What they don’t teach you at business school about fundraising - Ascent Conference What they don’t teach you at business school about fundraising - Ascent Conference

What they don’t teach you at business school about fundraising

Vasco Pedro @ Unbabel and Saba Karim @ Techstars
Main Stage
Ascent Conference 2020

Saba Karim [00:00:02] Good morning, good afternoon and good evening, everyone. Thank you so much for joining. My name is Saba Karim and I’m here today with Vasco Pedro, the co-founder and CEO of Unbabel. This is the what they don’t teach you at business school about fundraising talk. And so we’re going to be dropping you some great knowledge and insights from an individual who’s raised over ninety one million dollars in funding. But I’ll let I’ll let Vasco introduce himself about his company quickly about me. I am the head of Pipeline at TechStars. My job is to source startups across the world for all of accelerators. And I went through the Texas Boston program in twenty seventeen. So that’s my background, Pascal.

Vasco Pedro [00:00:46] Hey, Saba, great to be here. Thank you very much. I’m Bascome, co-founder and CEO of Unbabel. A bit of my background. We started Ababil in 2013. The mission of Unbabel is to build universal understanding. And for us that means enabling every business to scale across languages and to deal with the issues that come from having to function in multiple languages where we started in customer service. And so underlying our solution is a platform that combines artificial intelligence and human translation to enable, via translation the scaling of customer service. So basically meaning that if you have a team of agents somewhere in the world, anywhere in the world, you can use and be able to make sure that each of those agents can support trade languages in the written form. And so the company started 2013. We are now close to two hundred employees offices in US and Lisbon. So both San Francisco, New York, Pittsburgh and Lisbon and growing very well. We say we raise nearly one million so far and we’re just starting not on the raise necessarily, but on the path of this.

Saba Karim [00:02:01] This talk is about fundraising and it’s about early on a seed stage precede. So tell us, like in your own words to kick this off. Like what what what did you learn at business school about fundraising? Like, what does that mean to you to start with?

Vasco Pedro [00:02:16] You know, so fundraising is a topic that became necessarily very dear to my heart out of necessity. I think one of the things that I kept hearing was this canonical process, you know, like, oh, this is what’s supposed to happen. ABC and then and invariably what I find every time I talk to the founders and it’s certainly the case with us is that there is no that every case is an exception. There is no one ever says, yeah, that’s what happened to us usually. Yeah. That’s how it’s supposed to happen. But in our case, it’s different because of X, right. And so it does feel like there is there’s no set path. There’s no right answer. There’s a lot of things that happen. There’s it’s more like you said, the intention. And there’s a set of things that probably help you get there. But it’s going to turn different than you think it will and hopefully for the better.

Saba Karim [00:03:10] Yeah. So would I be right in saying it’s more I mean, it’s a combination of art and also science. Right. Like, you can follow every step, but do not raise any money because it’s not something you just read and follow, right?

Vasco Pedro [00:03:25] Yes, exactly. I think that’s that’s the putting. I mean, it’s it’s you know, it’s the whole saying of luck is when preparation meets opportunity. Right. And it’s you kind of really need both. You need there’s a certain I think there’s practices that that help and that make the process more likely to be successful. I think it starts obviously with with building something people want, but especially in the early stages. I think it’s hard to demonstrate that clearly. And so ends up being much more about, you know, the story, the team, the the market, the kind of everything else surrounding the clear, hey, people want it. And it progressively gets becomes more about numbers as you go later into the realms. You know, once you get to a series, see typically and when you get to growth stage, it becomes much more numbers driven. That being said, you know, like I’ve never I’ve never been successful in investing. Doesn’t that doesn’t care about the story. So, you know, like maybe even later you get to a point where it’s like, hey, you’re dealing with a bank and a bank is like, well, I care about the numbers. That’s it. But for the most part, with investors, you know, everyone wants to be part of building the future. Everyone’s to be excited, you know, like I that’s something I see over and over. Investors is especially professional investors that have been in the game for a while. And that’s what they do. They also have there’s a mixture of a lot of opportunities and and so some deals. It’s like, hey, it’s going to be an amazing deal and to be part of this. But there’s certainly a big part of I also want to enjoy what I’m doing, which means working with people I enjoy working with and things that I enjoy working with. And so it’s also being part of enabling this future that I believe in. And so that that that’s a very important part. Yeah, I love that.

Saba Karim [00:05:13] I mean, let’s break this down a little bit more. Right. So I’m a founder of a little bit of traction. I did a search engine ascent. I want to go out and raise a million dollars. What’s the first step like? What am I doing right away? So was that look like.

Vasco Pedro [00:05:29] Yes. So, you know, at the risk of being politically incorrect, I’m just going to be very open about certain things that I’m pleased to see that tend to work. So one of them, for example, if you want to raise a million dollars, go out and raise half a million. You know, like, don’t don’t. Try to raise a million, if that’s what you want, and this seems very counterintuitive because you don’t like but if what I want is a million, my suggestion is always, hey, think about ideally you if half is enough, but you can craft a story that you say, hey, actually this would be sufficient, maybe not ideal, but sufficient to go with half. And the reason for that, there’s a few reasons. One is momentum is super important, any fundraising process. And so it’s much easier to go out for five hundred and be like, hey, actually we’re more than halfway through. And so it’s easier to demonstrate momentum towards achieving that goal than if you go for a million. And suddenly if you raise twenty two hundred fifty instead of fifty percent of the goal, you only have twenty five percent. So it helps you manage the momentum also in what you want to get to a point where there’s more people wanting to invest that you have space for. And so if that happens, then great, you can extend the round to. And invariably fundraising tends to be feast or famine situation. Right. So once there’s feast, you can always raise more money and like usually. And so you will end up having investors be like, hey, actually we’re super excited. Is there any way you can make more space? And once you do that, then that’s when you extend it to a million. And then but also they give you a lot of advance because you can say, hey, actually I am oversubscribed, which will be at the time. And so you can reset the prices, for example, for the next 500. So you can go, hey, I was planning of raising a million at a, let’s say, seven seven cap safe with a seven million cap. And you can do that for the first five hundred and then the second five actually. Now seems like there’s a lot of the men we’re going to do at ten. So it gives you more control over the different levers. And if you can’t raise the million, you can still call it at five hundred and be successful. Yet we’re going up for five hundred five hundred. So it gives you more control and it doesn’t. It’s very rare. Until now, I’ve never seen a downside to it. It’s it’s it hasn’t been the case where an investor goes, well, you said you only wanted five hundred so now you’re going to raise more. I’m out like it’s always investors. There’s an extra validation step up like, hey, actually I’m investing. But now it’s another person also invests money that reduces my risk. So usually, especially at that stages, it just becomes better for overall as the company tends to be more capitalized. So that’s that’s what I would say. So I go with half. The second thing you should do, especially the earlier on, the more important it is a warm interest to potential investors. So generally speaking, for me, a fund raising process goes something like this. I try to run a process so that that helps meaning go out, write a list of potential investors that you think could be a good fit. Now, it’s very important that you’re right. It’s not just the funds, because sometimes, you know, like, oh, this fund invested in these companies. And I think that they’re really good fit. It’s the actual partner. Look at funds. And who would be the actual person that you’d want on your board. Right. Assuming that you’re going to give a board seat and and do that list of the fund and the person. And then once you have a list, let’s say 50, 60, 70. Right. I mean, think think that a successful raise you should count on for every ten investors you can track with one will want to invest, that will be very successful, sometimes less than that. And so you want like 50, 60, and then you want to identify the partner and then you want to figure out what your warm interest to the partner, because it’s also important the entry point of a fund like to work with partner. But you talk to someone and they actually really know partner B well, and then they introduce you to that guy or grow into that person. And then it turns out that person isn’t the right fit with you because they’re not interested in your space. You’re basically it’s very rare that you’re going to end up with a partner you want or that it works or that it’s because by then, kind of if you then approach it, other partners as well. This other person already talked to you and there would have an opinion they’re going to talk to them. And if they say, yeah, I was super excited and usually that’s enough to kind of kill the deal. And so it’s important the entry points, which is why also in general, especially with and I apologize for saying this, I know this is harsh, but in general, try to avoid speaking to associates. It’s just, you know, the job of the associate is to to do the grunt work and to get the conversation going. But very rarely deals that start with the associates end up converting. And because by the time you want to make a great impression and you want to tell your story to the partner, you for the first time, and if you tell it to an associate and they tell it to a partner and then you have a meeting with a partner, you kind of lost a bit of the of that moment of the moment where I really get the emotional connection. So I would say go go with the list and then don’t try to engage with you at the same time, because it’s just you can’t handle that. You don’t have the bandwidth for that amount of interaction. So take batches of ten and and also rank them in your mind while Abassi, what how what’s how excited would you be to work with this person and and then don’t start right away with all age, you know, do a. C five. Is that your first batch of interactions because your pitch is going to suck the first time you do it, you’re going to reiterate, you need to kind of get the jitters out. You need to get it to a very comfortable act. You know, it should at some point feel like stand up comedy. I think those guys are also like you. You see a stand up comedian. And when they’re amazing, it just it feels like they just thought of the jokes right there. And then it was like I just thought of this. But obviously there’s a ton of work behind it to get to a point where it’s so natural. Right. And so you need you need you need to to work the act. You know, you need to do the bit and fail and see which sticks and which doesn’t. And so you don’t want to do that with your high value targets in a way. And so do that list ABC with batches. And then as soon as you as soon as you feel that there is a lack of forward progress with one of the investors you’re talking to, it’s OK to be like if I don’t feel the energy coming, I’m going to drop this. I’m not going to continue to invest high energy on this relationship, but I’m going to take another put another person in the in the pipe and activate that.

Saba Karim [00:11:53] That’s the end of the talk. That’s amazing. So let’s just use some of that and unpack some things that I think are important. If you want me to go after half a million dollars and you get to 50 already halfway there, that’s easy to tell another investor. Join me on that journey as opposed to you saying I’m getting a million dollars. Two hundred fifty thousand dollars means only a quarter of the way there. And so you’re getting putting this into bite sized chunks. So I love that analogy. Makes a lot of sense. So that’s clear. With regards to approaching investors, it sounds like it’s more of a quality over quantity. So once you share with the audience, like, how many VCs did you speak to? Thinking back to the time you got seed investment, how many did you speak to before you got to seed investment as well? One question. Two is what about what about people who don’t have an amazing network like Visi or TechStars? Like how can they get warm intros to the investor that they need? Like what they what what opportunities are they have? So what are your thoughts on that?

Vasco Pedro [00:12:53] Right. And so maybe I’ll answer in reverse because that’s where it gets to. You know, there’s no canonical way. There’s a ton of exceptions. Right. I’m saying here are things that I think are a good way of doing it. And it’s very OK, here is the formula, right, about do ABC. And then I’m going to show you 50 different cases where it was totally not like that. Right. There are going to be cases where it happened through, you know, especially like in Europe, for example, is a different situation. If you go to principles, a lot of times they’re actually very responsible for pushing the deal through, even though. So it’s it you got to hustle. Right. So there’s a point of like, how do I how do I and I’m sure there’s a bunch of Fondas right now. I no, I raise my, you know, whatever round and I had met the person or it was different than that. And so definitely that will happen. I think for us, seed was a bit unique because we had just finished YRC and you know, at the time why she was like, oh, it’s going to be these men. Are you ever going to raise? And I thought, oh, come on, it’s always going to be easy. And now I know that they were so right, because Demo Day is kind of probably the only time I’ve seen that the odds end up being stacked in a weird way in your favor. There’s just this feeding frenzy and this compressed time and this sense of famo there’s created and it kind of creates its own rule of the game. From then on, I think it’s more, more indicative. And usually, for example, I mean for for me a successful round was I talked to six investors, ended up with six term sheets, one of our runs, and it was Tempest. That was amazing and that was amazing. Right. And and the thing is, I like your your comment quality over quantity. It I think it’s kind of a bit of both. Right. Because there’s a part of sales process. You need to talk to certain many people to identify. But you’re looking for quality. Right. That’s the thing is like it’s not get to ram through. Excuse me, you’re not going to ram through the whole thing again, there’s going to accept is going to be companies are just doing so phenomenally well that there’s like, hey, this is very obvious. Right? And here’s here’s my numbers. That’s it. The vast, vast majority of companies, even the ones that are going to be incredibly successful, that is not the case. Right. And so it’s it’s about, you know, having that process, but then with each partner be about quality. What I mean by this is what I found a lot of times, you know, founders, we like to talk so many people. I don’t understand why it’s not connecting. And and I’ve heard this advice that was brutal. It was true. It’s like hate a lot of times. Just, you know, it’s like you there has to be some personal connection. It’s not like you in the sense that you’re a bad person or, you know, it’s just you need to create a connection with the person. Right? I mean, there’s this whole thesis on Claff with anything was a it was a book that kind of really helped in that sense. And and it was this whole thesis of like, hey, you know, humans still make their decisions with their lizard brain. There’s this emotional side you needs to be committed before you rationalize it. And if you are discussing rationalization of something before the person is bought in, from an emotional perspective, the answer is going to be a no, because there’s a thousand reasons why not to invest in the startup. Right. Like you can always find a reason like, oh, I don’t know about the market and the and the fraction. And it’s like there’s always reasons. So you’ve got to want to be in it. It’s almost like you kind of see something like I really want to be in this and then you find reasons to be in it. Right. It still needs to make sense from a story, a numbers perspective. But that connection is super key. And if that doesn’t happen, you’re kind of wasting your time. And I think the other important bit here that that it’s this idea that I see a lot of phoners of you have a little bit of this perhaps imposter syndrome. A lot of times you have people that are doing very smart things and it’s very common to have this be positive, like, oh, they’re going to see through me and creates a bit of a beggar’s mentality, which doesn’t help is this idea of, hey, I am in the jester in the court, I’m going to juggle. And King, if you Mr. Investor, can you throw me some coin? I’d be so appreciate it. And I think that you need to shift the frame. You need to think actually, you know, how many companies in this space are out there right now raising money, like very few. And then you take that with how many opportunities they have to invest in a company that’s working in this problem with this team. And you’ll see that you are the rare commodity, like, technically speaking, money. All the investors have money. And if you go to an ATM machine, the money there is the same money is everywhere. It’s it’s it’s but your startup isn’t. It’s one thing. Right. And so it’s very important to not reverse too much. So you don’t to become a douche or be an asshole when you’re talking to people in general, that’s a really bad idea. But you want to be on a level playing field and feel like, hey, my job here is I’m trying to find I have this piece of my company to sell and I’m trying to find the person or people that really want this product that are we’re in the same way they get it. And it’s and the sooner we find the and if we find that we’re not, that’s OK. It’s OK for someone to not want to invest because they don’t see it or don’t believe in it or something like it’s so early anyway to your stage, then there’s it’s OK. It’s not it’s not necessarily an attack on if I if I didn’t connect with this person, it means that I’m I suck. No, it’s like, you know, there’s seven billion people in the world. There’s a few of those that you’re going to be friends with and bunch of others that it’s OK. You’re not you don’t have to be everyone’s best friend. And so having that level playing field I think makes a difference because it creates this sense of I’m I’m I’m a peer. Right. And you should your investors should be your peers. It should be your partners. They’re help you build a business.

Saba Karim [00:18:44] My main takeaway I’m getting from you, if it speaks to something you said earlier, I like the momentum you get, the less obstacles you have, the more flomo you’re creating. And then that tipping point changes from I want you to give me money, too. I’m giving you the opportunity to invest in my company because initially the buying risk and then it goes down to you’re giving me opportunity. And so any tips that come off the top of your head that how do you how do you change that earlier? How do you bring that forward then later down the track? Because you felt it. Now you like I know how to get to that state, but what’s that turning point? How do you see that up?

Vasco Pedro [00:19:20] So I think that’s that’s a great observation. Right. It’s there is this hard to explain, but but you feel it during the process of this momentum where things either surge in energy and to keep progressing and that they tip or at some point it deflates. I never had both experiences. And it sucks when it’s when it’s not the tipping point, but it happens, unfortunately. And and I. I think that that’s why it’s important to focus on people that are highly that you feel the strong connection because you’re just you’re trying to get as quickly as possible to a point where you have a term sheet on the table where someone if it’s not a term sheet, it’s like commit right. Where you have someone says, I’m in, because the more that happens, you know, that in itself is social proof. Like once once investors feel like, oh, shit, other people are investing one, there’s always a sense of like what they must know something like it creates this validation and it creates you know, there’s a bit of so you think about an investor has two driving forces. One is the fear of investing in a bad deal, and the other is the fear of not investing in a good deal. In the absence of an external forcing function, the right move is to not do anything right. It’s just to wait until and as long as possible until you have more clarity, because with time, maybe it will bring more clarity. And one way of of tipping that is if other people are investing. Now, I’m more on the hey, I might be missing out on a great deal. And that’s a forcing function that also is important. So when you start out by talking to investors and very like one in the beginning, it’s unique to infuse the energy you need to see the energy so that it comes back. But there’s no point in spending a ton of energy and in in people that are just not going to get there. And so that’s why you need to be ruthless and be OK. I have 50 potential targets. What you want is to get as quickly as possible to the group of six or seven that you feel are really interested in investing because investing your energy there is going to have a bigger return on getting to that. Someone saying, yep, I’m in. And then once that happen, you’ll have more people like, oh shit, I need to be in and then it turns. Right. So that’s why you’d also not losing time means saving your energy to deploy it as efficiently as possible, which drives the process as quickly as possible by identifying the right set of people you should be spending that energy with.

Saba Karim [00:21:44] Yeah, you know what’s interesting? Maybe you know what or maybe like it sounds like it’s a bit of a game. Like, you know, you’re strategizing, you’re doing outreach, you’re practicing with some of the pictures and like you said, hit up some of the tier two voices that you like. I don’t mind if they pass on it and then you’re going for the ones that you really want, you know, so it’s interesting. There’s a lot of story here. I’m hearing about the pattern like story, like the numbers might speak for themselves. But like you’re talking about connecting the dots to get the story out in two minutes. The right time flies when you’re learning a lot. Right? So already three minutes ago. So one thing I want to add in, I think that’s super important, like a text as we’ve just seen it, like the role of third, like your first 250 K out of a 750 raise will take maybe seventy five percent of the time. And then the second and the third I just. Reduced. So it is a bit of a slog at the start, but then it eventually becomes easier, like I said at the start, that, like, you could follow every single step and do everything that Vesco saying and what kind of Shariah. But unless you’re building something people want and early on, you know, it’s going to be difficult to raise the money. And so you have to focus on the team and the market and getting that practice and and do all these different things and is going to do something that I think it’s. Yeah.

Vasco Pedro [00:23:09] Yes. Superimportant the story. You know, it’s like I know this is going to sound very simple and it’s like, what do you mean? The story? So much more to say. They’re like it’s really about creating the story that says, hey, join me in this journey. We’re going to build a future together. Right. And how do you do that? I think that’s super important, man. So much more to say. I know we’re running out of time, but it was awesome.

Saba Karim [00:23:30] Let’s get to know you really quickly. We’ve got a minute. Quickfire questions. What’s your favorite book that you’ve read recently that I’ve read recently?

Vasco Pedro [00:23:39] I love sci fi and the the the three star problem. So I’m trying to remember the name of the trilogy. It’s the talk about the dark force theory, which is a potential explanation of why we’re not finding any life in the universe. And yet I think that was similar to mine also.

Saba Karim [00:23:56] Yeah, I read the simulation hypothesis recently about it’s crazy. You have to check that one out.

Vasco Pedro [00:24:04] Yeah, I love it. I was just trying to find the name. Yeah. Where is it or is it sort of my library. I can tell you in a second. Yeah. So death is the is the author and three Body Problem is the first book and I really like that.

Saba Karim [00:24:20] Amazing. Thank you everyone for joining me. Enjoy the rest of the event. Vaska, thank you so much for sharing your knowledge. Have a great rest of the day.

Vasco Pedro [00:24:28] Thank you too Saba.

Saba Karim [00:24:29] Bye.

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