S2E13 – How to secure an early-stage investment for your SaaS? with Lotte Geldermans

Securing early-stage investment for your SaaS (Software as a Service) startup is a pivotal step in turning your innovative ideas into a thriving business. To attract potential investors, it’s crucial to first develop a compelling business plan that clearly articulates your product’s unique value proposition and the problem it solves. Create a robust financial model that demonstrates a realistic and scalable revenue stream. Building a prototype or minimum viable product (MVP) can also instill confidence in investors by showcasing your team’s ability to execute. Networking plays a crucial role; attend industry events, engage with potential investors on social media, and leverage your professional connections. Be prepared to tell a compelling story about your vision and how your SaaS addresses a market need. Finally, consider seeking guidance from mentors or advisors who have experience in your industry. With a solid plan, a strong network, and a compelling story, you’ll be better positioned to secure the early-stage investment needed to propel your SaaS startup to success.

In this episode of The Grow Your B2B SaaS podcast, we tackle a critical aspect of securing early-stage investments. Our subject matter expert is Lotte Geldermans, the portfolio lead at PitchDrive, an early-stage VC utilizing a data-driven approach for rapid investments. Lotte brings five years of experience at PitchDrive, overseeing a growing portfolio of startups. Lotte shares insights gained from evaluating numerous startup ideas and the evolution of the startups they’ve invested in.

The High Stakes of Early-Stage

Joran highlights the challenging statistics of startup failures, with many stumbling at the crucial early stages due to cash constraints and related issues.

Testing Viability through Investors

One effective method to test your SaaS viability is engaging with early-stage investors. Lotte emphasizes how this not only forces entrepreneurs to evaluate their SaaS potential but also provides critical funding to avoid running out of cash.

Understanding Pre-Seed and Seed Investments

Lotte breaks down the differences between pre-seed and seed investments, emphasizing the subjective nature of these terms. Pre-seed often involves family, friends, and early-stage VCs, while seed rounds mark a shift toward more substantial VC involvement.

Being Investment Ready at Pre-Seed

Lotte outlines the essentials for being investment-ready at the pre-seed stage, including demonstrating proof that your concept is working, having a clear understanding of the problem you’re solving, and showcasing early signs of product-market fit.

Seed Stage Expectations

Moving to the seed stage, Lotte discusses the need for paid clients, solid pipeline management, and a clear product-market fit. Startups at this stage are expected to scale rapidly.

Angels vs. Early-Stage VCs

Lotte draws distinctions between angels and early-stage VCs, highlighting differences in ticket sizes, involvement levels, and industry expertise. PitchDrive focuses on providing angel-level support at scale.

Common Mistakes in Fundraising

Lotte points out common pitfalls, such as inflating valuations early on, lack of co-founder documentation, and the importance of keeping tech in-house for B2B SaaS ventures.

Data-Driven Approach

Lotte emphasizes the importance of data, especially metrics proving stickiness, sales conversions, and market analysis. She discusses PitchDrive’s comprehensive analysis process based on pitch decks.

Impact on Valuation

In the current landscape, Lotte suggests that ARR (Annual Recurring Revenue) is a key factor for Seed stage valuations. However, she highlights the shift in focus from just revenue to broader aspects like team strength and product stickiness.

Valuation Tips

Lotte cautions against inflating valuations excessively and emphasizes the importance of a realistic, long-term perspective. Having a smaller piece of a successful venture is often more valuable than a larger piece in a struggling one.

Market Trends and Emotional Decision-Making

The discussion touches on recent market trends, where founders might be raising more money due to fears of tougher fundraising climates, leading to inflated valuations. Lotte advises founders to strike a balance between fundraising and focusing on business development.

Early Traction and Seed Round:

• Metrics for First Traction: Stickiness, Monthly Active Users, Customer Acquisition Cost, Average Deal Size.
• Importance of a CRM for Predictability: Weighted pipelines, probability, and managing the sales process.
• The significance of creating a “money machine” and understanding the predictability of outreach efforts.

Hiring and Scaling:

• Considerations when hiring salespeople: Founder as the biggest advocate, split pipelines, and evaluating performance.
• Professionalizing the pipeline: Scaling smartly, understanding conversion rates, and customer acquisition costs.
• The role of predictability in attracting investors and demonstrating growth potential.

Navigating the Funding Process:

• Starting with a data room: Gathering essential information, creating a pitch deck, and crunching numbers.
• Finding the right investors: Understanding your needs, evaluating investor portfolios, and seeking warm intros.
• The importance of a lead investor in seed rounds: Their role in defining terms and influencing other investors.

Exit Planning:

• Having an exit plan: Considering potential acquirers and understanding the use case for acquisition.
• Conducting due diligence on potential investors: Talking to portfolio founders and assessing the value they bring beyond funding.
• Building a long-term relationship with investors: Recognizing the shared journey and considering the impact on your cap table.

Transitioning Between Funding Stages:

• Between Pre-Seed and Seed: Product launch, finding product-market fit, and the maturation of the startup.
• Commonalities: Basic processes, sales channels, and achieving product-market fit as foundational elements.

Advice for SaaS Founders:

• Growing to $10K MRR: Open up shop, interact with users, and learn from both returning and non-returning users.
• Scaling to $10M ARR: Professionalize the pipeline, focus on scalable processes, and be cautious about rapid hiring.

Personal Reflection:

• Learning Together: recognizing that continuous learning is crucial, admitting that you don’t know everything, and embracing pragmatism.
• The Impact of AI: Acknowledging the transformative potential of AI in making processes more efficient and effective.

Lotte emphasizes the importance of continuous learning, pragmatic thinking, and leveraging AI tools in the ever-evolving landscape of SaaS funding and growth.

Key Timecodes

• (0:28) Show and guest intro
• (1:36 ) Why you should listen to Lotte Geldermans
• (2:55) What is the difference between pre-seed and seed investments?
• (3:51) What needs to be in place to actually be ready for an investment?
• (4:46) Things that need to be in place to be considered for a seed investment
• (5:40 Differences between angels and early-stage VCs
• (8:32)  The most common mistakes companies make while trying to secure their first funding.
• (11:45) What kind of data has to be present and good to be investment-ready?
• (15:27) What has to be really good to get a higher valuation for your company?
• (19:00) The first signs of traction
• (22:59) What kind of process should SaaS companies trying to secure a pre-seed or seed round adopt?
• (29:04) Where, when, and how to exit?
• (31:35) What happens between pre-seed and seed?
• (33:35) How to grow to 10K monthly recurring revenue
•  (34:44) How to grow to $10M Annual recurring revenue
• (36:29) What Lotte wishes she had known ten years ago

Transcription

[00:00:00.000] – Intro

Welcome to Growing a B2B SaaS. On this show, you’ll get actionable and usable advice. You’ll hear about all aspects of growing a business to a business software company, customer success, sales, funding, bootstrapping, exits, scaling, everything you need to know about growing a startup, and you’ll get it from someone who’s going through the same journey. Now your host, Joran Hofman.

[00:00:28.540] – Joran

Welcome back to the Grow Your B2B SaaS podcast where we discuss all topics on how to grow your B2B SaaS no matter in which stage you’re in. As mentioned in the summary episode from Season 1, 9 out of 10 startups fail. The early stage is where most companies fail and one of the most common issues is simply that they run out of cash. These, of course have related issues like poor product-market fit, mismanagement or simply no market need. A great way to test your viability is to talk to investors. It forces you to think about the potential of your SAAS, and early-stage investors can of course also help you with avoiding running out of cash with their pre-seed and seed investments. This is what we’re going to talk about today. How to secure an early stage investment for your SAAS. We’re going to do this with Lotte Geldermans, fellow Dutch person, and she’s the portfolio lead at PitchDrive, an early stage VC. They use a data-driven approach to fund early stage companies, allowing them to invest in a matter of weeks instead of months. Let’s find out what they look at to get your SAAS investment ready.

[00:01:33.920] – Joran

Welcome to the show, Lotte.

[00:01:35.660] – Lotte

Thank you.

[00:01:36.840] – Joran

I’m going to ask a really Dutch blunt question. Why should people listen to you today?

[00:01:42.400] – Lotte

I’ve been with Pitchdrive for the last five years almost since the start. We’ve seen the thousands and thousands of startups come by. I’ve seen every single idea out there until people proved me wrong, which I love. We are really touching so many startups, which is super fun. We talk to lot of them. Right now I am the portfolio lead, so that means that I coordinate the management and the guidance of our existing portfolio startups. Those are up to 40 right now and growing every single month. There’s a lot of different new deals coming up and growing like crazy. I’ve seen things on both sides of the spectrum. I’ve seen a lot of startups apply with different ideas and different stages and see what works and whatnot. Now, five years later, we can actually start seeing the first results. Okay, the first assessment that we made and the first startups that we liked, are they actually coming true? Yes or no. We’re learning about that every single day. I think I’ve seen enough startups to be able to say a little bit about the VC funding there.

[00:02:47.310] – Joran

Nice, and that’s exactly what we’re going to talk about today. We’re going to start with real basics and then work our way further. Let’s get this out of the way. What is the difference between pre-seed and seed investments?

[00:02:58.990] – Lotte

My personal opinion is that it’s also a very subjective thing. Usually what we go by is a pre-seed investment is the very first investment that people raise, which is usually with family, friends and fools, with angels or very early-stage VCs like we are. Seed investments is usually the phase where people go more and more into the VC world and step away from the angel composition. That being said, it still mingles everywhere. Technically, you could add angels in B round, but usually this is the way we do things. It’s really the first round, pre-seed, the second round. Seed rounds in terms of stages, what we see is pre-seed is usually pre-revenue or just a little bit of revenue, just a little bit of proving the concepts. Seed is really when it’s time to take that money and skill like crazy.

[00:03:51.090] – Joran

When we talk about pre-seed, you mentioned pre-revenue, what needs to be in place to actually be ready for an investment?

[00:03:58.410] – Lotte

What we’re looking for personally is really some type of proof that things are working. Maybe you have two or three first clients, especially if you do enterprise sales, that can be a huge win. It can also be that you have a waiting list of 6,000 people who are really eager to start using it, or you’ve tested it out with some people. Of course, we do prefer when people also show the intent to pay because it’s a very large step between getting free users and getting actually users to pay. That’s one thing that we look at. But one way or another show that things are sticking. You found an interesting problem and you really feel that problem is an actual problem that you’re not just solving because you want to start a startup, but it’s really a problem that sticks with the customer.

[00:04:45.990] – Joran

Makes sense. Then when we move to seed, the big difference is, of course, you have to have paid clients. You already mentioned ready-to-scale. What are other things which needs to be in place to be considered for a seed investment?

[00:04:56.990] – Lotte

I think some basic processes. We really want to see, okay, things are under control there. For example, you already talked about some very good pipeline management, where your sales channels are doing really well, you have a good pitch. Usually between pre-seed and Preseed, it’s very often the case that people start pivoting still quite a lot. Of course, after Seed, that’s still very much possible. But we would like to see more of a product-market fit there than what we expect to see at Preseed.

[00:05:26.520] – Joran

Nice. We are going to talk about product-market fit a little bit more later on. I think the last question, and then we really dive into the topic, you mentioned already, angels are more often Preseed. When you go to Seed, you go more towards VCs. Are there any other differences, your opinion, between angels and early-stage VCs?

[00:05:45.570] – Lotte

Generally speaking, I think angels are… They do smaller ticket sizes, right? Because they are individuals and they don’t manage the funds. They are often a lot more involved because they only have a couple of investments that they do. That’s a third thing is, for example, VC, you could have hundreds portfolio companies, so to speak. For angels, they usually have a limited portfolio and they really focus on building that portfolio. It’s often a little bit more, yeah, they check in a little bit more than early stage VCs. Usually, they have a larger portfolio, they invest in many more. They also are more flexible. For example, it’s follow on round. Something to expect with angels is that they usually do not have the money to follow on until, for example, C round, like a B or C round, early stage VCs. You see a lot of times it pops up that larger VCs, and that’s the biggest names out there, they also have early stage VCs within their group of funds. They can actually help push those larger stage investments around to follow it up as well. I think that’s also what we’re doing at Pitch driver, we really want to focus on that, I always call it angel level support.

[00:07:00.500] – Lotte

We really want to make sure that we’re one of the few that actually really acts like an angel but on a scalable way. We do all the documentation. We don’t need to take that long, which is also something with angels usually just takes a long time. You need to feel that you need to have that personal connection, it’s a bit more subjective. With VCs they just have the capability because they have a team and a template to just go and go out and then start a very intense coaching process afterwards.

[00:07:31.270] – Joran

Yeah, I think then it’s a really nice combination what you’re doing. Because I think to summarize it, I guess for SaaS founders listening as in decide what you’re looking for, what support you’re looking for, and what is your long term plan as well. Then from there you can decide what fits best with you, of course, as in what are you looking for? 100%. Don’t just look for money, but look behind the money as well. We call it smart money.

[00:07:50.940] – Lotte

Because it’s smart money, I think one last thing for the angels is that usually what could be really beneficial for finding angels is that they can really have an expertise with within your industry. If you, for example, are a B2B SaaS founder within the maritime industry, it’s super hard to go through there. If you have an angel on board or a VC that’s specialized, but on these industries, usually I think angels are really nice because they can be an advocate within the industry for your company because they’re a shareholder.

[00:08:20.520] – Joran

As you mentioned, they’re personally involved, they have a limited portfolio, so they want you to succeed and in the end, they invest that money. It’s in their best interest to make sure that you actually going to do well.

[00:08:31.920] – Lotte

Yeah, exactly.

[00:08:32.950] – Joran

Let’s first talk about common mistakes. What is the, I guess, the most common mistake companies make while trying to secure their first funding?

[00:08:41.790] – Lotte

One thing that I see very often is valuation is that people really blow up the valuation from the very start and that’s just super tricky. It feels very nice at the moment. You’re like, Yeah, I got this piece of a 10 million euro company. It feels very good. But also imagine what VCs are expecting when they dive in. They expect multiples. If you, for example, at Seed Stage, you raise a 10 million valuation or even pre-seed sometimes, it does happen, then in the A round, imagine how many people on average expect times 5 to 5 times 10, it depends on the VC, on your valuation. A 10 million valuation is doable, a 50 million valuation, and even 100 million valuation. Imagine how hard it is to raise at that valuation. It’s something that founders burn themselves on very often. That’s something very tricky. Really think about the long term. Another huge thing that I see very often is that there is not enough co-founder documentation. As a co-founders, as a team, you’re practically married. You see each other more than your wives at home. It’s a very intense relationship. It’s also the last thing you want to think about is, Oh, I’m going to put up some contracts and I’m going to put everything together.

[00:10:02.380] – Lotte

But it’s a very intense journey. Things can happen. Sometimes someone wants to go out, sometimes someone needs to be pushed out. One thing I’ve seen generally in the industry is really write down very clearly, okay, if something happens, what do we do? It’s usually it works with bedfounder, bed lever agreements or good lever agreements. There are a couple of things you can do legally, but really put up those co-founder agreements from the very very start because it might save you, hopefully not, but it might save you a lot of trouble later on. It’s also something that VCs have to look for. One other thing, especially for B2b SaaS, is keep your tech in-house as much as possible. A lot of times tech is being outsourced, which is like there are a lot of locations in the world that are amazing, that are able to provide amazing teams to grow your platform. But if you don’t have it in-house, and especially if don’t own your IP, that’s something that will really scare away thesis because we really want to see it’s literally what your business is built on, right? It’s the tech. Make sure you have it in-house.

[00:11:12.660] – Lotte

Make sure you have experts in-house. Make sure you really build that foundation and build everything else around it.

[00:11:20.260] – Joran

I see. I think this is really good advice. One thing actually for ourselves as in we just put in documentation in place between me and the co-founders, our philosophy was like if the company isn’t worth that much, and I think we were pretty early or honest with our valuation, so we did not put anything in place. But at one point you definitely have to put things in place. Even though we’re not actively raising, if something happens, as you mentioned, what’s going to be next? That’s really nice to hear. When we talk about getting an investment in, the approach you have is data-driven. What data has to be present and good to be investment-ready?

[00:11:55.380] – Lotte

Yeah, that’s a tough question. We work with startups that are very early on, so often pre-revenue. That means that financial numbers are not very present. Definitely what we ask is a financial plan. For the upcoming 24 months, what do you want to do? How do you want to build your startup? What are the KPIs basically that you’re aiming for? What’s the projection? When do you want to start making revenue? Where are you going to find your clients? Who are you going to hire? There’s a number of things that include there. That’s something that is projection data that we do really like. Apart from that, what I find super, super important is any data that will prove your stickiness. Instead of saying, I have 400 people on the waiting list, say, Okay, I have 400 people, and they come back to my platform every single day. That’s something that triggers me. I’m like, Okay, so they like working with it, and it’s not just a single sign on, but they really enjoy working with it. Those metrics, I know it’s a little bit vague still, but for me it’s very important that something proves the case that you’re building.

[00:13:07.240] – Lotte

Apart from that, sure, projections are nice, but projections will always be projections. But I think show really that product sticks and then you can do it. Also, same with sales. If you already did some sales or for example, do you have some conversion dates? Okay, if you send out 100 emails, if 50 people come back to you saying, I want to start tomorrow, that’s a super good metric to measure and share, those things. Basically on product and sales really show that stickiness, show the interest from startups. That’s the most important thing for us to look at from a data perspective. Apart from that, how we work with that data is that we also do, for example, market analysis. We do that outside of… Usually, it’s built out of the pitch tack. We take a pitch tack that a startup sends us and based on that, we extract the information and we do an entire extensive analysis on it based on internal and external sources. There’s a number of different things that come into play there. Definitely, the market size is interesting to add in there. But anyways, for example, we look at the total market analysis.

[00:14:11.450] – Lotte

What’s the opportunity there? Are you in a super small niche with very large enterprises making it very hard to grow? Or do you have the world to conquer in the upcoming years and you’re starting with this one small part of that huge market? Those things are super interesting to us to see the potential to grow those multiples.

[00:14:32.480] – Joran

In the end. Yeah, and most companies will have it in the pitch deck. It’s often referred as thumb some, so definitely. But I think now as well, investors are not going to always trust what you have in the pitch deck. They will do their own marketing analysis.

[00:14:46.220] – Lotte

Also, the TEMSOM is always nice to add there. I’ve seen it very often that people misunderstood it or they took not the real market that they’re applying to. I think you have to show understanding of the market in that pitch deck. This is a really good slide for you to be able to show that understanding of the market. You don’t have to just do the circles and add the temp, stem, some there, but also underneath explain what your market is and explain the and you really understand who are you talking to.

[00:15:18.270] – Joran

Yeah, so not just circles with big numbers in there basically. Indeed. I guess when we look at data, and I think this is maybe even more tough question to ask, but I’m going to ask it, what is the biggest impact on the valuation of the company? You mentioned already, valuations are sometimes blown up, right? But what has to be really good to get a higher valuation for your company?

[00:15:39.080] – Lotte

For Seed, it’s easy. It’s the ARR. That’s a very easy one. But as I said, I think now… We just came out of a bubble. Ever since COVID, VCs are a lot more careful with who they’re funding. They stopped looking just at revenue data, but they started looking at everything around it. Also, for example, the team has become a lot more important is what I’ve seen. Also the data that we just discussed about the conversion, show that stickiness, I think that’s the most important for us. We see if there’s a machine, you can create a money machine. If you say, okay, the product is sticky and we can reach out. If we do 100 emails, we get 50 back and they want to start tomorrow and that’s worth X, Y, Z. That means there’s a money machine. We know, okay, if we invest 1 million in it, we’re going to get 100 back, so to speak. That’s the way that VCs think. Then it’ll also push us to maybe get into a larger valuation. But still, as I said before, and I cannot push this enough, a higher valuation is not always better. Really keep that in mind.

[00:16:53.230] – Lotte

It’s a dream for people. It’s something that can drive people crazy. It’s super cool if you have a part of a 20 million company, but also bear in mind the future. Maybe it’s better today to dilute a little bit more. I always say it’s better to have a small piece of a really good pie, a really big pie, than have a really big piece in a pie that’s not going to do as well as we hoped.

[00:17:19.730] – Joran

I think the world we’re living right now where we, I think, passed a bubble a bit, where the valuations were super high and now companies has dropped a lot and then people are losing a lot of money along the way.

[00:17:32.100] – Lotte

Yeah, we also have seen, which is interesting, is that people started raising more, really significantly more because they’re scared to raise because it’s harder to raise. Vcs are laying back, right? They’re not saying as quickly they don’t say yes as they did before. People are scared of that, so they start raising more money and higher valuations because they don’t want to dilute more. It’s an interesting progression that we’ve seen and it’s really built purely out of emotion for both the VC site and the founder sites to just be scared and you don’t want to spend too much time on funding to be honest. It’s a weird thing maybe for VC to say, but we’re like, no, please don’t spend too much time on funding because you want to spend your time on building your business, right?

[00:18:19.670] – Commercial Break

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[00:18:59.500] – Joran

When we talk about first traction, I think you already mentioned a couple of things, stickiness, probably monthly active uses maybe. Then you already talked about seed round like AR. You talked about being able to project things out. Is there a money machine? Are there any other things you look at? Then probably more towards seed round traction wise. What are the first signs of traction for you and where you look.

[00:19:22.290] – Lotte

At it? I think I’ve mentioned them pretty much all amount of clients. Maybe the customer acquisition cost is a really good one to add in there. For example, that’s a good one. The average deal size is also very interesting. That’s a general tip, really make sure that you properly manage your pipeline, meaning create whatever account it can be on any CRM and start doing weighted pipelines, meaning that you assign a deal size or a deal amount to a new deal and work with stages and work with probability. Every stage you have higher probability to close. If you do a cold email versus if you’re already running a pilot, it’s a very different probability of converting. That weighted pipeline in the end is going to give you so much predictability anyway. That means that back to that money machine, if you know I send out 100 emails, I get one deal that’s worth 1K ARR, then you know how many emails to send to reach certain KPIs. This is what VCs also really love to see. Okay, we know that predictability, we understand what’s in the pipeline, we know the total value, and we know it’s just a matter of time until give or take, this will come out and this amount of money comes out.

[00:20:38.620] – Lotte

It’s that supporting those projections hypothesis.

[00:20:43.520] – Joran

That’s really nice. I think not all companies use a CRM at the beginning, but I think this is the best tip you can get, use a CRM. And if you make sure that it’s up to date, which is always really tricky, especially early stages, because there’s a lot of things going on, you have a lot of heads to wear. But I think it is one of the most important things, and I sometimes feel doing it as well. But in the end, always keep up and then make sure you project things, which is just going to help yourself, but then also indeed with raising money here.

[00:21:11.680] – Lotte

100%. And especially also if you hire your first sales people, which is usually the case between pre-seed and seed, you hire your first maybe one or two sales support people, account executives or whatever seniority that you want them to have. And it’s really interesting to maybe even split up those pipelines between what you can do as a founder and what those salespeople can do. Because you as a founder are the biggest advocate because that’s your life, it’s your baby. You need to be able to sell as a founder, right? That’s your passion. Then a salesperson coming on board and even if they might be part of an ESOP plan, so they feel like part of the company, they’re never going to sell as good as you as a founder. It’s really interesting to see that pipeline based off a new salesperson or someone that’s not a founder and see how well that works. Because if you become a 200-person SaaS company, you’re not going to do the sales yourself. Maybe you’re going to do some partnerships, but you’re not going to do all the sales yourself. You need to be able to scale it. This also really proves the point back to when you start raising and just in general, it’s a good lesson to understand because the numbers are always going to be a little bit lower.

[00:22:25.870] – Lotte

Even though you don’t want the tool, it’s going to be like that. But then still, if the numbers are good, even with new people, you have some gold in your hands.

[00:22:34.230] – Joran

Yeah, exactly. I think you touched upon a lot of things as in if you are going to hire, the conversion rates will be lower, the salary of the salespeople. You can calculate your customer acquisition cost, which you also touched upon. You can really see is this scalable, which is going to help you to project things and basically look for really be data-driven. It simply starts with just putting things in the CRM system so you can start measuring things.

[00:22:58.560] – Lotte

Yeah, exactly.

[00:22:59.810] – Joran

When we talk about SaaS companies trying to secure a pre-seed or seed round to keep it a bit in that context, what process would you recommend them to follow?

[00:23:11.160] – Lotte

First, start gathering your, we call it a data room, and that can be including a pitch deck. Start just together with the founders, sit down. Worst case, lock yourself up somewhere, preferably Sunny, to get together around the table and really sit down and work on that because in general it’s good for the direction of your company, and then start sitting down and crunching the numbers and seeing how are we going to build this business together and who’s going to do what and how are we going to build this out in the next coming years? Out of that you can create a pitch tag, but then it will also really give you an opportunity to look at, Okay, what are the problems that we have today? Based on that, you can start deciding, Okay, do we need… For example, do we need an angel that has super-focused or a VC that has super focused experience within my industry because we’re really struggling with the sales processes there? Or do you say, Okay, we found it and we just need money right now and just more general coaching or something like that? Really the fine for yourself what do we need and also create a plan for the upcoming years financially.

[00:24:20.930] – Lotte

Look at your cap table and really check, Okay, this is what we have now. I want maybe 10%. I want to give away to VCs in this round and I want to create a 5% to 10% ESOP plan to be able to hire. It’s a holistic approach to really see for the upcoming years where do we want to move towards, where do we want to end up. Even start talking about what’s my exit plan? Us Europeans really don’t like to think about exits. We’re like, No, but it’s our baby. We’re going to work on this forever. No. I think the best thing you can do is really decide for yourself, I’m going to build a business and that’s the point at the horizon and that’s the point where I want to sell my business and start a new one. This is what we often see. It’s more of an American approach. Us Europeans really don’t like thinking about it too much because we don’t like bragging. I think us dutchies are maybe a little bit better on that. But you see all over Europe is just a little bit, I call the European humbleness, really sit down, crunch out everything, have that plan, have that thought on the horizon and then start reaching out to fixes or to angels, whatever or it’s the best thing for you.

[00:25:31.500] – Lotte

You can find people on investors, you can find them on events usually. For example, we are also always at the bigger events such as… Yes, we have the next web, for example, in Amsterdam or we have Web Summit or Slush, we’re pretty much everywhere, stand out and be at the drinks instead of reaching out cold, because reaching out cold at events never really works in my opinion. Cold outreach is a possibility, but to be honest, if you have somewhere away in, even if it’s one VC that you know through a friend of a friend, talk to them and ask them to do more intros. Because warm intros with VCs are so much more likely to get you into the conversation, into their pipeline, as opposed to cold outreach because it’s just overwhelming for all the VCs. There’s a lot of applicants, there’s a lot of… It’s hard to be the loudest one in a batch. For the prepping, then you need to start talking to multiple. Usually what we see, even in larger pre-seed rounds, but especially during seed rounds, find a lead. Because once you have that lead investor, a lead investor means that someone really owns that big part of the legal side.

[00:26:43.650] – Lotte

They usually define or help define the terms more often and then other people follow those terms basically. Sometimes they even help with fundraising the other ones. If you can find that lead as soon as possible, that’s really going to help you put some pressure on it. Otherwise, it can take a long time. Really see how much you can do there. Once you find the lead, once you find those other investors, fine-tune what terms you’re always going to negotiate. Find out until what terms do you want to go. Also, really, up until the day before at CIT, you can still move things around. Look at the ideal mix for you. Choose the right investors. Choose the investors that’s going to bring value to you instead of just providing money. Even though you might think you only need some money right now, it’s always good to have a good support system. Even if it’s just a really good community that’s behind a VC, it just really can give that extra 10% to your company. Do your research on those VCs. Even call up portfolio founders. We’ve had one guy who we funded, I think, one and a half years ago.

[00:27:50.560] – Lotte

He called up. We funded, I think, 20 startups at the time. He called up all of them. He was like, Guys, what does it like to work with PitchDrive? It’s like we really put in all the effort that we can. Luckily, we had some good responses from those portfolio founders. They were super proud to work with us. But it says a lot because there are also some VCs out there that promise a lot and don’t do a lot. It’s a good due diligence to do on your VC to really fine-tune who do you want to have in your cap table. Because it’s also a bit of a marriage, right? You’re going to spend a lot of time with them, maybe a lot of rounds, maybe until the exits, you’re going to have to take these people along and every time, every single round there’s got to be the question, do you want to follow on? Do you want to exit? There’s always going to be, because our shareholders they have something to say in your company and they’re in your board and pick them nicely. That’s my biggest, I guess, my biggest tip here.

[00:28:51.040] – Joran

Nice. It’s the most common thing you can do to avoid common horror stories. Do your own due diligence. Make sure that you actually check who you’re indeed getting in marriage with because that’s always what it is. I think one thing you mentioned as well as in where do you want to exit? What is the valuation you want? Have your exit plan in mind. Would you then recommend only having a number in mind, but also think about, Hey, we want our company to be purchased by Google, for example, or by HubSpot or by Salesforce. Do you need to have something or is it purely the number?

[00:29:23.830] – Lotte

A number is always hard to put on it. You can dream about it, but the number is often very hard to put a realistic number on it. The latter one, which you mentioned, find a use case. I want to have HubSpot buy me in 10 years or in five years. It’s super helpful because… I’ve always have plan Bs because they don’t acquire every day. Really have those plan Bs and really think about, Okay, how can I fit that use case? Because apart from having to build a business right now, someone has to find you interesting enough to acquire you. You would have to fit within their use case, within their thesis we call it, to acquire and it needs to be a add-on. It’s super important to have that idea in your head on who do you want to have acquire you in the end. What type of company? It doesn’t have to be a name even.

[00:30:18.570] – Joran

Nice. The other thing you mentioned, which I found interesting as in VCs have a good community or they have a good network which can help you. But to get in there, make sure you get intros. Make sure that you actually also build your network before building the network with investors to make it really complicated. But go to Indeed events, go to communities where other SaaS founders are. A good event is, for example, SaaS Darket is, which is in two weeks when this episode goes live. But there’s a lot of communities out there which can connect you with other SaaS founders. By doing that, you also get often real expectations. You can hear real stories and you can talk with others without the judgment as well. That just allows you to also think a bit broader.

[00:31:00.380] – Lotte

They always give you free tips, which is great. This is the best thing you could get is just go out and talk to a lot of people about your idea instead of doing the full pitch deck and people saying, Okay, yeah, we’ll get back to you in a couple of months. It’s okay, you talk to someone over a beer, maybe even get them a little bit drunk and pull all the information that you can out of them.

[00:31:21.210] – Joran

Exactly. That’s the best way just to make sure that you build up this relationship and you have an honest conversation and not just people trying to be nice to you. 100%. Nice. I kept saying pre-seed and seed in one sentence, I think until now, can you explain to me what happens between pre-seed and seat? Because they’re not the same, so what is in between them?

[00:31:41.710] – Lotte

Differentiates between every startup. This is just a more generalistic thing. We usually see between pre-seed and seed. I think sometimes there’s a product launch that happens in between. Going from MVP to really launching an actual product, finding that product market fit is one of the biggest things that between those stages. Really finding that stickiness, finding, okay, these are the people that like it. Side note on that, I know we love to talk about ICPs always. We always advise do not stick to an ICP for the first year because you’re always going to shift around, you’re going to learn you haven’t talked to that many people yet. Maybe your ICP is a agency right now of 20 people, but maybe in a year it can be a construction company of 2,000 people. It’s okay to change, so don’t get stuck too much on ICP today. I’m one of the bonus tips. But yeah, I think usually that product market fit is really important. During that time, that first revenue, usually people get to maybe even 1 million ARR plus at Seed Stage and that’s a bit larger. We really see that sales falling, the first money coming in, maybe the team growing already a little bit between those stages.

[00:33:00.730] – Lotte

Pre seed is often still the founding team, plus a little bit here and there. It matures a little bit that startup and it becomes more than just an idea and two guys in the garage, but it becomes more of, Okay, we have a business, we know it works. Now we’re going to use the seed money and really start scaling up.

[00:33:19.160] – Joran

Yeah, and it goes back to what you said at the beginning, basic processes, sales channels, and the product-market fit, which is a really good one, of course, to have and to aim for. We are coming to the end, and always like to ask these two questions at the end. When we talk about funding your SaaS, what advice would you have for SaaS founders in different stages? Then to begin with, somebody growing to 10K monthly recurring revenue?

[00:33:43.430] – Lotte

I would always say open up shop. Put your sign-up button, big fat sign-up button at the top of your page and start going out everywhere because you’re going to learn so much. You’re going to find out so much from your users, talk to your users, call the ones and call especially the ones that don’t return. Those are the most interesting ones to learn from because you want to convert those to use it. Really start going out there because you’re going to pivot. You’re going to change a little bit here and there. We’ve seen startups change so much from the initial idea just because they opened up shop and they just went out and talked to people. I think even further stage, but especially when growing up to 10K MR, I think that’s the most valuable thing you could.

[00:34:34.080] – Joran

Ever do. Nice. When we passed that stage, so we’re now at 10K MR and we’re going to grow to 10 million AR, which is a big growth, of course, a big step. What advice would you give somebody here?

[00:34:46.250] – Lotte

Professionalize your pipeline? We mentioned before, really professionalize that weighted pipeline, create predictability within your company, find out what sticks, what doesn’t, and even more than what it did before and just start growing like crazy and do things smartly. Also, one tip that I have there is don’t hire too quickly. We always say hire when it hurts. It’s very often people say, Okay, I just raised money. Yeah, I’m I want to hire 20 people. No, start with the core. Hire where it hurts, play it smartly. Now I’m going to sound like a broken record like everybody else is saying, but we live in a time and age right now that there’s a lot of things that can be super easily automated with AI. Really invest more time in that today. Setting up those scalable processes more so than scaling a huge team right now because you’re going to experience those pains definitely if you have all of a sudden 100 people working for you and you don’t know what to do with them. There’s a lot of things that come to play on that. Be a bit careful on that and focus more on the right processes than hiring a lot.

[00:35:57.910] – Joran

Of people. Exactly. The answer is not always in hire more people, that’s for sure. It’s indeed the first time we mentioned AI in this podcast, but you can do a lot nowadays with automating things, that’s.

[00:36:08.760] – Lotte

For sure. Yeah, I’ve become an expert at prompting and it’s going to give you a lot. It’s CEO slash prompting officer or whatever. It’s going to save you so much time, so much money, so much effort in the end. It’s just a bit of time investment right now, but it’s not even that hard.

[00:36:24.470] – Joran

I always use it also for my podcast to come up with clever questions. Final question from today, what is one thing you wish you knew 10 years ago?

[00:36:34.550] – Lotte

That’s a very good question. I think the best answer to that is you really don’t know shit and you need to figure things out together. I’m coaching a lot of startups. The most important thing is that I learn together with those startups. I see things in industries that I’ve never worked in before. I talk to them and I learn about it and I apply it again to other startups. Really, you don’t know anything and learn together and just think very pragmatically always and just test things out. It’s okay to make mistakes and leave each other to leave mistakes. I think that’s the biggest learning and also but I wish I had AI 10 years to go because that would have made my colleagues experience a lot easier.

[00:37:24.250] – Joran

We were able to write papers a lot quicker than back then.

[00:37:27.750] – Lotte

Yeah.

[00:37:28.410] – Joran

100%. Nice. Thanks again, Lottia, for coming on. You mentioned already if people want to get investment in from any VC, they need to have a warm intro. I guess by hereby now as we’re connected, feel free to message me if you want an intro to Lottia. But if people want to reach out to you directly, what would be the best way to do this?

[00:37:48.020] – Lotte

You can always find me on LinkedIn. So a lot of other moms, my name will probably be somewhere in the title or the subtitle of the podcast. Definitely reach out to me on LinkedIn. Otherwise you can always just go directly to our website, sign up through the form. I think it takes you like three minutes to sign up. It’s basically all around pitch deck and mention that you came through the podcast because then we know you’re a SaaS founder because there are many different types of founders and that you have good taste in what podcast you listen to. So it’s always a little bit of a bonus.

[00:38:21.990] – Joran

That’s a really good closure. I couldn’t do any better. Thank you again for coming on, Lott.

[00:38:26.400] – Lotte

Thank you. Bye-bye.

[00:38:27.890] – Joran

Bye-bye.

[00:38:29.420] – Outro

You’ve been listening to growing a B2B SaaS. Joran has been ahead of customer success before founding his own startup. He’s experiencing the same journey you are. We hope you’ve gotten some actionable advice from the show, and we hope you had fun along the way. We know we did. Make sure to like, rate, and review the podcast in the meantime. To find out more and to hook up with us on our social media sites, go to www. Getredit. Com. Us. Com. See you next time on Growing a B2B SaaS.