interest in Europe, who has a seed VC fund, the big series A, series B fund but. So, how did you, well as an entrepreneur, got a sense of this ecosystem and understood the trends and who was reliable and who was the right partner for each round?
– Yeah, I think we were really bad at that initially. We didn’t really understand that at all. now I have a pretty detailed CRM, where I have like every single investor, I hope, not all of them in the world, but a lot of them, in there categorized like what stage they actually invest. What checks can they write. What types of businesses they are interested in. I am much more structured about the approach, at the time, it was, yeah a bit scattergram and also a bit, we used Idinvest to help us formulate, like how to we could fund the business in the future as well. So, again Guillaume was helpful there, ’cause he knew which funds would do that.
– Okay but just to get a sense of the time that you spent on this meeting investors, getting to know them, also spending time on due diligence. So at each stage, like seed, series A, and maybe now, so how much time do.
– Well seed stage was trivial for us. I think we had a solid pitch deck and we had a great network already ’cause this is my fifth start-up. So, met a lot of people along that journey. I also knew quite a lot of high net worth individuals which, it’s good to have a few rich mates to be honest. Series A funding, we were massively fortuitous, I would say. Like it wasn’t deliberate, but we met Idinvest and it just happened. So it was very easy again, and then it got harder. So like, we the bridge round was not particularly easy process and I don’t think we necessarily spoke to enough people. At the end of the day, you wanna end up with more than one choice. By the time you get to where you wanna be and that hasn’t always been true in our case. So it took longer and the B round probably took six months, by the time you’ve talked to everyone and then that’s when we started flying to America as well to talk to investors. And it’s like, I live in Copenhagen and then it’s London and then it’s New York and then it’s San Francisco and trying to line them all up at the same time can be very very time-consuming. You do wanna meet these people in person, right?
Working with VCs
– So should it be the goal of a CEO to well, that your company do not rely on you maybe during one week that it can run without you and you can spend some time with VCs?
– That’s always my goal. I think you should, you need–
– So recruit the best people.
Recruiting a Management Team
– To build a great management team, where, whereby you can be distracted by things like this and you don’t underestimate the amount of time it’s going to take and I think. A lot of people say, you should never talk to investors if you’re not fund raising, I don’t really believe that, I think I’ve met a lot of people along the way that ultimately we ending up raising with in a more fortuitous, like I had a coffee with him and I look back at it and think that wouldn’t have happened probably if I hadn’t done it. So, I am quite open to taking meetings with people and talking about what Peakon does. And if it’s good investor, they’ll often do something for you business, they’ll give you a referral or an intro to a customer, and they all have amazing networks. So, at least, if you’re into selling your product it’s often a good thing as well.
– Okay and so now it has been like three years since your seed round.
Leveraging the VC Network
– So, how do you manage to take benefit from all your investors, like business angels, series A investors. How do you make sure that they can help you in terms of making intros to potential customers, with sharing their strategic view in your market or just introducing you to best VCs?
– Yeah, so we have tried to leverage the network. Unlike a lot of companies, I give the monthly management update to the angel investor base as well. I think, like they’ve put their hard earned money into my company so they should know what’s going on. I do some angel investing and I get nothing off anyone. So it’s incredibly frustrating. But in return, we ask for things. So we know, we’ve got somebody who’s in Zendesk, like can you do X, Y, Z for us, right? And then with the investors, yeah we leverage them a lot. They often can get us great meetings. We happen to have a product that you can kick in the door at the COO level. So we will say, get me a meeting, ASAP. Next minute we’re in Waldorf in Germany talking to the COO, or Unicredit we have SEB Bank, We’ve done loads of those types of things with our investor network. We’re lucky enough that we’ve got French investors to go with that market. We’ve got a Swedish investor who’s very good in the Nordics. We have Bernard who knows everybody at Bouldersons. So, that is great to have a diverse network.
The timeline for the Fund Raising Process
– Maybe getting back to the fund raising process.
– So, just designating the timeline. So when do you start really telling investors that you’re fund raising? Like, when you have, like six months runway, two months runway? So, because cash is key activity in the process. You shouldn’t be like in the emergency, so.
– I mean, I guess it depends a little bit how good your financial reporting is internally and how sure you are of your cash flow. We have got a very very predictable business so we know what what we are, but I would give yourself at lease six months. the last thing you wanna be doing is being forced into making a decision based on the fact you’ve got no money left. We ran out of money at Podio and we were lucky we had a good alternative option in selling it. But that might not have been the case, right so it’s an extremely risky game to play. And also it’s very very stressful because, if somebody drops out at the last minute, which happens all the time, then you’ve got two weeks left then there’s not a lot you can do, really. You’re going to have to take some sort of terrible low ball offer.
– Yeah, one tip I would share also is, when you talk to VCs always make sure that you communicate on a, well, the amount that you want to raise just choose the minimum. just tell them, I want to raise like four million or five million, because it’s really what you need to reach a specific milestone. And then once you get some traction, once you reach competitive attention, so some VC interest feeds more and more. Then you can add, like one, two, three million. Just seeing, okay so now that some VCs trust my mission, trust my product, I can say to them, I wanna open one new market, two, three, and be more and more ambitious. But, just, it’s much easier to start by saying you just wanna raise a smaller round and then expand. ‘Cause it’s always a bad signal when after like three months or four months, a founder still is out in the market trying to raise 10 million pre-revenue. Well that’s just what you did. But it’s actually a common mistake to be too ambitious at first.
– Yeah, no, we’ve never raised enough, so we had to opposite problem.
Tips for Seed or Series A Founders
– Okay, well do you have some tips, some other tips to share? Because I guess that here we have mostly like seed, series A founder, so–
– I would think the most important thing for me is to choose your partner well. At the end of the day, taking money off someone is like worse than getting married. ‘Cause you can really never break-up. So you really have to get on with the people, and I’ve been on different boards in my career that have been a bit more dysfunctional, and not particularly pleasant. And I guess it’s, this is a statement of the blindingly obvious, but you’re gonna probably work with this person, if you business is successful, for the next 10 years. So you really want to, I actually have a great personal relationship with all our investors. You wanna be going for dinner with them and actually hanging out as well. I think that is the most important thing for me. above everything else.
– Maybe to share also a vision as a VC fund, I think at seed stage, it’s very important to have the right match between, in terms of ambition between a VC and a founder, so, for instance, a longtime investor like us, so we really wanna back some very ambitious founders addressing huge market because we know that we can back them at each stage of their business. But, sometimes, so that’s easier when you have sale entrepreneurs who know what they wanna do and they are not relying on their VC too much. But if you, sometimes when founders wanna take more time and do it step by step, then it’s easier for them to really just only discuss with seed VC or just VAs, because well, they have more time, they don’t have to communicate too much with VCs and then be like disappointing, maybe three years after when they come back and say hey, we wanna raise series A funding. Even if they said they would raise series A funding three months after, so, as it’s great important not to be deceiving in terms of expectations with VCs, so just take your time to discuss with the right people at each stage and just go and discuss with the most ambitious fund when you’re ready and when you feel you can really create the momentum and scale fast.
– We’ve got a couple of questions now, from the internet, I guess, or maybe the room, who knows?
– Who knew, yeah.
Would you recommend a structured competitive “tension exercise working to your timetable “when courting VCs?
– Yep. So Dom, from Leicester, has asked, “Would you recommend a structured competitive “tension exercise working to your timetable “when courting VCs?” Probably a good one for Chloe. I mean I tried to do this as a founder. It’s not always like that easy. I think it’s probably best practice to be honest, but then there’s lots of other stuff going on in your business and then you can’t have this meeting and then your founders having a baby, et cetera, et cetera. So, I think it’s ideal if you’re really militant on this but I don’t know, we haven’t done the best job. I think it’s very important that you get multiple offers, which is what this is kinda leading to.
– I think it’s very hard to find the, to strike the right balance, in terms of ambitions and not to be too pushy sometimes, because the thing is that if your process takes some time, then it’s really disappointing and VC would say okay, they reach out to all VCs in Europe and after two months nobody is interested, so you always, it’s always easier just to pick really person you wanna build a relationship with and really investor that your interested in and make them understand that you’ve picked them and you wanna work with them and you’re not like discussing with everyone in Europe. But, that’s, well.
– It’s a fine balance, it’s absolutely a relationship sell. What you’ll find is the VCs will put an arbitrary deadline on like the term sheet thing, if you haven’t decided by next Friday, it’s all over. Like, I think that’s bullshit personally and I think you should just say like, if we wanna work together then like give me the time I need to do this, that’s most reasonable people will say yeah, fine.
Should we work with an investment banker?
– Also a question we often have is, should we work with an investment banker? That’s a question many many founders have. I think it’s very important that the founding team really, set’s the strategies. That they have their own PowerPoint, that they do not let big investment bank do everything because it’s really a direct relationship between VCs and founders. And but it depends on the stage, maybe it’s more for series B and later. Sometimes the investment banker is efficient as to straight through the process and thus to be on the back helping with intros and instructing all the the stage and putting this community’s attention. But I think it’s more later stage exercise.
– Yeah, I would agree, I think, I mean I’ve got friends who’ve used advisors around the whole thing and kind of like almost owned the relationship and the term sheet goes to the advisor and then it comes to the investor. I don’t really believe in that model, but I think they can be extremely helpful in identifying firms that you haven’t even thought about ’cause they literally know everybody, right? So, but you will pay for it.
– And I think what’s very important also is that it’s not only a process between a CEO and VCs. It’s very important that all employees, all business centers all shareholder in the company understand that their mission also to talk about the company to say, okay, well now it’s going very fast. You should look at this company. It’s very important that all VCs in your capital understand that there’s a mission to be, well, investment bankers, themselves.
– All right, I think we’re out of time.
– Yeah, I guess so.
– Yep, thank you very much.
If you are a Startup based in the West Coast wanting to change the SaaS world as we know it, Our Startup Program is for you 🚀. Don’t miss out – applications close next Friday, 23rd August.
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