Recently we caught up with Rich Chetwynd to discuss all things founders know, learn and stumble on their journey to build epic companies that hopefully go global and become one of our next success stories. We bring you another in our #KiwiFounderSeries which is centred around speaking with people who have been there and done that or are doing it! As we know, each journey is different but having access to all the learnings of how to do things and why, or different data points can make all the difference to you and your business.
In Rich’s case he is the founder and CEO of ThisData, a user authentication tool that detects and prevents hackers accessing user accounts. And prior to ThisData he was the CEO of Litmos, a learning management system that was acquired by Callidus Cloud in 2011.
Watch the recap below.
So you’re thinking about raising funding?
The three most common things we hear at Kiwi Landing Pad from founders raising money:
- I’m raising again
- My slide deck is out of date
- I’m so tired of capital raising
Before you raise funding there’s a lot to think about: what are the terms, what investors do we want? It’s important to stop thinking about the first round and think about the subsequent rounds. You also need to think about dilution. Investors don’t want to see founders get super diluted because that can be demotivating – for example, ThisData are looking at raising an A round if they hit their targets. How would overseas investors feel about a heavily diluted founding team? As an investor you might want a big slice of the pie, but you are also potentially shooting yourself in the foot. Once you are on a capital raising buzz it’s hard to get off. When you raise money, you are expected to spend it. It’s also worth considering the psychological weight of taking on money, especially if you’ve raised from friends and family.
Rich hadn’t raised money before, but managed to get his first investor by asking for help with raising the cash and ended up getting cash before. It’s a common maxim in Silicon Valley – ask for advice & you get money. Ask for money & you get advice. One of the benefits of working with people who’ve raised before, they know who has the cash and what it’s for.
Raising funding in NZ
At KLP we’ve found is that there is lots of money in really weird pockets in NZ. If you are doing a NZ brand play, go to the NZ brand play investors. If you are doing SaaS, go to the NZ SaaS players. There’s actually quite a lot of cash around and plenty of people itching to make investments. Lots of investors in NZ are lawyers or accountants – this is their 5% fun money. Not too interested in moonshots, more focused on returns which means they’re more focused on small businesses, not startups. You want to be raising money from people who have been founders. How the investor has come into their money is important if you are building a global business, lifestyle businesses may be different.
Adding high impact, small $$ investors
For ThisData, a major key has been smaller investors with really high impacts who are able to help with networks and introductions, and are a major part of helping them drive progress in the US. Ask yourself, can I get something else with the money? You don’t want dumb money. Rich built his list of prospective investors entirely through word of mouth. Initially he focused on who’s done this before. At later stages, it’s worth focusing on who makes investment in this space, who’s investing in my competitors and who makes a good potential prospect.
The importance of timing when you raise funding
ThisData has had investors from day one and has gone through a few raises – most recently in May 2016, with a $1.2m round. They’re about to start raising another round of funding, and while they aren’t at a Series A level, they’re tracking well.
Originally, ThisData set out to build a product that would detect account breaches and takeover. As is always the case, the product was a lot more complex than they’d originally thought, which put the brakes on selling – they’ve been selling for about 4 months, but really should have been selling for 8 months.
One of the big differences between Litmos and ThisData is that Litmos was bootstrapped the entire way through. One of the big benefits to bootstrapping is that you have the luxury of time because you don’t have investors to cater to – you’re using the savings account to keep the dream going. When you bring investors on you are able to move substantially faster. With that, changes can have much faster consequences. If you aren’t hitting targets and deadlines you run out of money, you go off a cliff and your business dies. If Rich was to do it again he’d focus on raising later on (after product market fit). Litmos took two years before they got any real revenue coming through and five years until they were acquired. ThisData is on a much more defined and accelerated schedule because of the investors involved.
Finding budgets / growing accounts
Litmos was a learning management system that companies use to run online corporate training. A classic “built in a bedroom” story, they started in 2007. In a field of roughly 200 competitors, they were the only SaaS solution at the time. They’d originally started as an “online training system” which they focused on for two years. The team had no background in learning management, but had worked in building software in the past.
After two years of very slow growth the big “aha” moment for Litmos was when they rebranded themselves as a learning management system instead of as an online training system. People have a budget for learning management, but don’t have a budget for online training.
Traditionally learning management is sold to HR – a cost center with low budgets that tends to be slow to make decisions. Litmos focused on finding a way to sell to a revenue generating center like sales or marketing – i.e. selling learning management to employees is well and good, but what if you could help your channel partners learn how to sell your product better? A company with 1000 employees (normally a 1000 seat deal), might have 10,000 channel partners. Their big breakthrough was selling to Taylor made golf company. Taylor made spends millions per year on R&D – but that’s all wasted if the shops they sell to can’t articulate that to customers. In a lot of ways they stumbled on how Litmos was a solution to helping ensure companies return their R&D benefits, but once they worked that out, they doubled down on it. During that time they still showed up to all the learning management events, but were making all their money in the other area. One of their big focuses at ThisData is working out how they get security away from cost centers.
Sharing progress with the team
Rich aims to be really transparent with how much cash ThisData has in the bank, but has questioned himself on how much you reveal, as being a founder is an emotional rollercoaster. You don’t tend to have many friends and you always need to be smiling and showing success. That’s the job founders are cut out for. Telling everyone everything can be counterproductive, although at this stage it’s really important for everyone to know if the product isn’t delivered by x or if their revenue isn’t at y then they’ll be in a bad position (and conversely, what getting to a good place would look like).
Credibility as a startup
Credibility is a tricky thing – with ThisData they thought they’d help SMB and MidMarket companies. The problem they’ve found is that smaller companies either don’t care enough or haven’t been bitten yet. Bigger companies have a lot more pain and understand the need. They’ve been able to get a number of deals across the line, but struggle with the “you’re a startup – will you be around in 12 months” mentality. It’s been really important for them to fall back on case studies, logo accounts and reference sites / accounts to build trust. No one wants to go first. It get’s a lot easier once you’ve raised a Series A – because you’ve got a certain amount of revenue and trajectory. The fact you are on that trajectory inspires confidence – money alone doesn’t do it.
Another thing to think about when you are selling to enterprise – it’s much more important to focus on being a suite of tools, rather than a single product.
Governance / identifying gaps within your business
While Rich doesn’t have a formal advisory board, he does have a network of people in the industry who know what they’re doing as well as an informal advisory board he speaks to regularly. They also ran a ISO207001 gap analysis on their product. They knew they’d fail, but it’d be a valuable way to find their blind spots. Their software passed with flying colours but they fell down in their documentation and processes. You don’t need long formal documents, but you do want guides that answer “what’s next”. They now have a shared drive structure that answers a bunch of questions and scenarios. While the ISO exercise is tedious, it’s helpful and lets you take a step away from your business.
US specific terminology and vernacular
Learning management system is a universal term. That said, there are lots of little phrases you pick up from traveling a lot and meeting people. A few quick examples, NZ: Merry Christmas, in America: Happy Holidays. Holidays in America are a single day (e.g. Independence Day), whereas a vacation is a trip to Hawaii. Nobody in America queues – everyone lines up.
Making trips to America worthwhile
It’s important to focus on having a definite objective to every trip. It’s also worth adding extra days to your trip in order to keep your network alive. After years in NZ, Rich moved to America and found things move much faster by being in market. While he later decided to move back, there’s a focus on keeping the network and relationships alive.
At the end of this webinar there is a powerhouse of knowledge for anyone in New Zealand looking to raise capital so we highly recommend you grab some coffee and take a seat. We’re excited to see Rich continue to grow ThisData and thanks for sharing your journey with us so far.