SaaS Fundraising 101 from Pre-Seed to Series A

Omer (00:11.520)
Welcome to another episode of the SaaS Podcast.
I'm your host Omer Khan and this is the show where I interview proven founders and industry experts who share their stories, strategies and insights to help you build, launch and grow your SaaS business.
In this episode I talk to Elizabeth Yin, the co founder and general partner at Hustle Fund, the seed fund for hilariously early hustlers.
She's also the co founder of Hustlecon, a conference for non technical startup entrepreneurs.
Previously, Elizabeth founded Launchbit, which was acquired in 2014.
She was also a partner at 500 Startups where she led the accelerator program.
In this interview we cover SaaS fundraising 101 for early stage startups.
So if you're thinking of fundraising but don't know where to start, this help episode will help you figure a lot of that out.
We talk about fundraising landscape in 2018 and the differences between pre seeds seed and post seed stages.
Elizabeth shares some awesome advice on how to approach investors, how to set up meetings, the do's and don'ts of pitching to an investor, how to think about valuation of your startup, and a lot more.
It's an awesome episode, jam packed with actionable insights and I hope you enjoy it.
Elizabeth, welcome to the show.

Elizabeth Yin (01:41.940)
Thanks so much.
Omer, how are you?

Omer (01:44.180)
I'm great.
How are you doing?

Elizabeth Yin (01:45.940)
Good.

Omer (01:46.980)
I'm going to stop by one of my kind of icebreaker questions.
Is there a favorite quote that you have that motivates or inspires you?

Elizabeth Yin (01:56.500)
Well, so it's funny, this is kind of cheesy, but in high school someone told me this quote, shoot for the moon and if you fail you'll land amongst the stars.
And that has always actually carried with me since then.
It is so true, as cheesy as it sounds and I'm not really sure who that's attributable to.

Omer (02:13.030)
Anonymous.
Anonymous is a very famous person.
Anyway, so let's talk about Hustle Fund.
It'd be great.
In your own words, just tell us a little bit more about what is Hustle Fund?
Who are the target clients or customers for your business and kind of what's the problem that you're trying to solve?

Elizabeth Yin (02:33.670)
Yeah, for sure.
So Hustle Fund, we're a pre seed software fund and we can talk about what pre seed is in a second.
But we are investing in super early founders teams that are building software or software enabled products and they're at the earliest stages.
Usually there's a product or near a product and usually there's some level of sales but not necessarily meaningful traction and I started this fund just late last year in 2017.
So we've not even been going for a year.
But, you know, one of the things that I noticed is that just in general, there were not that many people in this industry investing at this earliest stage.
Like, a lot of investors say they're early stage investors, but they're often looking for something a lot later with meaningful traction.

Omer (03:23.660)
Yeah, I love the tagline on your site.
This Hustle Fund is the seed fund for hilariously early hustlers.
That was great.
Got my attention.
Right?
Yeah.
I mean, let's talk about how did the business come about?
Like, why did you feel that you needed to launch this business?
Or what was the gap that you were trying to solve?
And I guess maybe before we even do that, let's talk a little bit about your background that kind of led you to kind of launching Hustle Fund.

Elizabeth Yin (03:52.370)
Yeah, for sure.
So in more recent times, several years ago, I had my own startup.
It was an advertising technology company.
Started it around 2010, 2011.
We actually went through the 500 Startups accelerator program, raised some money.
So I had experience raising money through that and then exited the business in 2014.
We sold the company to a larger ad tech company on the east coast called Buy Sell Ads.
And then after that, I became a partner at 500 Startups, where I ran the accelerator program and then more recently launched Hustle Fund.
So I've seen fundraising from a number of different angles.
First as an entrepreneur, and then later through the lens of all of my portfolio companies.
There were probably about 200 companies that went through the accelerator while I was there and just watched and coached a lot of companies through their fundraising process.
And when all was said and done, one of the things that I noticed actually was that people's fundraising experiences were different across the board.
My own experience, and all these founders I had coached and watched.
And one of the things that I noticed was that your ability to raise money was not necessarily correlated with actually how good you are at running your business.
And that just seemed like a big disconnect to me.
And that was the impetus for starting Hustle Fund.

Omer (05:20.250)
Give me an example of that.
Obviously, without naming names, but is there an example that comes to mind when you say that there was a disparity between that?

Elizabeth Yin (05:31.210)
In running an accelerator program, you see all kinds of startups and you see so many of them.
These companies would come in and you would watch them work day after day.
I had a very good idea of who.
Who were actually really good executors just by Watching all these people work and comparing them against each other.
And then when it came down to it, and I saw all of these founders go out to raise, companies who were able to successfully raise generally fit into certain buckets.
Like, they sounded good.
Maybe they had good resumes or pedigree, Maybe they were of a certain demographic, maybe they were extroverted.
I just noticed that certain founders had a much easier time raising money, even if they were not actually good executors.
And in contrast, people who were good executors, some of them really struggled even though their business was posting good growth every month, just because they didn't look a certain way or talk a certain way or maybe they're not from this country, etc.
And that, to me, felt like a real.
Both a shame, but also a real opportunity for us.

Omer (06:44.090)
So when you said that they kind of had pedigree or were extroverted, and I think the other one was, like, demographics, like, what do you mean?
Like, who kind of was standing out here?

Elizabeth Yin (06:56.090)
Well, I'll just spell it out.
I mean, I think, you know, if you take some.
Just any random startup, and if you're, let's say, the CEO, and let's say that you have a CS degree from Stanford, you're white, you're male, you worked at Facebook, and you are a native English speaker from this country without knowing anything about your business.
You know, just in looking at all these data points, I would say that you have a leg up.
And certainly people who fit that demographic, they should use that.
The flip side is that people who may not check all of those boxes, they may just have a much harder time fundraising.
And that's just the state of the fundraising landscape.
I do think that that's changing.
One of my goals for Hustle Fund is, you know, obviously there's the aspect of trying to make a lot of money and take advantage of investment opportunities that could be good.
But a bigger mission for us over the next 20 to 30 years is to really try to bring about, like, a meritocracy in this fundraising landscape.
We believe that, frankly speaking, because of this kind of pattern matching that investors have today, it really is not a fair playing field.
Just because you are a good executor, it doesn't mean that you have access to capital in the same way that someone else might.
And so our goal for the next 20 to 30 years is change that such that if you are an entrepreneur, it doesn't matter where you come from, as long as you have drive, hustle, work hard, can learn Quickly, et cetera.
All the great qualities of an entrepreneur.
If you have that and your business is doing well, you should be able to raise money and this should be a non issue.

Omer (08:42.280)
So what makes Hustle Fund different?
I mean, we kind of talked about like the, the kind of the hilariously early stage and sort of pre seed and we will talk a little bit more about that.
But does that change the fundraising process in terms of sort of the typical things that people might expect to be talking about when they're fundraising with an investor?
Like how hilariously early is.
Are we talking about here?

Elizabeth Yin (09:09.840)
Yes.
And actually before I answer your question, I'll provide some more context.
I think part of the reason why some of this pattern matching exists is that a lot of investors just believe that there isn't any significant or meaningful data at the early stages.
Like, you know, I talk about how by running an accelerator and watching all these companies work, I could discern who is a good executor.
And I think actually if you talk with almost anyone who's ever run an accelerator or been a mentor or an active mentor rather, they would say something very similar.
But if you are a fund and you're not watching people day to day, like how can you actually tell who is a good executor?
And the signals, like the revenue, let's say it's all so small, like, okay, you made a dollar today and you made 10 bucks next week.
It's all so small that a lot of people would say it's just really hard to tell.
And so that's why people go based on their pattern matching.
And that's really, I think, to give everybody in the VC industry a little bit more benefit.
The doubt, rather than, you know, just saying that everybody kind of blanketly looks for certain demographics.
But, but I think that's where that stems from.
So then diving into what we're doing, what we're trying to do is we're trying to capture some of the things that I learned While running the 500 Startups accelerator and applying it to our due diligence process.
So for example, one of the things that I noticed that actually is a good indicator of a good entrepreneur is velocity.
And that's kind of where the name of our fund comes from.
Hustle Fund.
The best entrepreneurs, regardless of where they come from, they execute with speed.
Now that just actually may sound obvious when I say it out loud, but when you think about it at a startup, the game really is you have limited Runway and you need to be able to experiment as fast as you can within that limited Runway to find something that works.
And so as a result, you can increase your chances of success by operating with speed.
And so if you're looking for founders who are really fast, then you start to cater some of your due diligence questions around that.
And so that's an area that I'll often ask founders about.
Even though founders may be hilariously early, they're still doing something like, we're not going to invest in companies that are just an idea.
These companies have to all be doing something.
In fact, many of our founders whom we bet on, even if their product is sort of half baked, many of them actually have gotten going like from day one, like hitting the pavement and selling their product, especially for a SaaS business, especially in B2B, where you can pre sell a lot more easily than, let's say, a consumer product.
And that is our expectation that founders will move fast in trying to acquire customers or de risk parts of the business or do customer development quickly.

Omer (12:08.800)
Okay, great.
So that's velocity.
Is there anything else that you look for?

Elizabeth Yin (12:12.800)
Velocity is a big one.
Another one is around customer acquisition unit metrics.
Now this very much is subjective, I would say, because there isn't a lot of data at this stage.
But I personally very much prefer businesses where there are higher margins.
In other words, like how much it costs you to acquire a customer and how much we think you can make off of that customer really matters a lot.
And if that difference is just too tight or too small, then it's going to be really hard for me to get involved.
Now that's just also based on my perception because at this stage of the business, usually people don't have a strong idea of at scale what would the lifetime value be, or at scale, what would the customer acquisition unit economics be.
And so part of what's kind of baked into that is my thesis and my opinion about how crowded the market is from a customer acquisition perspective.
And you know how big of a problem it is that I think people are willing to pay.

Omer (13:10.610)
Yeah.
Because at this stage you're probably doing, or they're probably doing things that don't scale.

Elizabeth Yin (13:16.210)
Yep.

Omer (13:16.930)
And they're still trying to figure out the right marketing channels, what kind of copy is going to work in terms of conversions.
So at this stage, I guess the acquisition cost is probably going to be a lot higher than it would be once they start to scale and they become more efficient at figuring out what resonates in their market.

Elizabeth Yin (13:36.940)
Well, it can go either way.
Like sometimes people say, oh, I Haven't spent any dollars on marketing and you know, I rounded up five friends so it can go either way.
I think actually this is one reason, frankly speaking, I have ended up doing a lot of SaaS deals because with SaaS deals the margins do actually tend to be pretty good.
In contrast, let's say that you are running a new consumer affil network of sorts and you're making 5% or 10% here or some marketplaces that are not particularly unique and you're making say 5%.
Those margins can just be sometimes really difficult.
And for that reason I just may pass.

Omer (14:11.560)
What kind of margin would you consider sort of healthy when you look at an early stage SaaS business?

Elizabeth Yin (14:18.360)
So again, this is pretty subjective at these early stages because again, the companies don't actually have the numbers that would exist at scale.
But you know, the good thing about SaaS is that there are all these people, people out there who have written about benchmarks, they're looking for, etc.
And I largely agree with those benchmarks and largely also depend on them because those are my downstream investors as well.
So for example, with regard to your particular question of margins, you know, over at Matrix Partners, like they have this rule of thumb around, you know, one third where you want to try to aim your cost to acquire a customer to be essentially a third of the lifetime value.
And I, I try to use those benchmarks as well.
But of course these are based on the numbers that I think or the rough numbers or order magnitude that I think your business will have a hold at scale, kind of just based on alternatives in the market or the pain of your customer.

Omer (15:14.000)
So you're not necessarily looking for that margin at this stage, but you kind of need to, whether it's instinct or some data there to back up that kind of margin as possible.

Elizabeth Yin (15:27.050)
Exactly, yeah.
And that actually is the double edged sword of the pre seed stage, actually.
I mean, on one hand it's great to have more pre seed investors who are writing checks, but on the other hand there is still a lot of subjectivity and this is just my opinion and I could be completely wrong.

Omer (15:45.370)
What I'm really sort of thinking about is there are people who are listening to this show and this interview who are currently bootstrapping a SaaS business or maybe they've done a friends and family round or self funded it in kind of other ways and maybe they're kind of thinking about fundraising but are not quite there yet and haven't had experience kind of going through that process.
I guess the first question sort of comes to mind is if somebody is in that position, when does it make sense for them to be looking for funding and what should the kind of the objective at that early stage of the funding be for them?

Elizabeth Yin (16:27.060)
I would first take a step back and talk a little bit about the fundraising landscape of today.
And this is 2018 fundraising landscape.
It could change next year or even later this year.
And it has been a moving target over the last few years.
But today, at least in the Silicon Valley, I would say that there are three stages of seed.
There's pre seed, there's seed and there's post seed.
And sometimes the post seed stage is called pre A.
But nonetheless, whatever you want to call all these stages, I'll just talk a little bit about what these stages represent.
The pre seed stage essentially is from you've got nothing to roughly speaking, and again, a bit of a moving target, 30K MRR.
And what this translates to in terms of what that looks like in your business is you've got a product of sorts, you've got some early customers of sorts, but you may not have a lot of other pieces figured out, don't know your growth strategy at all really.
And retention also may not be great per se.
So that's kind of this first stage, the seed stage I'd say is sort of from that 30k mrr point, roughly speaking to.
And this is where it's a little nebulous, but let's just call it like a million dollar run rate.
And this stage is you've got a lot more customers and you've got a lot more of a nuanced understanding of your customers, like who you're trying to go after.
But you may not necessarily have a growth engine working out and you may still just be hustling on one off to get your sales just anybody in the door who kind of fits that customer Persona.
That last stage of seed is what I would call the old Series A.
So you have a lot more figured out.
And in many cases your customer acquisition channels are starting to work already.
And this really is the stage before the Series A.
The Series A benchmarks have gone so high these days and I think that's what's created this last stage, the post seed or the pre A stage.
And this really is about the million bucks run rate, to call it 2 or 3 million bucks run rate.
And this is really just a matter of like optimizing those growth channels so that you can raise your Series A.
So those are the three stages we play at pre seed.
But there are Plenty of investors who play at seed for sure, and then some in the post seed category.
Now as far as your hypothetical bootstrapped company, you know, I think my, my dumb answer is as long as you can keep on pouring money back into growth and you can do that profitably, then you should do it.
And the best or most ultimate point in time to raise money is when your channels are really working out and you don't have enough profit to keep pouring into growth.
But yet you could be maxing out the growth.
If you had more cash, that would be the ideal scenario and that would probably be around the post seed or late seed stage.
That being said, however, fully aware that there are other constraints, very often in the business, ability to hire people without cash can be difficult, or for some founders, they may need to take a little bit of cash in order to make ends meet.
Especially if you're living in an expensive city.
So if you're considering raising around, you know, if you have these other team constraints or salary constraints, I think the seed stage is probably the best time to raise money.
And I say this as a pre seed investor because frankly speaking, the most number of investors in these three stages are actually in the seed stage, not the pre seed stage and actually not the post seed stage.
And so if you're talking about increasing your probabilities and reducing the amount of time to fundraise, that's the best time.
Of course, you know, there are a handful of pre seed stage investors including ourselves, and if you need the money, it's worthwhile to pitch to, but probability of getting money at that stage actually is really, really low.
Just because there's so many startups and so few people who invest at the pre seed stage.

Omer (20:29.590)
So typically we've got somebody who is got a SaaS business up and running early stage.
The pre seed is probably what might be right for them, possibly seed, but they haven't done any fundraising before.
How do people get started?

Elizabeth Yin (20:47.270)
So first off, I would say actually one of the top problems in raising a round is that it just takes so much time.
I think the biggest struggle for founders that nobody really talks about is that because it takes so much time, actually it takes you away from the business.
And very often at these early stages, the person who is doing the fundraising, the CEO, is often also doing the customer acquisition.
And yet you can't let your customer acquisition drop.
Of course what is helpful with a SaaS business is that your revenue is recurring.
So that's a little bit easier than perhaps other types of businesses.
But you still do need to increase the number of customers that you're getting while fundraising in parallel.
And that is just really tricky.
That's sort of the first caveat.
And the second thing is knowing that, and if you still want to raise money and try to balance the two, it is really important to try to run an optimal fundraising process.
The general strategy is you want to, at this seed stage, approach as many investors as possible.
Get warm introductions.
But even in parallel, don't be afraid to cold email investors as well.
A lot of investors will look at cold emails these days, but a warm intro of course is best.
And then just try to line up as many meetings as you can packed closely together.
So ideally speaking, if you take a week, you want to pack in say 10, 20 meetings in that week.
You don't want to have like a meeting here and there.
And this is for a couple of reasons.
One, by packing in the meetings, you can start to create urgency with investors.
It's really difficult to create urgency in the beginning of your fundraise when nobody has yet invested.
But by packing meetings together, you can say, hey, you know, I'm doing 20 meetings this week and I'm now going into second meetings next week.
That will encourage investors who are truly interested to, to move faster and to prioritize you.
Secondly, by packing in the meetings, you're also moving all the investors along at the same time in their decision making process.
It doesn't really help you if you have one investor whom you started talking with months ago, who is now ready to invest and you're just starting to talk to another investor now.
There's no way that second investor will be able to make a decision fast enough.
So that's why you want to kind of keep all of your investors moving at around the same pace.
So that way, hopefully by the end of the process, you'll have a handful of people who are all very interested in investing.
And if they all want in and you don't have a big enough round to accommodate all of them, that's what drives up valuation.
And this is also what gets a deal done, just by having everybody clamor in all at the last minute.
So that's the overall strategy that I would encourage.
But this process can very often take a couple of months, even when it is run perfectly.

Omer (23:44.370)
One thing I'm curious about is if I'm a founder who's not based in Silicon Valley or the Bay Area, do I need to have all of these meetings face to face?

Elizabeth Yin (23:57.010)
Well, very often the first meeting will not be face to Face.
A lot of investors want to kind of triage people by doing quick calls.
This is what I would suggest.
If you're not in the Bay Area, but want to raise in the Bay Area, I think you need to do a little bit more homework and planning than perhaps somebody who's in the Bay Area.
First, you do want to get those introductions to investors and line up your meetings all packed together.
But you'll need extra time to plan this such that you can get all your meetings packed together.
So you'll want to first create a list of all the investors you want to meet, try to get warm intros, then tell all those people that you will be in the Bay Area in, say, a month or even two months.
Because investor schedules are quite packed, you probably will not be able to get a meeting next week.
So you'll need to plan this out actually in advance.
And they may want to do a call with you even before your trip to see if it's even worthwhile meeting with you.
So that's why you'll need to leave extra buffer if you're not in the area.
And then once you get enough people biting that they want to take a meeting with you in, say, a month or a month and a half, then go ahead and, you know, book your travel.
But I think even once you do land here, you'll want to be here for at least a month.
But I generally recommend two to three months.

Omer (25:21.590)
So I think your advice to kind of pack the meetings together is great.
I think that's a great way to just kind of keep the train moving and create some sense of urgency.
And I think that actually being based outside the Bay Area could actually be kind of worked in your favor.
If you're saying I'm going to be there next month for whatever period of time, hopefully that can also help to get all of these meetings scheduled fairly together.
Whatever period you can.

Elizabeth Yin (25:50.380)
It can work as long as you give enough buffer.
I think something that I often see in that many of my peers see is that founders who are coming from out of town will email you and say, hey, I'm in town tomorrow, or I'm in town next week.
Can we meet up?
And that's just too tight of a schedule.
And so that could actually end up backfiring if you try that.

Omer (26:11.350)
Okay, so let's say we've kind of gone through.
We kind of made a list of investors that we'd like to meet with.
We have tried to get warm intros or sent cold emails out.
We've started to get Some response, and that led to conversations.
And now we're at a point where these kind of meetings are getting set up and getting kind of more into sort of the tactical details of those conversations.
I guess first question for me would be, is, like, how much capital should people sort of think about raising?
Like, what's kind of the thinking process to sort of figure this out?
And what kind of money makes sense at a sort of a pre seed stage?

Elizabeth Yin (26:50.470)
Yeah, so I would think about fundraising in terms of milestones that you want to hit.
I think all too often I hear founders say, oh, I want to raise a million dollars or $2 million, but the numbers are just arbitrary.
So I would actually work backwards.
Especially if you do have some data.
Like if you are at the seed stage and you're already booking revenue and you have some idea of some channels you're using and the cost to acquire customers, et cetera.
If you have some data, use that to backtrack into milestones.
Obviously, your data will probably not hold in the next three months and things will change.
But I think it's a good starting point to guesstimate if I want to hit those next milestones.
Let's say I want to get to the Series A stage, and I just told you that the milestones for series A is around, say, 2 million, $3 million run rate.
What does it take for me to go from the seed stage to $3 million run rate?
And let's say that my cost to acquire a customer is X and I make Y in the next few months or whatever, like, build out that.
That quick model.
It doesn't have to be crazy and it won't hold in six months from now, but it is a good starting point.
And then you'll be able to figure out, okay, if I raised X, I'll be able to hit those Series A milestones in, let's say, the next year.
So that's how I would think about it.
Now, going from pre seed to seed is a lot harder because you don't have a lot of data to know how much it will cost you to get a customer and whether you'll be able to get in that seed zone or whatnot.
So that's a little bit more of a guesstimate.
But again, I would do a similar exercise just based on guesstimating numbers of how much it will cost you to do customer acquisition.
Can you hit those seed stage milestones and call it, you know, 30K MRR, or if you want to be conservative, 50K MRR.
Like, what will it take to get you into that zone.

Omer (28:41.730)
Yeah, that's great advice.
So I've got some meetings and I'm kind of going in there and sort of thinking about my pitch.
We could probably talk and spend a lot of time talking about this.
But I guess from your perspective as sort of a vc, when you look at pitches, what are some of the kind of the do's and don'ts that sort of come in mind?
Like what are the top things that you think, okay, when I see these things, that's a good pitch.
These are the things that get my attention and kind of answer the questions I have in mind.
And these are some of the things that please stop doing when you come and pitch.

Elizabeth Yin (29:19.130)
Yeah, well, I'd say that actually I see pitches as essentially two pitches.
There's the pitch before we meet and then there's the pitch when we meet.
So the pitch before we meet is, you know, when you're trying to get that meeting, you're sending that email or you're getting that warm referral or whatever for that, I would say my number one piece of advice there is keep it concise and just stick to basically five points.
Investors want to know enough information to take a meeting, but they're not going to use that deck or that email to decide whether or not to invest in you.
So the five points essentially are, what is the problem you're trying to solve?
What is your differentiated solution to that problem?
Do you have any traction?
It's okay if you don't, but you should put that in there in some form or another.
It could be logos of your customers, it could be how much revenue you're doing.
You know, it could really be anything.
Market size and then team.
Those are the five pillars that I would just focus on concisely at that stage.
And maybe it's just one bullet on each of those.
And then once you get to the meeting, then that's a much longer conversation, 30 to 60 minutes.
And that first meeting for a VC is not necessarily about convincing them to invest at that point, but it's about convincing that VC that you are still in the pipeline to be invested in.
What I would do in that meeting is a few things.
One is reiterate those five points.
But one thing that I would really spend time in that meeting doing is listening and trying to assess what the VCs questions are or issues with the business.
It's really actually no different from a customer conversation from that perspective.
Like a lot of founders will just try to talk at you, but this really is a dialogue.
And you want to understand what are the blocking points to an investor investing and address those.
So that is a big part of the meeting.
And then I'd say the other second part, again, going back to dialogue, is understanding how the investor thinks about investments.
Like what kinds of things he or she is interested in, does he or she have a thesis?
Hopefully you can do a little bit of that research up front.
Like, very often investors will write or blog these days.
But I know that also it's very difficult to learn a lot about somebody's inner thoughts.
But it is important to actually take that time and ask the investor questions like how much do you invest?
When do you invest?
Typically, when did you last do an investment?
You want to understand if they're investing every month or whether their last investment was like seven months ago.
It will give you a sense of how to prioritize that investor as well.
So that's kind of how I would look at this.
Be concise in your information in getting the meeting, but then once you have the meeting, elaborate, but also make sure to address concerns and understand if it's the right investor fit as well.

Omer (32:15.270)
Great.
So if just kind of.
To recap, you said when you're sending out the email to try and get the meeting, focus on those five points and keep that short as possible, like one bullet per point.
When you have that meeting, you're kind of reiterating those five points, I guess.
In terms of a pitch deck, could it be as simple as five slides talking about this five points?

Elizabeth Yin (32:41.940)
Yes.
Yes, it can be as simple as five slides.
In fact, I think if I had to pick out the biggest mistake people do to your question, it is probably around not being concise or not having enough brevity.
And the reality is, especially in getting the meeting, your email is probably only going to be looked at for five to 30 seconds.
So you have to be able to convey a couple of key things that stick in the investor's head.
If you're writing paragraphs or trying to convey too much information or come up with a 20 slide deck, the investor is just going to pass.

Omer (33:19.190)
Equally important, as you said, was it's not just about talking to the investor.
It's also an opportunity to listen to their questions and issues because there might be some really valuable insights that you can take away or potentially issues that they're flagging that you can kind of either kind of go and sort of figure out, okay, how do I go and address this?
Or maybe just learn how to improve your pitch in terms of Being better and clearer about communicating what you're doing and addressing those problems.
And then as you said, it's also important to ask the VC questions.
It's not just there about, hey, it's about me and want to invest.
Right.
So there's some valuable questions I think you share there, which is, I think is really pretty useful.

Elizabeth Yin (34:07.540)
Yeah.
I think one thing to add to that is, you know, if you're hearing feedback from, let's call it two investors, that's very similar.
I would really take that to heart.
There's a fine line balance between having whiplash of wanting to adjust things constantly in your pitch because just because somebody said something, but also hearing a piece of feedback over and over, you may need to do something else to address it.
And it's not necessarily changing your business.
I'll give you a concrete example with my own startup, Launchbit.
Years ago when I was pitching, I had this one slide that I was so proud of.
It was a slide of my customers and I had all these marquee logos.
What was wrong with the slide actually, just from hearing the feedback from investors, was that a number of those marquee logos were large companies, but they were not actually paying us a lot of money.
And what that was actually conveying was that my product was not very useful to them because they were not willing to pay enterprise level packages.
And so actually by removing the logos of the people who were not paying enterprise packages when they had the potential to do so, it actually helped out my pitch a lot.
So it could just be little things that you are signaling with the deck that you don't realize, not necessarily changing your business at all.
And that can be really valuable to just hear.
But it is a two way dialogue and you need to be able to take the time to hear it in those meetings.

Omer (35:33.730)
That is a really good example because it shows, you know, it's not necessarily like you hear an issue and you need to go and spend months trying to figure out how to solve it.
It could be as simple as removing some logos from a slide and you know, your messaging becomes a lot clearer.
Yeah, I guess the other thing a lot of founders struggle with is like, you know, valuation.
And it's even tougher when you're talking such an early stage.
But how should people be thinking about that at sort of a pre seed stage?

Elizabeth Yin (36:01.760)
Ultimately valuation is really about supply and demand.
It's not really about how much your business is worth.
So by supply and demand, I mean how much of your round you have on the supply side and how Much investors really want to invest, and that's ultimately what drives up valuations.
If you have everybody and their mother wanting to invest, then your valuation is going to go sky high.
And that's where you read about those, those cool cases in TechCrunch about some company had a terrific valuation, was able to raise like a $20 million seed round or whatever.
The reality is, a lot of that actually is tied to how well you run your fundraising process.
And this goes back to what we were talking about earlier.
If you pack all the meetings together, then that increases your chances of a number of investors wanting to invest all at the same time.
And that is the key, and that is what drives a valuation.
So, going back to your original question, then, when you're first starting out, how should you think about valuation when you have nobody who's invested yet or nobody who's expressed interest in investing yet?
And so there are a couple of strategies to this, I think.
One is, these days, at least at the seed stages, all three stages, you can set your own valuation.
You can use a YC safe.
The docs are on their website.
They're pretty standard, at least here in the Bay Area.
You can download it, you can fill it in with your company name and the valuation that you want, and you can basically go out and you can start going to all these investors, angels and micro funds, and saying, you know, this is what I'm raising at.
Assuming that they're interested, I would never talk about valuation or price or the deal first without understanding if they truly are interested.
Just like sales, you don't talk about price first, but assuming that you have somebody who wants to invest, like, you can literally just take that safe and put it in front of them and get them to sign and wire you money the next day.
Now, in terms of picking what that number is, then the way I would think about this is, honestly, I would think about testing the waters.
Like, I would actually say, let's say that you're raising $700,000.
I would actually take that safe and I would go to, you know, let's say an angel or a micro fund and say I'm raising 300,000 at some lower valuation and just pick a number.
And I think it really depends geography wise, where you are in the Bay Area.
I would say on the lower end, it could be like, let's say 3 million cap.
Of course, 3 million cap could be really high in other geographies, but whatever it is, based on your geography, pick a number.
On the lower end, say, this is what I'M raising at.
On this safe.
And it's only for a limited supply of, let's say, 100,000 or 200,000 or 300,000, whatever it is.
And if you really want in, then because I have this limited tranche at this special price, you know, I would encourage you to sign on this tranche.
But if you're not sure you want in, I understand.
And you know, we'll be doing this as part of a larger raise over the next couple of months, but the valuation will go up.
And that's one way, one way you can create urgency, but also test the water on.
On valuation.
If it is so easy for you to raise that tranche, and you know that that valuation is probably a little low and you can raise it without any problems, but if you're having people, if you're really struggling to get people in on that tranche at that low valuation, then frankly speaking, I would not raise the valuation.
I would probably go back to the drawing board and even evaluate whether you should be fundraising at all, or whether you need to change the pitch or whatever, because you're basically testing the waters at the best terms possible.
And if you can't even get anybody on that, or if it's a real struggle, then you need to figure something else out.

Omer (39:54.710)
Yeah, no, that's great trip.
So I think the lower valuation is kind of a great tip because it's almost like you said, it's kind of testing.
And if it's easy or easier than you expected, then I think it kind of tells you, okay, well, there's probably room for you to kind of raise that valuation.

Elizabeth Yin (40:13.760)
Yep.

Omer (40:14.320)
And vice versa, if you're not kind of getting the response you.
You hope, then you know, you're probably in the wrong space.
And then also I think the scarcity idea is great because sort of saying, you know, this is for a limited period of time or a limited amount or whatever does create that sense of urgency.
And it's just a good marketing kind of 101 tactic to apply how you.
How you think about your fundraising.

Elizabeth Yin (40:34.560)
Yeah.

Omer (40:35.200)
So those are great tips.
Now, many founders may not necessarily be in this position where they have the luxury of being able to choose from different investors, but when you're thinking about working with an investor from a founder's perspective, what are some of the things that they should be looking at to try to figure out whether this is the right investor for my business?

Elizabeth Yin (41:02.330)
Yeah, ideally, you have some investors in your round who.
Or value add.
And by value add, I mean, it really will depend a lot on what you need for your business.
But for example, for a SaaS business, depending on your background, let's say you do not have a customer acquisition background, but you come from like a product or an engineering type of background, then it might be helpful to bring on board investors who have grown a SaaS company before or have worked with fast growing SaaS companies before.
Something along those lines because they may be able to either provide some good advice on customer acquisition channels, they may be able to introduce you to other startups in their portfolio who are doing well, who could give you advice.
That's the kind of thing that I would look for.
So it really depends on the needs of your business.
Of course, if you let's say marketer by training and you came from marketo, then maybe that's not your need and maybe your need is something else.
Whatever it is, I would try to have at least some investors in your round along those lines.
Another area of value add that many startups could use is if you are planning on raising more money after this round, you may want investors who have strong relationships to investors who are downstream.
And especially if you're not from the Bay Area, one strategy might be to get at least one Bay Area investor on board in this round.
That way they can introduce you to Bay Area investors in the next round.
It gets much harder to raise locally if you're not from a major startup city, so you probably want to have at least one person there.
So that's what I mean by value add.
Now of course I don't believe that actually everybody needs to be value add.
Like even money that doesn't come with people who know anything about running a business is great.
And so if you have angels or friends and family or whatever who know nothing about startups or your business, but they believe in you, then that's wonderful and you should take their money if you need their money.

Omer (43:09.260)
If I'm just trying to make that list of potential investors to kind of go and talk to, where's the best place for me to look for that information?
Like how do I find these people?

Elizabeth Yin (43:20.270)
Unfortunately, it also takes a long time to research investors.
I think it's getting a little bit better.
But Angellist is a good place.
Even a lot of VCs are on AngelList.
There's a guy named Samir Kaji who runs First Republic Bank's fund of funds practice and he's actually made a list on a blog post before of all the micro funds.
It's on a Google spreadsheet.
Of all the micro funds that he's aware of.
And there are hundreds of micro funds on there.
And that is a very good source to figure out all the mostly smaller players, like sub $100 million funds.
And most of those funds are like sub $10 million funds.

Omer (44:05.190)
Awesome.
I'll have to follow up with you and get a link to that or try to Google it.
Great.
This has been really helpful and I've been making a ton of notes while we've been talking, which is a good sign.

Elizabeth Yin (44:20.640)
Thank you.

Omer (44:21.360)
So thank you for sharing that.
You know, one question specifically about Hustle Fund is, you know, you invest in SaaS companies.
What type or are there particular types of SaaS businesses that kind of are of particular interest to you right now?

Elizabeth Yin (44:38.230)
Well, I think for us, we are looking at each business on sort of a case by case rather than us having a particular thesis or vertical that we love.
So we are open to looking at anything and everything.
I would say though, as a small fund, we tend to shy away from super competitive areas unless you have an interesting new differentiated angle.
So I'll give you an example.
Marketing automation or sales technology, like those are incredibly competitive areas and we've tended to shy away from those areas a bit.
So I think flipping that around then into a more positive statement.
Like the areas where we have been a lot more active have been in verticals where traditionally people have been using pen and paper to get things done.
And now somebody has come up with new software for those industries.

Omer (45:26.480)
All right, great.
So let's get onto the lightning round.
I'm going to ask you seven questions.
Just try to answer them as quickly as you can.
You ready?

Elizabeth Yin (45:34.910)
All right, sounds good.
All right.

Omer (45:37.150)
What's the best piece of business advice you've ever received?

Elizabeth Yin (45:40.910)
Definitely lean startup.
If you're running a startup, I would look up Eric Rees materials and do customer development.

Omer (45:48.590)
What book would you recommend to our audience and why?

Elizabeth Yin (45:51.470)
For this audience, definitely Predictable Revenue.
If you haven't read it, it basically is the handbook of how do you do outbound sales?

Omer (46:00.120)
What's one attribute or characteristic in your mind of a successful entrepreneur?

Elizabeth Yin (46:05.240)
I'm a little bit biased here, but speed.
Speed of execution.

Omer (46:09.160)
Yeah, I had a feeling you'd say that one.
What's your favorite personal productivity tool or habit?

Elizabeth Yin (46:15.639)
I would go with Calendly.
It's basically a calendaring software that I just use a lot.

Omer (46:23.080)
What's a new or crazy business idea you'd love to pursue if you had the extra time?

Elizabeth Yin (46:27.850)
I am so biased towards better email.
In my mind, an ideal scenario would be better mobile email.
Like, maybe it's AI and templates of some sort.

Omer (46:37.770)
What's an interesting or fun fact about you that most people don't know?

Elizabeth Yin (46:41.930)
I love hippos.

Omer (46:44.170)
Hippos, okay.
What do you have, like, hippo dolls or pictures?
Like, what do you do?

Elizabeth Yin (46:51.490)
Yeah, you know, over the years, like, you know, once you tell a few people that, and then you end up with a lot of hippo stuffed animals.

Omer (46:59.550)
And finally, what is one of your most important passions outside of your work?

Elizabeth Yin (47:02.670)
Yeah, in the last couple of years, I've been trying to get into open water swimming.
And so I've been doing lake swim races and river swim races and that sort of thing.

Omer (47:12.510)
Wow.

Elizabeth Yin (47:13.310)
But I haven't done the Alcatraz swim yet, which is the big one in the Bay Area.
It's basically a mile of freezing San Francisco cold waters.
And there are also sharks there.

Omer (47:23.470)
Are they really?
I didn't know that.

Elizabeth Yin (47:25.510)
Yes.
But that one is like, probably the hot one for people who do this sort of thing around here.

Omer (47:32.950)
Is that something you're planning to do?

Elizabeth Yin (47:36.310)
I have not signed up yet.
I am a little bit tepid about that.

Omer (47:41.750)
Yeah, no rush on that one.
Okay, great.
Elizabeth, thank you for joining me.
It's been a pleasure.
And thank you so much for sharing all this great information from your perspective.
And, you know, like I said, I was making a ton of notes and that's sort of a sign for me that people listening to this will hopefully get a ton of value and kind of actionable insights and they can take away to figure out, you know, what to do on their fundraising journey.
Now, if people want to find out more about Hustle Fund, they can go to hustlefund vc.
And if they want to get in touch with you, what's the best way for them to do that?

Elizabeth Yin (48:19.230)
Well, if they want to submit a business, there's a way to do that on our website.
We have every company go through there, whether they're a warm referral or not, just so that way we can keep everything all together.
But I will just give people my email address.
Elizabethustlefund VC and I do try to respond to every email, but I'm not always very fast.

Omer (48:43.880)
Awesome, Elizabeth, thank you.
It's been a pleasure and I wish you all the best in continuing to grow Hustle Fund.

Elizabeth Yin (48:53.000)
Thank you and thanks so much for having me, Omer.
I appreciate it.

Omer (48:56.520)
Cheers.