Ep. #1229 - Pre-Seed Funding

Matt DeCoursey  0:00

And we’re back, back for another episode of Startup Hustle. Matt DeCoursey here to have another conversation I’m hoping helps your business grow. So many of you out there are hopeful entrepreneur startup founders waiting to happen. Some of you have already taken the plunge, and you know that almost every business they get started somewhere somehow needs some kind of funding. If you’re not used to that landscape, man, it can be confusing, and there are a lot of different ways to do it. Today we’re going to talk about pre-seed funding and the things that occur before you get big. I’ve got a great guest that I will introduce after I remind you that today’s episode of Startup Hustle is powered by FullScale.io. Hiring software developers is difficult, and Full Scale can help you build a software team quickly and affordably and has a platform to help you manage that team. Go to FullScale.io to learn more. There’s a link for that in the show notes. With me today, I’ve got Ryan Janssen. Ryan is the CEO and founder of Zenlytic, and Zenlytic is out of New York, New York doing all kinds of interesting stuff. Ryan, welcome to Startup Hustle.

Ryan Janssen  1:05

Thank you so much, Matt. It’s a pleasure to be here. Absolutely stoked. Love the pod. It is an honor to be a guest.

Matt DeCoursey  1:11

Yeah. And you’re gonna teach me how to say your business name properly. Again, at some point, I think I’m trying, but for those of you, don’t try to spell as analyttic.com scroll on down to the show notes and give a click. Ryan’s doing some great stuff around business intelligence and other stuff. But you know, Ryan, why don’t we just get this conversation started with a little bit about your backstory? And what brought you to Startup Hustle today?

Ryan Janssen  1:36

Yeah, for sure. So I mean, we’re here to talk about fundraising. I’ve got a unique perspective on that because I’ve lived on both sides of the table. And, you know, my long story short is I was actually an engineer in my native Canada for a couple of years. But then I quickly went to the UK. And I got an MBA there. And I kind of hustled my way into being an early employee at a venture capital fund that was just starting out. And I stayed there for about six years. I was investing anywhere from pre-seed up to growth but with a focus on the earlier side of things. So, I do a lot of pre-seed investing there. Saw 1000s and 1000s of pitches. Before I crossed the table, I got so excited by an idea. I said, you know, I can’t just invest in this, I have to participate. Cross the table, cross the Atlantic, went back to do it in New York. I founded Zenlytic with my co-founder, Paul, which is like a BI tool with a built-in LM Chatbot. And as part of Zenlytic, we’ve now raised two rounds of funding. We have and, you know, I, a big part of what I do is I spend a lot of time speaking with investors, and both new and existing, and sort of managing that whole landscape. So, I’ve been on both sides of the table, I have pitched a lot. I’ve seen a lot of pitches. And I feel like I can. That’s why I deserve to have an opinion and to talk about this stuff. There you go.

Matt DeCoursey  2:52

Yeah. Well, you’re working in and around VC, like, you know, before we get into, like, some of the ways that pre-seed funding comes in. I mean, it kind of all starts for us at this point. I mean, I think a lot of a lot of people that I’ve talked to over the years, and I think I’ve recorded eight or 900 episodes of this show. So you know how a lot of a big sample space there I mean, a lot of people just write it, you know, a lot of I found a lot of people have been successful professionally before they started their startup. They’re usually a little older, you know, then you’ve got a whole batch of people that are starting, you know, companies when they’re young, you know, anywhere from who knows when to I don’t know that the older I get the younger young seems, but that I mean, outside of writing your own checks. I mean, what are some of the things that you’ve seen or learned from around VC? Or some clever ways that you’ve seen people fund the business?

Ryan Janssen  3:50

Yeah, for sure. Well, I mean, it changes so much from stage to stage. So I think it probably helps us start with the pre-seed level basically. You know, what’s funny is that people have this sudden misconception whether they want to go start a business, and it’s like, oh, man, yeah, I’d love to go out and build this product, but I gotta raise funding for it. And you know, how am I gonna go and do that and they want to start trying to get investor attention. You know, where I was, I remember the peak of that I was actually at a startup event when I was investing in somebody like spray painted their logo onto a sheep and let it loose in the auditorium. And I was like, this is crazy.

Matt DeCoursey  4:20

Did they get founded?

Ryan Janssen  4:22

I don’t think so.

Matt DeCoursey  4:26

Maybe they were a little too sheepish when it came to.

Ryan Janssen  4:30

That’s right. I heard they got shorn and a term by the term sheet. Those are they Yeah.

Matt DeCoursey  4:38

That was that was that was like a one two punch of bad dad jokes.

Ryan Janssen  4:43

Every dad joke in this?

Matt DeCoursey  4:44

I’ve done a whole bunch of them about startups and entrepreneurs don’t get me started, Ryan?

Ryan Janssen  4:49

Well, I’ve actually I’m actually a dad so I just born for this role.

Matt DeCoursey  4:52

By the way, I’m waiting until the next time I have to speak in that event. And I’m not going to do anything but tell dad jokes about us. Ah, I’m not gonna tell the hosts that but when I get up on stage, that’s when I’m planning. So yeah, I’ll put the sheep in there.

Ryan Janssen  5:07

You know, it’s funny in the big data world, there’s actually a big community of like data folks and dad jokes are a foundational part of that community’s foundational part of life. So that’s right, exactly. The older I get the better.

Matt DeCoursey  5:20

So outside of putting your logo on a sheep and releasing it in an event, which, by the way, I don’t recommend that could actually be illegal, where you live. So look that up.

Ryan Janssen  5:32

Oh, yeah, don’t, don’t do that. I’m not saying do that. In fact, I’ve said the opposite, which is like, people go out and they do the cart before the horse. They’re saying that you should they spend all this time trying to get investor attention. So they can go and build the thing they want, what they should be doing is build the thing they want, so they can go and get investor attention. When I when I went to go raise our pre seed round, I was quite prepared to go and use the network that I built up as a VC. And before we even had a chance to do that, we just started getting introductions from from new friends in the industry. And you know, our we were a little incubator, and the incubator had people recommending us to other investors. And it just happened so organically, we just started getting in touch with people that I never had to tap my own networks to fundraise for really for either of our two rounds so far. So Lesson One is that, you know, even though as a VC, I didn’t get a big leg up by having the network and I didn’t need to use the network, I think the much more effective thing was that my co founder, Paul and I were just really passionate about this. And, you know, we’d set out to this really start building what we were trying to build. And it was early and it was rough. You know, for sure. But by putting ourselves in the ecosystem, and you know, having the start of a product, that was all it took to start getting those conversations to happen organically. It didn’t take a whole bunch of hustle outbound cold, emailing, asking for intros, we just were building an interesting area. You know, we had a few people who are willing to sort of connect us and like I used to be at such and such. And we met other people, we need it. So like I would say, ironically, the best way to fundraise is probably to start building. And at least,

Matt DeCoursey  7:09

I feel like you came into that process with a little more maybe cred and understanding. You know, you had been around the startup space. You’d worked at a VC space. I think that makes it a little easier for for people to want to maybe listen to what you’re saying. Just yeah. And so, you know, I think before we get into like, okay, look, here’s like the holy trinity of pre-seed, I’m gonna go ahead. This is a, what is that? What do they call it? I’m gonna give away the ending here, that maybe not bootstrapping friends and family and Angel investors are like the holy trinity of pre-seed funding, right? Now with that, though, I think you really have you made a brilliant point. I don’t know if if you were making it on purpose, but the how you got it? Why are you credible? Like why do I want to listen to you and I think is the very first thing if you’re going to look for, if you’re going to look for funding, whether it is from friends and family or angel investors, or anyone, you know, like I think you need to take sit down and write out some things like, for example, for you, you had already been around the startup ecosystem. You had worked in venture capital. You had heard a lot of pitches, you were maybe aware of some problems that needed to be solved around business and data analytics and stuff like that. And that made that a little easier. So, for those of you out there that want pre-seed, like, why do I want to listen to you and me when I say I don’t mean me, personally, I mean, anybody that’s out there, so what’s your level of expertise? I think if you spent the last 10 years working as an insurance adjuster, that maybe name image likeness, licensing for sports, it might not be the great the best match for you because I’m gonna sit there and go, what do you know or understand and and around this business or problem solving problems for it, but then you might come back, you might say, you know what, I went to Harvard, and I have a degree in sports management. Oh, that makes more sense. So, like, what are the you know, some of the stuff I think, before you even go out and look for it? Like, if you’re not willing, I think that’s why so many people write their own checks in the beginning. Do you know, dude, I have a funny story. I actually wants funded a business with a stack of my friend’s credit cards. Really? Yeah, you’re kidding me? No, no, that worked out great, man. I wrote a book about it books called Million Dollar Bedroom. We did. All right. But yeah, I mean, there’s a lot of different ways to get out there and do stuff. But if it was credibility, you know, and like and so so where where does that exist? And you know, you mentioned hearing 1000s of pitches or, you know, over the years like didn’t do you agree or disagree with the credibility thing? Because I think if it’s not there, you’re going to have a very difficult time getting anybody to even care.

Ryan Janssen  9:51

Yeah, yeah. A few things to unpack there. I would say though, the first thing is on the credit card story, have you know the the roulette wheel story, Guy No. So like there was a famous founder who went out, you know, he had he put set up the amount of capital that he needed. And they didn’t have enough. They couldn’t raise what they needed. So they literally went to Vegas, red or black, put it on black. They won that double that took it to what they needed to raise the money. That company’s name, Federal Express. Right? And that was Alfetta. Because of

Matt DeCoursey  10:25

your but yeah, I

Ryan Janssen  10:26

don’t recommend that either. But you know, they got it done.

Matt DeCoursey  10:28

I mean, I will say when it comes to the chance that your startup is going to be successful, 50-50 isn’t so bad. That’s right. Yeah, that’s really could be good all week.

Ryan Janssen  10:42

So now, the next thing is, yeah, you’re right. So like, there’s two things don’t pack one is, I didn’t use my network as a VC to fundraise. But I think what the benefit that I did have from being a VC is that I was better at speaking the language, right? So like, I sort of know how to articulate a pitch, I know what works, what doesn’t work. And I think it’s important for everyone to get to a certain basic level there. I think, you should read a couple of the books like you know, like bus gang master, the VC game, read a couple of books on the mechanics of VC. Listen to some of the podcasts, go listen to a few 20 minute VCs, for instance, which I’m not affiliated with, but I just think it’s good, but go and listen, you know, go and find some some public pitch sessions on YouTube, things like that. Just just get a feel for the cadence and how, what the language is, and what’s important and what’s not important, how to articulate the business. So those are all things that you should have some basic proficiency, and that I had, you know, as a cheat code for my job. What I didn’t have from my job is actually the bigger advantage, right, which is suitability for the problem founder market fit, right, that’s so important at the pre-seed stage. And like you said, like, it’s not even necessarily just finding the exact match of like, what your previous job was versus this job. It’s really about building a narrative. And if I were to recommend one book to read, actually, overall, it’s probably this book called Story Worthy by Dick’s it’s, it’s a book on telling stories, which is so important in any sales process, whether you’re hiring, whether you’re selling your product, or whether you’re fundraising, probably most of all, for fundraising. And if you can put together a narrative that ties in your past experience, your deep understanding of the problem, your passion for solving it and fixing it, you know, and why you’re the right person to do that, like that’s 80% of the battle. And I think, you know, the vast majority of founders have not been VCs like me. But the vast majority of founders do have a story that can really tie them to the problem they’re solving or else they probably wouldn’t be solving it, right? So like, if you’re thoughtful about that you articulate your previous experience that will shine through and that will help you raise pre-seed successfully.

Matt DeCoursey  12:45

How many? So I’ve asked this a lot. And I was just thinking about this. I’ve been asked this to someone in a while. How many pitches did you have to get before you gave a yes?

Ryan Janssen  12:57

What I when I when I pitched my pre-seed round? Yeah. What we were doing higher? Yeah, we were, we were kind of an unusual one. And our story, actually, like I said, one of the reasons I didn’t have my network is this was early, one person got funded. Yeah, we got our lead for the first pitch. That’s unusual, our pre-seed round, we’d probably spoken to maybe 10 or 15 companies. Again, that, you know, part of that is doing the homework. And we can say you know why that number is lower than the average. But I would expect, I think a typical sort of process, I would expect to speak to between 50 to 100 investors. Now there’s

Matt DeCoursey  13:44

a number that’s the exact number I was just sitting on. And right in the middle of that is about where most people kind of end up. And that’s going to be, it might not be true pitches. But these are actual conversations that sometimes lead to something after that. And the reason I’m bringing this up, because if you’re listening to this, and you’re interested in pre seed funding, I don’t want you to quit after five. Yeah, that’s right. Because most people, that’s the only way you can do better than you did is to get funded without the pitch.

Ryan Janssen  14:14

Yeah, that’s right.

Matt DeCoursey  14:17

So yeah, so that’s again, 99th percentile kind of thing. But I think most people I’ve spoken to over the years, were in that 50 to 100, like true contacts. And these are well that and I think you have a great point too because you talked about doing your homework. If you’re if you’re going to start looking for pre-seed funding, you aren’t, you aren’t going to have success sent waste. You’re wasting your time talking to sources that don’t do pre-seed funding. It’s a pretty simple way to put it, right?

Ryan Janssen  14:48

Yeah, that’s a pretty common mistake. You’ll spend a lot of your time chasing funds that are not excited about your industry. You know, so Yeah, are you stage you know, fit is really, really important. But So you gotta kiss a lot of frogs. And part of that is just, it’s a numbers game, like any sales process, part of that is, you will, you know, if you give a better five, you’re not going to see and you’re going to meaningfully improve your, the quality of your pitch over time, you know, and you’re going to take things away from every pitch you do. You just have to see patterns, you’re gonna see common questions and you’re gonna learn how to, you know, address those present those, think about those have a position on those, you know, like anything else, you just gotta get the reps in. And you know, once you get that sort of muscle memory around, what you expect that conversation look like, you know, the last, whatever 30 conversations are gonna go much better than the first 30. So like, you’ll learn as you go. There’s no, there’s one important thing too, which is like, you know, why did we have lower numbers for those, and I would say, there is a way to flex that down. It doesn’t always work, but I think you can, you can definitely improve the speed and ease are what you pitch by doing your homework in advance. Now, what I mean by that is, for example, this is for our seed round, not our pre-seed round, but we had actually started talking with our seed round lead, Bain Capital ventures, we started speaking to them, basically, the day we closed our seed round, really the same week that we closed our pre-seed round, sorry, the, we started talking with our seed round lead. And we were introduced to them and just did a check in and we were like, You know what, sorry, we just raised the pre-seed round. Now, we can’t fundraise right now. But like, let’s just keep checking in, you know, that involves sort of calling shots, it’s like, hey, let’s, let’s, let’s check it in six months. By then we’re gonna have x, y, and z done, you know, a second and a quarter, oh, by then we’re gonna have grown by 5x, you know, whatever it is gonna be. And, you know, we just kind of showed them, we call the bunch of shots, and we made it shot called shot, he called shot eight, and then just built the relationship over time. When it came time to go and do that seed round, we reached out to a handful of funds that, you know, we’ve been doing that with a few raise their hands, and we just picked up prior to that we thought to be the best fit, which was great for us too, because you know, that process. Also, legato, let us get to know the funds really well. So I guess a lot of what I’m trying to say is a lot of the pitch happens before the pitch, you know, it’s about preparation, building relationships, you know, building trust, showing credibility, I think that’s all things you can do before you even sit down at the table.

Matt DeCoursey  17:18

Well, you know, in the pre-seed rounds, you could find that it takes infinity to close the round to get an investor. And then you might find that you get it like you with one person like these are I like I like the seed and Angel pre-seed kind of rounds, because you get a lot of people in there that are that right, smaller checks, but they play a little faster and loose with those checks in many occasions. You know, you’re talking people that right 25 50k, I don’t know, 250k kind of checks, I don’t think you’d typically find the $5 million one from a lot of people. But there are a lot of, you know, Angel level investors, and that’s friends and family and stuff like that, that that are out there. So you know, it could happen pretty quickly. And then it also can’t. Now, one of the things is, you know, as we kind of approach the halfway point of the show, I want to remind everyone get your shit together. Like, if you go and give a pitch to me, and I want to invest, how easy is it for you to collect my money and get that done? And I think a lot of people go out and start poking around. And then all of a sudden, they get someone that wants to write a check. And they’re like, ah, what do I do now. And I remember the very first time I went through this process myself, I actually hired a consultant to come in and like work with me. And he’s this dude traveled to Kansas City and stayed here for a week. And I mean, I got everything together. I mean, it was literally like a, you know, a process, you know, here’s step one, or step two, step three, step four, and like, and then this guy, just beat it into my head, he’s like, you are not going to talk to anyone until you are able to collect money. Because if someone wants to give you money, you need to be able to take it. Otherwise, everything that you’ve done and everything you’ve worked for to that point could turn into vapor. Because what happens if everything goes right, everyone’s trying to prevent the sky from falling. And you know, that doesn’t necessarily have to be the case, it doesn’t have to be difficult, much like finding expert software developers doesn’t have to be difficult, especially when you go to FullScale.io where you can build a software team quickly and affordably. You can use Full Scale as platform to define your technical needs and see what available developers testers and leaders are ready to join your team. Go to FullScale.io. While you’re there, go toZenlytic.com. It’s in the it’s in the show notes, scroll down and give a link or click the link. Now you know so much about you know, we’re in 2023 and there’s a lot of startups and a lot of businesses and stuff out there you got to find be prepared to explain how you differentiate and that’s what I’d like to ask you how to so when I hear business intelligence and data analytics and analysis, be realistic. There’s a lot of companies that do that. Why was Zenlytic different? And what got people excited about that?

Ryan Janssen  20:04

Yeah, 100%. And so if possible, if you just put a quick pivot that to just on your last point to about, you know, being ready for closing that deal. There’s the old saying goes, you know, once you have that interest, you need to turn your entire business into a giant Buy It Now button, right? It’s just like what I was as like, reduce that friction that looks like different things at different stages of the, you know, of the deal. And it could mean for example, if you’re doing a seed round or a Series A round, you have a well populated data room, and basically, a whole bunch of copy and paste bubble stuff that, you know, the VC associate can easily make their investment committee decks. At the precinct academies, you’ve got a bunch of references lined up, right, they’re gonna ask you about, hey, can you provide character professional references, whatever, you should talk to those people at events, let them know things are waiting so that when you get that question, you are back in five seconds, here is all the references you need. Keep the momentum up simple.

Matt DeCoursey  20:59

one pager, here’s the problem. Here’s how we solve it. This is what we’re looking for. And this is what we hope to do. No one wants to read your 63, no one will read your 63 page business plan maybe ever, but definitely not on firstly.

Ryan Janssen  21:15

Yeah, totally. Alright, so now. Yeah, good, great question how to differentiate that’s, that’s, that’s actually a really great question for like selling stuff. It’s also really, really important for VCs. And this is how VCs think about this as well, right? And there’s different ways to articulate that landscape, I suppose. So in our, in our particular example, you know, our culture is actually in the form of the story that I would actually use as like a founding origin story to. We’re different, because we’re self-serve, you know, where we call ourselves the world’s first self serve BI tool. And you probably have heard the BI tools call themselves self serve before that actually means, you know, static dashboards are kind of like a very, very top down, you know, static experience versus actually going exploring and understanding what’s going on in your data. Now, my co-founder, and I actually, the very first thing we did when we were studying is analytic, because we committed to doing a bunch of consulting work. So, we could see through the eyes of all of our users, basically, and we could be these data science consultants. And it was the same problem over and over again. We’d go and set up a BI tool for them, any of the, you know, the big BI tools, of course, they’re all pretty good. But we ended up getting like all these questions back. So like, we’d set this up and say, alright, here’s your sales dashboard. And they’d be like, great, thanks. And the next day, they’d be like, Oh, wait, can you slices by x? Oh, wait, can you show me this last month, too. And, you know, we started being on the receiving end of the quick data polls, which are never quick. And it just made us realize just how if if you’re, if you’re a nerd, like me, if you know, SQL and Python, it is incredibly powerful. And it’s exhilarating, just like, you know, surf around a data warehouse. And you can learn so much in such a short period of time. If you don’t have the time or the desire to actually learn those tools. It’s a pretty different experience. And we saw that these folks, we set these dashboards forward, come back to us constantly, and they’re just completely dependent on us. So we said, you know what, there has to be an improvement in the self-service experience. Most BI tools are secretly built for analysts, you know, the sequel does pop up from everywhere, and things like that. We’re committed to doing self-serve. The interesting thing is, that’s how we’re different. The funniest part about it was actually that that probably wasn’t even possible when we started. That was, you know, two years ago, when he started building this product, we sort of, you know, smoothed out some of the rough edges of self-serve and made a slightly better user experience. But the real big unlock for us was the AI revolution, the LM revolution, generative AI revolution. And, you know, the end state of BI is, you know, emailing people like us. Like, you know, like emailing the data nerds. And we realized there’s a tool and a technology out there that would actually emulate that automatically in seconds. And like, we’re like, this is self-serve. So we leaned heavily into that. And we finally realized that goal by having this AI always on, you know, data analyst chatbot, deeply integrated into the tool. And I guess that’s how we’re different now. So like, long story short, self-service is the name of the game. And now that we’ve had this platform shift, it’s actually achievable.

Matt DeCoursey  24:15

Well, that’s where you got to stand out because, look, the people that you’re pitching to, like, the ocean is just too big. There’s too many drops in that bucket. And you can’t expect the everybody you speak to unless you’re talking to like a VC firm that literally it stays in one lane, which yes isn’t always the case. Right? And so with that, don’t you know as you go out to explain the problem that you’re solving, I would just decide to make the assumption that the people you’re talking to have no clue that the problem you want to solve even exists. So, you need to tell him that because here’s the thing is a confused mind, almost always says no. And if you’re gonna if you confuse people, that’s what I say. Keep it simple. You know if you’re gonna confuse people or run the risk of it, you’re gonna run into a no, almost everytime.

Ryan Janssen  25:04

So like, there’s really three questions that you try to answer in a VC pitch, right? It’s like, why is this a big problem? Why do the right team to solve it? And why now? And actually, the one that’s often forgotten is the why now one, which I think people are good at the first two, they’re actually the weakest that the why now but let’s let’s just unpack that little story I gave about our business about how it answers those three questions. Right. So like, you know, why is it a problem, we motivated this friction laden, people constantly emailing data teams. It takes a lot of time on both sides takes a lot of efforts. You know, it’s, it’s a problem and like, so like, we start with that. You know, implicit in this, and we sort of turned it into the narrative, but it’s like, you know, why are you the right team to solve this is that we’ve been on the receiving end of those, right? And like, like I said, I was a VC before this. So I didn’t have that benefit of, you know, being a data analyst for 10 years, I’ve always been kind of analytical, but the consulting part, and the consulting work, we did that, so we can really understand this problem, right? So, we get a deep understanding of that. And then the important thing is, you know, the why now, right? The way VCs think about this, is correct too, by the way, and it’s like, if this isn’t that big of a problem, why hasn’t somebody already solved it? Which is true, you know, like, if, if self-service such a big deal, then why hadn’t Tableau Tableau solved it last year, for instance, right? They’ve been in business for 25 years, or something like that, like, isn’t theirs as good as it gets? Are why now was that platform shift, there’s lots of different ways you could use, one of the most common ones is like new technology, unlocking new ways of interacting or using software. We just happen to have had a generational one of those, right? And, you know, I really believe that pretty much every industry is going to be impacted by this. But we’re gonna see application layer software using these LLMs, and pretty much every single vertical. And that’s just happened now. So the why now is that that is going to shake things up, that is unlocking new ways to solve this previously unsolvable problem. We’ve had a front row seat since before that platform shift to the problem, and we’re the right team to solve it. So like, that’s everything I’m trying to wrap up in that little origin story.

Matt DeCoursey  27:07

I want to point out how quickly you stated that, you know, just like it went, when you wanted to compress it, you’re like, here’s the problem. Here’s the solution. This is why we need to solve it. I’d say there’s one thing that I would maybe like to see at the end of that, which was what is it going to take to solve the problem. You know, like, and you’re like, and here’s the thing, people grossly underestimate the amount of time while a the amount of time it’s going to take to raise a round, like you mentioned closing pre-seed, and you’re immediately working on the next round. I mean, you’re looking at like, it comes from institutional-type money, I mean, five to nine months is probably an average amount of time for you to get through the diligence process. And too many people wait too long to get ended out. So you know, you do need to keep moving forward with that. Now, you know, but I want to, I want to kind of blaze through, I got a list of, I want to I don’t want to get out of this episode without laying a bunch of things out there. So, we’ll go kind of wrap it. Did you ever do any accelerators or anything like that?

Ryan Janssen  28:13

Um, yes, we did one accelerator, which is, it’s called grad school, it is called Grand Central Tech based in New York. We so they’re a little different other accelerators. We did it because it was zero cost. They actually don’t ask for equity. They don’t ask for, you know, the money or anything like that. They just give you a great space to work at a cohort. And we’re like, yeah, sure, there’s no cost let’s do it. Completely exceeded our expectations. Like I said, that’s where those initial introductions for the you know, the one pitch pre-seed round came from was a couple of people in that class. And when I got there, started interacting with the cohort, and I realized that I had no business being there, and that I was the dumbest person in the world in the room. I was incredibly happy to be there. That’s kind of satisfies my lifelong goal to be the dumbest person or that the playoffs. That’s my ongoing objective. And they had just great advice, great connections. And yeah, it didn’t cost us a thing. So it was absolutely worth it.

Matt DeCoursey  29:07

Well, you know, another way that I see and I actually work in, you know, for those of you that aren’t aware, most of the cast of Startup Hustle is in Kansas City. And we’ve got some great grant writing organizations here. I actually work with Launch KC to help them teach their grant recipients how to give a one-minute elevator pitch. I’ll tell you what, bro, they show up. And if you’re listening, you know as you they’re bad. They’re really frickin bad. You know, like, you get one minute, and they’ll burn the first 30 seconds thanking their mom and their cousin Tom and, you know, a lot of that stuff and by the time they get to anything that matters either halfway out of time, and B most people have quit paying attention. But anyway, there’s a lot of grant stuff out there. In this particular case, you know, Launch KC, which is Part of the Economic Development Corporation of Kansas City gets $50,000 grants and they give out a bunch of every year. So I mean, you can get out there, you can get grants, you know, past guest. And, you know, Roy Scott from Healthy Hip Hop, he made children’s hip hop, that teachers has an app, all of it, and, you know, they give kids grants all day, all the time, but you gotta go out there and find them, and they’re all over the place, I can’t really give you like a uniform or streamline way to go and get that. But there are a ton of grants out there, did you, I don’t feel like that was probably the right path for your business.

Ryan Janssen  30:41

So we didn’t do any grants, specifically. We had a couple of rebates, whatever your whatever, like you’d like R&D rebates and things like that, from from the government, and, but those

Matt DeCoursey  30:56

edits and stuff like that, this

Ryan Janssen  30:57

is the r&d tax credit. Yeah. So like, we were, you know, qualified for that, and things like that. So like, those, those were very helpful, especially at the at the pre-seed stage. And the great thing, the superpower, you know, running the business of the pre-seed stage, is that it doesn’t take a huge amount of money to make a huge impact. You know, and if you go out and find even it could be for granted, it could be from an angel, it could be from a credit could be whatever it comes from a sale. But you know, you go and stumble across, you know, 30-40, grand, whatever it is, you know, you can invest a ton with 30-40 grand and make a huge impact on the business, right? That’s ready to bring on freelancers, that’s better to run your ad trial. So you can go into the you know, if, if you found that money before your pre-seed, and you go into raise the precede having spent $10,000 experimenting with, you know, paid advertising on LinkedIn and Google search, that puts you in the top 1% of qualified businesses, you know, pitching that VC, so that really stands out. So like, that doesn’t take that much money, as you get bigger and bigger. Suddenly, it feels like those were not willing to do for you and your buddy like that, like that’s like, you know, that’s just gonna be a bunch of time for not that much money. But at the pre-seed stage a huge, huge impact. And that’s, that’s your superpower, right? You got to know what, what you’re really, really good at, at the pre-seed stage.

Matt DeCoursey  32:12

In that particular case, and the thanks for bringing that up, because it’s not on my list, because it’s not a, quote, funding method, like an investment method. But a lot of people are industry experts, you know, they have worked in and around whatever, pick it for a long time. And they truly understand a problem that no one is solving. And that way when they go out, and they want to start a business that solves that problem, they get it people will and it’s been like that, for me at Full Scale. As you know, the I’m the CEO and founder of the company, we’ve got over 300 employees. Why? Because people have a very difficult time hiring offshore developers. And there’s a lot of weird marketplaces that quite honestly have some sketchy trust factors about them. Right? So, we fix that and made it and and, you know, people say, Well, what do you sell? And sometimes if I’m feeling mildly snarky, I’ll say peace of mind. Which is true, though because we, you know, there’s like, you know, if you’re going to start, if you want to go out and you go hire some freelancers, or whatever, well, first off, you have no accountability with that. Second off, there’s no processes without and these are these little things. And it was very easy for me to sit down with someone like you and the remote Matt, why should I give you my business, because I get where you’re coming from. I know what it’s like to wake up at two in the morning and wonder if I’m going broke, if every decision I’ve made was wrong, or if I’ve gone already gone crazy, maybe all three. And you know, when you can tell someone out, and as a startup founder, you can relate because you’ve done all those, right? So that people like to do business with people that they feel that are like them, and that understand the problem. So like, if you you know, I said if you came from 15 years of experience in whatever industry, you may actually be able to go out and find people that will prepay or beta pay or however you want to look at it, and give you some revenue upfront because they’re willing to take a chance because that problem is aggravated them for so long. So that’s, that’s, and those same people might also become your investors.

Ryan Janssen  34:20

Yeah, that’s one of my students. Well, interestingly, it’s funny too because sometimes I think early, early founders worry about doing consulting work. You know, the, like actual because I mean, like, I know, you’re talking about of straddling that, which is also great, but like, I think that they are concerned that VCs will be like, Oh, this is a consulting shop, and this is not a scalable business and whatever. I think that those concerns are usually pretty overblown. I think. You know, I think it’s okay to go out with a almost non existent product and just sort of try and find some original or some some, some true believers, the very, very start and work with them to build that product. And I think it’s more than and find the treasure for that. And I think you’re going to spend a ton of personal time on that. And I think that Great Investors will also really, really respect that hustle, you know, and that’s, that’s, that’s a lot of the pre-seed game is, you know, discovering PMF and getting in, you know, just sort of getting in and seeing things with the eyes of your user. And, you know, so long story short, I think founders should not worry about that, basically. I think it’s totally fine to, you know, get very, very hands on with initial customers. I think it’s also very good to charge them for it for a litany of reasons,

Matt DeCoursey  35:32

Yeah, sure. You know, one of the things that’s out there now, that definitely did not exist, when I first started doing all this was a lot of the crowdfunding and equity crowdfunding platforms. You know, like Kickstarter, and Indiegogo and stuff like that they’d been around for a while. And honestly, those are usually good for products. Like if you make a product. There’s a little something tangible, it’s easier to get adoption from that. Because you know, here you are making something cool, and someone wants to be the first people to have it or whatever. But, you know, some of these equity, you know, your Seed Invest and Crowdcube, and stuff like that weren’t even legal 15 years ago, and now they’re out there, you know, and they’ve all got different levels of stuff. But you have the ability to do equity crowdfunding in a legal way where you couldn’t do that before. I think that’s the world of startups, technology and entrepreneurship responding to a problem where you couldn’t do that before. So now, let’s not leave that out there. Now. I’m sitting here, I’m looking at this list, and it says bank loans on here, I’m saying No, good luck. Like, banks don’t give loans to new businesses, they don’t give loans to businesses that have no revenue. And if you don’t have a profitable business, on top of all that, move on, that’s not your form of that’s not your best form of precede funding, unless you’re willing to sacrifice or leverage a lot of things that exist in your personal life, which I don’t recommend doing. Yeah, if if you know, that’s where the veil of like an LLC are setting up in its own entity, as the business is, as is, that’s why it’s there. So you aren’t. So if whatever you’re doing fails or doesn’t succeed, you don’t lose your house, your car and your life along with it.

Ryan Janssen  37:24

Yeah, as a startup founder, you’re already putting enough of yourself on the line by going and starting a business. I think it’s perfectly reasonable not to put yourself personally at risk for stuff like that. It’s also I mean, so bank loans, I think it’s really tough to do, but it is worth putting venture debt on the table. So there’s a couple of caveats, though, the first thing is that venture debt is more common later stage versus pre-seed. It’s pretty uncommon at the pre seed stage. Secondly, venture debt requires you to have just raised an equity round pretty much, right. So like, they’ll come in after you’ve raised around, and they’ll give you some more cash that you pay back on a debt schedule. But you really, really need to have, you know, cash from the investors in there. So like, you know, the way it’s kind of secured against the money in your bank account from those investors. So, that’s the second caveat is yeah, later stage. And the third caveat is, if you’re thinking about venture debt, run the numbers. So, sit down with Excel and say, Here’s how far you know, our revenue is gonna be, you know, we’re gonna burn x a month, this is what everyone is going to look like. Now, here’s what happens if we get the venture debt to pay back this much every month. And we you know, whatever. A lot of people run those numbers, and they find that really only buys even though the numbers look big because of the way those payback schedules are designed. It only adds a couple of months of burn in time, like counting like calendar months, you know, so the actual impact can be fairly can be fairly small. Not not the case in all cases, but just go and do the numbers to figure out if it’s worth it or not. And like the best case scenario for venture debt, is actually you’ve got a strong immediate need to go and deploy a whole bunch more cash than you’ve just raised. So like, and that is going to be important now and not 12 months from now, and not 18 months or now. But now Now in venture that is very well suited for those situations,

Matt DeCoursey  39:11

we actually did that Full Scale years ago. Rather than selling equity, we just did a venture debt round, and we raised $750,000 in a week. And now we paid that back in an amortized way with a very healthy return. Which was a really good decision looking back at it because the company’s worth a lot more now than it would have been at the time and also it was a you know, and luck. You need to go look that up and do some research on it. You’ve got everything from venture debt the way we did it. And those kinds of notes are basically you have lenders, not investors. You need to go talk to an accountant, you need to talk to an attorney and you need to make sure also that you’re taking that money in a way that makes sense because you can’t take it from everybody. So know the landscape with that the same thing with just general angel investing and, and stuff like that. Now, I do also want to say that if you’re, you know, any sit down and make sure you understand what convertible notes do and what safe agreements, it’s a simple agreement for future equity. And there’s just like a lot of different things out there that are gonna seem a little overwhelming and confusing at first. And once you gain an understanding as far as how they work, as well as how that debt is positioned in the landscape of your business. Like, and when I say how its positioned, well, if you go out of business, who gets who gets the first shot at the assets? And also, if you sell the business or like, I don’t know, what does it cost? Because some of this stuff can get pretty expensive. And if you don’t know what you’re agreeing to, you might find yourself last in line for getting paid. Yeah. If you’re okay with that, that might be the right thing for you. So, well, Ryan, we’ve raced through another episode of Startup Hustle was brought to you by FullScale.io. If you need to hire software engineers, testers, your leaders Full Scale can help. We have the people on the platform to help you build and manage a team of experts. You go to FullScale.io There is a link in the show notes for that. And with that, it’s time for the founders freestyle. Which I’m going to give you the mic and you know that you know, we raced right through this episode, as I mentioned, so you know, what stood out? What did we leave out? And is there anything else that you’d like to say that we forgot?

Ryan Janssen  41:42

More dad jokes?

Matt DeCoursey  41:43

As I got when I wrote my pitch deck in Braille, I’m gonna get funded, I can really feel it. Just like head top that that’s the best one I just dropped. just closed it out.

Ryan Janssen  42:01

Yeah, that’s fantastic. Yeah. Yeah, that was a great chat. It was awesome chat. It’s like, I guess it’s just so I used, I used to do set chats like this all the time as an investor as well. And like, I guess investors bring in a good perspective on things. But I really, really enjoy it when when two operators get down into sort of talk about the trenches, you know. Like, you certainly pick up a lot of these things, just while you’re doing it. And I hope I feel this came across this anyway. But you know, it’s just great to speak with someone who’s clearly like an experienced practitioner in this stuff. You know, who’s who’s seen it, who’s lived it, and, you know, who really understands it deeply. And the only way you can really do that is by just starting a business and getting a ticket into it.

Matt DeCoursey  42:39

Yeah, I think, you know, for my free, so I’m going to mention that. There are a lot of people out there who have an understanding of this. And look, I feel that as an entrepreneur, other entrepreneurs have been the greatest supporters in me, and what I’m doing and in, here’s the thing, reach out to people, you know, reach out to people and get advice, get input. I rarely, I can’t even think of an entrepreneur that I’ve met or I’ve known that wouldn’t doesn’t have some affinity for the space and entrepreneurship. And like, I look back, you know, I’m 48 years old at this point. And I’ve done this for a while. But when I was in my mid-20s, I had these people that were interested in me, and I was like, Why is this person showing? Why do they care? They have other stuff to do. And then you kind of get to know them, like, oh, you remind me of me when I was younger, or like I remember when I was getting started are there is this guy or gal that helped me out. And I just didn’t. I was thinking about that. And I need to pay that back. And you know, there’s a whole community of people out there that are really open and willing, though. They’ll listen to your pitch, they’ll give you advice, they’ll give you input. The one thing that comes with that, though, and I learned this pretty quickly, is you need to make it easy for people to help you if you want help, make it easy for people to help you. If I’m reaching out to Ryan, I call him up, and I’m like, Ryan, I can get an incident via text message. I really need some advice from you. When are you available? And where can I be? What can I do to make this as convenient for you as possible? And yeah, it’s hard to say no to.

Ryan Janssen  44:18

Yeah. The classic example there the forwardable blurb as it’s very relevant for fundraising to write, or it’s like if you want to get an intro to somebody like, hey, yeah, can you put me in touch with x from fund y? That’s weak sauce. Don’t say that. You should be like, Hey, listen, could you read that I’m gonna write? I guess I just sent you a separate email with the email that you can forward that articulates you know my company. Why I think they should take the meeting and you know what I want to get out of it. Like, if you could just forward that on to this person and, you know, like just articulate objections, make it as easy as possible. That’s like the little individual micro-version of the Buy Now button, right? it’s like that Help Me Now button.

Matt DeCoursey  44:57

Yeah, I went through that, you know, when my first book, Balance Me, came out, I asked, I take a lot of pride in not asking people for stuff. Because when I do, I’d like it if you pay attention, but I asked a bunch of people, and I was like, hey, my first book comes out. I’m really excited about it. Could you say something about it on Facebook? Dude, 90% of people said, What do you want me to say? And that was like, You gotta be kidding me. Right? So, when my next book came out, I took the approach that you mentioned and made it easy. And that because I realized where I had made the mistake the first time and kind of passed by, I was like, so the second book comes out, I say, hey, you know, my second books coming out. Could you consider published posting this? Hey, my friend Matt has a new book out about entrepreneurship. I think you’ll really like it. Here’s the link. I gave you give him a couple of different blurbs, and a couple of different images. Like, we even do that on the podcast, you know, like you, before this comes out, you will get an email that says hey, consider posting, here are three different examples. Here’s a couple of images, here’s a video or whatever, and you know, make it easy for people to help you, and they will. Once again, everyone today, Ryan Janssen, CEO and founder of Zenlytic, there’s a link in the show notes for that. Look, you’re gonna have to give a lot of pitches. You’re gonna probably hear a lot of no’s but you only need to hear one yes to get it started. Get out there and make it happen. Ryan, I’m going to catch up with you down the road.

Ryan Janssen  46:26

Thanks so much, Matt. Been a pleasure.