Ep. #1183 - Raising Capital in Saturated Markets
Today’s episode of Startup Hustle features Matt DeCoursey and Jon Ricketts, CEO of Writerly. They discuss their experience raising capital in saturated markets and the keys to fundraising in such environments. Listen to Matt and Jon explore how saturated the AI startup scene is today and how to impact and educate the market. Further, Matt and Jon also share their thoughts on using your network and why a jockey always needs a good horse.
Covered In This Episode
AI seems to be in everything these days, from manufacturing to content creation. It would be safe to say that the AI market is rapidly approaching saturation. Writerly’s CEO Jon Ricketts tackles the challenges of raising capital as an AI-based company.
Listen to Matt and Jon converse on the difficulties of raising capital in saturated markets, as AI is. Jon touches on needing a good story, market research, and peer companies to help educate the market. They discuss dealing with heavy use cases early on and the importance of data specificity when raising capital. Jon gives a final word of advice to founders looking to raise money: ask more people.
Are you ready to raise capital in a saturated market? Join the conversation in this Startup Hustle episode now.
- Jon’s backstory (1:37)
- Is the AI startup scene already saturated? (2:59)
- You need to have a good story (4:44)
- Do market research (9:48)
- You need peer companies to help educate the market (12:03)
- Dealing with heavy use cases early on (16:18)
- The importance of having specificity in your data when raising capital (20:00)
- Use your network, angel investors, and other alternative capital sources (24:27)
- Listening to the echoes (26:43)
- The jockey or the horse (30:19)
- We all never failed until we did (37:57)
- Jon’s advice to founders who are looking to raise money (42:07)
- Ask more people (44:18)
What we’re seeing is that the market is looking for AI to have a major impact in the long term. Those that are able to come up with a good story that has unique product market fit and a good team should have an opportunity…to at least get in front of institutions to raise capital.– Jon Ricketts
From a market development standpoint, you need competitors. And when you’re early on, like, we don’t call them competitors. We call them peer companies. We’re not tripping over market share right now. We’re not competing. And you need your peers out there because, in a true market development sense, you have to educate the market at the same time you’re selling, and that can be very difficult. Those peers out there in the market are helping in warming it up alongside you are very, very beneficial.– Jon Ricketts
I think a lot of people that haven’t raised capital before tend to try to cover the flaws. You’re going to make a better impression on sophisticated investors if you can show that you’ve identified the flaws and demonstrate that you have a plan for fixing or eliminating them. That represents a more sophisticated founder and entrepreneur than someone that comes in and wants to tell you everything’s rosy and happy all the time.– Matt DeCoursey
Rarely will you ever win a deal on the first, and this goes to a founder pitching for capital. You’re gonna have multiple meetings. But it’s really easy to lose a deal in one meeting. So when you see things that jump out, that scream, hey, this person doesn’t understand the market, or they’re a little naive, or they’re arrogant about their abilities. Those are really bad signals that can sink a good opportunity and perhaps a good product market fit. But it comes back to the founder being a source of truth.– Jon Ricketts
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Following is an auto-generated text transcript of this episode. Apologies for any errors!
Matt DeCoursey 00:00
And we’re back, back for another episode Startup Hustle. Matt DeCoursey, here to have another conversation I’m hoping helps your business grow. Speaking of your business growing and infusion of capital can usually help with that. I know so many of you’re interested in how to raise funds for your business. But how do you raise capital when you’re in a saturated market? That’s what we’re going to talk about on today’s episode of Startup Hustle, which 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 the platform to help you manage that team. Go to FullScale.io to learn more, there’s a link for that in the show notes. So once you scroll on down and click it. Joining me for today’s conversation is John Ricketts. John is the CEO of Writerly, you can go to Writerly.ai. There’s a link in the show notes for that, you do not need AI to find it. So once you scroll down and look for it. Straight out in Nashville, Tennessee, John, welcome to Startup Hustle.
Jon Ricketts 00:59
Hey, thanks for having me, Matt. Looking forward to talking over the next half hour or so. A lot of respect for your show. And looking forward to what we have to talk about.
Matt DeCoursey 01:09
Well, thanks. I like what you do, too, I think as the author of three books, and someone who is constantly looking for the written word as well, I appreciate the various platforms that help writers because it’s, it’s, it’s not as easy as people think it is. Now, what is easy, though, is starting our conversation with a little bit about your backstory. So tell us what, what brought you to where you’re at and what you do.
Jon Ricketts 01:36
Yeah, so my career has been spent in both startups as well as multinational corporations. So I’ve been on either one side of the fence or the other no middle ground. Typically, with companies that are employing less than 20 people or with companies that have employee greater than 50,000. Having the benefit of starting my career early on, in startups, you know, helped sort of obviously shape, you know, what I learned what I wanted to do. Pivoting, then to, to large, sort of corporate life and more business development and corporate development roles, then ultimately facilitated a move back to the startup world about seven years ago. And that’s where my focus has been. Love building, I love growing, and, and surrounding myself with with people on my team that that share the same vision, and can move quickly. I think that’s really what it’s all about. So we started right, early, early 2022, really saw what the generative AI was going to be capable of doing for both small and medium sized businesses as well as large enterprise customers. And that’s what we’ve been focusing on for the last 18 months. It’s growing very, very quickly, scaled very quickly. So we’re happy about that. And look forward to kind of seeing where where we go from here.
Matt DeCoursey 02:59
Yeah, I’ve noticed that on your on your side, it looks like you’re serving a huge number of businesses. So congratulations on that, especially considering the the or the recent launch. So now, you know, we’re here today to talk about raising capital in saturated markets. And this might be a fair question right off the bat is the you know, so much money flowing into the AI and just the whole AI startup scene right now, is it already saturated?
Jon Ricketts 03:30
You know, you could make the argument that from the, from the perspective of the, you know, from someone that’s not in AI, that it does appear that way. It’s hard to read anything right now without seeing any sort of a business publication without seeing an AI company that’s raised, you know, a substantial amount of capital to fund their endeavor. But we have to remember that AI is much like the internet, right? And I think most people right now sort of anchor their AI knowledge, at least in the generative sense to ChatGPT. It’s much, much broader than that. The use cases outnumber, you know, what, what people are familiar with, by an order of magnitude. And so you have a lot of really smart people on a lot of really interesting companies right now building for use cases, that that are so vast that I you know, from my seat, you know, I don’t, I don’t believe we’re anywhere close to saturation. Though it may seem like that. I do think that there’s a level of fatigue that’s occurring right now. Because AI is dominating the news cycle. And so while we are maybe a little bit tired of hearing about growth companies and capital raising, particularly within AI, we’re just getting started.
Matt DeCoursey 04:44
So when it comes to raising if the market is saturated, and I think, you know, let’s, let’s take a second to kind of define that. So anytime you have a market that’s saturated, that’s going to be too much competition or too much, perhaps interest in it. I think that anybody that’s ready has capital or gone to a pitch meeting? Or has has possibly heard the following phrase? Well, this is a really crowded space right now. And there’s an 800 pound gorilla in the room that just raised $300 million, or whatever. You know, how do you how do you begin to get around that? And, you know, I think the number one thing is you get me, you get to come in, well, it certainly doesn’t hurt to come in with some kind of unique selling proposition. And maybe that’s that, that use case or that niche type format. I mean, where do you start, if you believe you’re in a saturated anything?
Jon Ricketts 05:33
You have to have a really good story. That’s first and foremost. And it has to be interesting enough to actually get the meeting right now because I think what you’re seeing from institutions, is that they’ve come across AI for probably the last 12 months, maybe longer, 15, 18 months, but certainly accelerating. What we’re seeing a lot in the marketplace with these new AI tools that are being, they’re being launched is that they’re, they’re more or less wrappers. And what they’re doing is that they’re application layer software, wrapping a foundation layer technology, and then offering it as a consumer product. You’ve got multiple variations in the app store right now of, you know, quote, unquote, ChatGPTs were look like companies. And and, and that’s great, because some of them actually have some some nuanced differences. Most of them are just rappers. And so if you’re, if you’re going to market right now, and seeking to raise capital, I think it cuts both ways. AI certainly gets a lot of interest. But AI also causes the level of scrutiny for your company to go up inside of these, inside of these meetings. And then even before you advanced the diligence, certainly it’s a hot space.
Matt DeCoursey 06:45
Tell me why, though, tell me why that because I think that that’s the beginning focal point of the saturated market is like really having to explain, you know, the difference of what you’re doing and why you’re because you know, you talk about saturation, or things that might have a low barrier to entry is that what is that the real question? Is it like, hey, we could put millions of dollars into this. But it seems to me that anyone else that put millions of dollars and could build the same thing? Or is it a different?
Jon Ricketts 07:15
Yeah, I mean, what you see right now is, you know, it really follows the true technology trend, whether it be you know, just look at the internet, for example, your foundation layer, technology has far outpaced sort of the application layer, what we’re seeing right now is the application layer is catching up. So everyone’s focusing on the application layer, who’s able to sell an AI-related product to the marketplace. The barriers to entry for wrapping an AI product are pretty low. It doesn’t require a deep amount of capital investment. Doesn’t require deep team to do that. To really have an interesting use case. And to have a hyper vertical solution that pairs AI with some other interesting forms of maybe data analytics. That’s where I think the market has movement. If you take a step back and look at it from a macro perspective, any market that’s worth going in should have a lot of people, should have a lot of participants, right? So that’s a good signal. First of all, because if you’re the only one doing it, from an optics standpoint, there’s a lot of curiosity as to why you’re the only one doing it, right? So I do think it helps that there are so many others that are that are rushing into this space. But it takes again, that level of scrutiny for what you’re doing, it places a higher emphasis, if you’re going to seek to raise capital in this market, you have to have a really, really good story. As to the demonstrated product market fit that you’re coming with, that you’ve got customers that are either coming out of beta or ready to buy right now. And then you’ve got the total addressable market that that makes sense. You know, we’ve seen companies raise 30 million pre-revenue, almost pre-product on a 300 million post in this market, related to AI. We’ve seen AI companies raise $100 million in this marketplace. We’ve had our own institutional meetings and we’re a venture-backed company. So we have a little bit more insight as to what the market is requiring and demanding. But I think what we’re seeing is that the market is looking for AI to have a major impact in the in the long term. This is a long play. And so those that are able to come with a good story that have unique product market fit and have a good team should have an opportunity. Should get the at bats to at least get in front of institutions if they if they so choose to raise capital. Your generic wrappers are beginning to you kind of, you kind of see right through them right now and they’re gonna have a difficult time.
Matt DeCoursey 09:48
Yeah, so you know, I think one of the keys is if you’re going to raise capital and saturated market is to do an appropriate amount of market research. I don’t think you want to go and I think if you go into a meeting a pitch meeting And you’re you’re here, you’re raising funds. And you’re talking about how you don’t have X amount of competition or whatever. And, you know, here’s the thing is most of the time with a couple Google searches an investor, like, right there at the table, can can put a couple things in, if you’re sitting and go, we don’t have any competition and they Google and find nine pages of it. You know, then that you’re well, you’re going to look at you don’t have your finger on the pulse of the industry or the business. I think that that’s a big thing. I think that also competing in saturated markets, you require a different type of plan, you know, what are you going to do to differentiate? What are you going to do to stand out? You talking about the AI, I’ve looked at a lot of the AI stuff that’s come out, you mentioned like a generic, anything with a wrapper on it, that becomes more of a marketing play, than it does a technology play? So what is your what is your brilliant marketing plan for capturing X amount of, of the market, I can see why investors and startups in general are aggressive and hungry right now. Because there is a lot of market share to capitalize on. I think. So you know, we’ve been using AI as an example. But there’s a ton of saturated markets out there. I mean, I think anything that becomes popular at all, or useful or lucrative gets saturated in a hurry. So I think you got to be you got to deal with that. Now, obviously, you know, people will say, well, I’m going to focus on a niche market. And I want to go back to what you were saying, anytime, okay, anytime someone tells me they have no competition. I think either the same thing that you were, I was like, maybe there isn’t a big opportunity here. Or maybe you just have no clue that you have as much competition as you have. So I mean, that can all come up, you know, I mean, that’s going to expose itself. And yeah, really, if you are, in fact, the first person to do something, congratulations. But be a little leery about it be a little Larry here in 2023. There’s, I don’t know, man, there’s competition and everything. So it’s kind of
Jon Ricketts 12:02
From a market development standpoint, you need, you need competitors. And, and when you’re early on, like, we don’t call them competitors, we call it we call them peer companies. These, these are peers, we’re not tripping over market share, right now, we’re not competing. And you need your peers out there. Because in a true market development sense, you’re you’re having to educate the market at the same time you’re selling. And, and that can be very difficult. And so you know, those those peers out there in the market that are helping warming it up alongside you are very, very beneficial. I too, I would be very leery of being the only market participant somewhere. Now, there are certain the
Matt DeCoursey 12:39
In a saturated market, though you shouldn’t have to develop customer. You shouldn’t have to be too deep in customer education because it’s saturated for a reason, meaning a bunch of people already know about it. But yeah, you’re definitely right. If you’re like the only one that does it, people just don’t even know to go look for the solution. I don’t think oh, this could be an issue. It’s, like, there’s been generative AI tools out there for a while, you know, for a while, and then all of a sudden ChatGPT comes along. I mean, it’s done a great job. But at the same time, you know, it’s like, I don’t know,
Jon Ricketts 13:14
I can take away more
Matt DeCoursey 13:15
confidence, and they expose themselves to it the first time or something. And then like, you mentioned, that peer company says, oh, maybe there’s bigger, broader solutions, or maybe I can actually see a quality level of output. The problem I have with like AI and like things that took text or speech to text is because I you know, being the author of three books, that’s how I did the first one, like, years and years ago. That’s how I help, you know, some of the efficiency of writing. And I was just remember sitting there going, you know, I didn’t say Betty White, you know, or something like that. And, you know, it’s like, gosh, you spent as much time correcting it as not, but who knows? Yes.
Jon Ricketts 13:53
Let me go back to a previous point that you just made, though, about the market education in a saturated market. You’d be surprised right now, how many? How many institutional investors that are still anchored to generative AI around ChatGPT. There is yes, you could say that, that the market is becoming saturated to an extent with a lot of participants. But the the level of market education and market awareness around what generative AI is, and what it can do, is still very, very low. And most people are still anchored to something that’s really inauthentic and inaccurate, on the basis of what you’re potentially building for, what others are building for. And so you kind of have to unwind a little bit. You have to walk these people through, you know, their, their, their natural starting point is, you know, how is this different from ChatGT? And if you’re looking at a data product, or you’re looking at something that’s completely different, you’re going okay, you know, maybe I’m dealing with someone who doesn’t know as much about this, this market as I initially thought. And so, you’re having to start at that level zero and tell that story and walk him through. And you’d be some maybe not so surprise, but these are these are, these are associates and partners that that well known VC firms. So it’s been an interesting last 12 months.
Matt DeCoursey 15:11
Well, the I mean, if your venture capital in general, as is very trendy, I mean, you know, that’s not, that’s not opinion, that’s, I’d say, that’s fact at this point. And these, these winds sway and go, you know, push you in one direction puts you back in another, and then you get obviously, you know, world conditions, you know, like the pandemic changed the need or use case. I mean, well look at zoom, you know, Zoom was, it was popular, and then it was everywhere, you know, and, you know, some of that stuff’s gonna, and obviously, that drew a lot of interest and changed the valuation with that company. And, you know, and then sometimes that’s hard for young companies too, like, I mean, it’s your according to your website, you’ve got over half a million people have tried your platform. And that’s a year old, like, you know that. I think that the moral of the story there is be careful what you ask for because you might get it. How did you guys deal with that? Because that seems like a pretty heavy, seems like a pretty heavy use case for the age of your company.
Jon Ricketts 16:18
Yeah, so in that half a million is really come in the last six months. So, we came out of beta in early December. And our goal after Q1 was to have 20,000 users to be able to get us a cohort of, of data to then tell us, give us some some direction on the vertical aspects, you know, because Writerly at its core is really a horizontal, generative AI platform. We don’t cater to a specific industry. We have a lot of users across a lot of different use cases. But it’s a really beneficial tool for those that use it and to ourselves also, because our users will ultimately be the voice of the customer that guides us on what to build next and which vertical avenues to to attack. And so we want to 20,000 at the end of Q1. And we ended up with 150,000. And that was on a static, very meager, you know, Google ads and organic campaign just to get some users to be able to tell us, hey, what’s good about our platform and what needs work. From there, we kept acquiring users. We saw a lot of our templates, and a lot of our use cases start to pop more so than others. And ultimately, that led us around the beginning of June to go all in into an e-commerce hyper vertical product. That is going to be able to pair a lot of disparate data sources along with an e-commerce store, and then leverage a little bit of absorptive AI in the middle to to give online sellers and retailers kind of a head start on some things that they have normally ordinarily wouldn’t have. And so that’s exciting. So that’s that’s sort of the genesis of Writerly. And we keep, we keep acquiring about 100, 225,000 users every month. And those users are certainly providing a lot of important data back to us that are going to help launch the next, you know, two, three and four products out of that horizontal platform.
Matt DeCoursey 18:15
Whether you have a good point when it comes to, you know, if you can, if you can show up to your pitch meeting and have data. You know, like you mentioned, like, hey, we tried 100 templates, and okay, here’s the thing, if you make 100 templates, you’re going to quickly find that 20 of them are going to get 80% of your total use, right? But I mean, the Pareto principle tells us that it probably was about was out about correct?
Jon Ricketts 18:44
It was probably closer to, to 10 and 90.
Matt DeCoursey 18:47
Yeah, yeah, yeah. So those stand out. But I think that shows a level of sophistication within a product team to be able to say, okay, so look like, let’s put our emphasis and proving these 10 things. It’s kind of like any software startup, it’s like people, you know, you have issues in the beginning, sometimes with the stability of all of it. And if people like you have these QA problems, I’m like, there’s 10 things in your platform. And then if they aren’t working, it’s frickin broken, like, you need to like, stop doing everything else and fix them. But it’s kind of the same thing. We you evolved to that next step as a product is like, say, hey, look, we see a big opportunity now when you mentioned that, that some of those big those 10 templates in your case were related to e-commerce. So the ability to create I’m assuming to create text and descriptions for listings or Amazon or any of that stuff and, okay. So now now all of a sudden, it’s like, because I will say like writerly kind of the name does kind of imply it maybe it is for like a writer like a book writer in some regards, but it’s you know, it’s it’s broad enough to still say hey, we can help you with a lot of things. So when you did you take did you write have you raised any money since the launch?
Jon Ricketts 20:00
So we have. Yeah, so, we’ve closed it.
Matt DeCoursey 20:02
Did that help, the specificity of your data?
Jon Ricketts 20:06
It certainly did. And so what did you know the capital raise for us was more or less from a, we were we were revenue positive when we went to market to raise our seed round. And what we wanted, was we wanted more data, because we saw the rest of the market was kind of losing their minds when it came to trying to raise capital, trying to put an MVP out there that was, you know, may work may not. And so everyone was hyper focused on speed and moving so quickly, because once ChatGPT launched, it was the horse was out of the barn. And we made the very it was a curious decision for us at the time, but we wanted to be patient, we said, look, you know, we will let everybody else sprint. We’re going to continue our pace right now, because we need data we need to test. And we need to understand who our customers are and what this market really wants. Because at the application layer, what we saw were products being built and pushed to market that users were a little bit hesitant and reluctant to. We haven’t built this trust yet with AI. We haven’t figured out the alignment between people and AI. And is AI going to replace people are people going to use AI. And so we took the approach of hey, look, slow, the slow is smooth and smooth is fast. And so we raise the capital to be able to sort of extend our our product testing phase. And not only did we get do we get a higher level of sensitivity with our data, but we got we got far more specificity than we had. We’ve got a cohort of over half a million users right now. And that’s growing, and our data is only getting better and better, and ultimately going to guide us into what we build where we invest next.
Matt DeCoursey 21:46
Yeah, back to you. Moving down the list of things that can help you raise money in a sat in a saturated market. I want to talk a little bit about some alternative platforms. Before we get into that I want to remind everyone that finding expert software developers doesn’t have to be difficult, especially when you visit FullScale.io where you can build a software team quickly and affordably. You can use Full Scale platform to help define your technical needs and then see what available developers, testers, and leaders are ready to join your team. Go to FullScale.io to learn more. With me today. I’ve got John Ricketts, CEO of Writerly, you can go to Writerly.ai to learn more about what they’re doing. I’m a big fan already. Like I said I love it anything that makes writing easier. It’s It’s amazing. I’ve been writing blogs, books, all of it for coming up on 20 years now. And it is unbelievable how hard it is to find people that will actually write content. Like it’s an I have learned that universally humans seem to hate writing. So yeah, any tools that make that easier are good. Alright, so whenever I hear like something saturated or overcrowded, or there’s a lot of competition, my thought process begins to flow towards alternative quote stuff. You know, and I think that you look here and 20 in 2023, the accessibility to getting funds from things like even like investment crowdfunding, which wasn’t there 10 years ago. I think if you’re in a saturated market, there’s also a saturation of ways that you can raise money for and I think it’s a smart to look into. You know, you, I think you’re probably fully aware that your use case isn’t typical for most companies that are a year old. They aren’t adding six figure numbers of users or trials every month. So you got to try to get that critical mass going forward. Now there’s, you know, all kinds of alternative things, and why not start with your own network? I think that anytime you’re a founder and entrepreneur, or you have believers or any of that, talk to them, you know, those are people that are often gonna write you checks. Did you get did you have that true Angel type investor at any point? That’s not like, a lot of people call themselves angels. When I think about angels, I’m thinking about like, Mom and Dad or Uncle Billy or like, you know, your, your, your old high school basketball coach or something that, you know, did you did you? Did you find any network and build any relationships that turned into people that are on your cap table?
Jon Ricketts 24:27
Sure did. And that was that was really important for me initially to go out. And I’ve been a part of several Angel syndicates over the past decade, and have co-invested alongside of some really successful angel investors. And I went to my network first. And so I self-funded operations for a period of time. And then once I felt like we had you know, enough of a product market fit, enough of an opportunity. I went to an Angel Network. That was really just close to me, these are first degree connections. And I put a deck together and I said, Look, I said I want to, I want to make I want to pitch this and and I want you to to evaluate this not as, as John, your or your friend or someone who you’ve co-invested or known for a while. But really, really tell me, you know, what you think because it’s going to help me hone my message over time. So I was able to get some, some reps and at-bats. And I went to to 12, angel investors in q4 of 2022, and receive checks from from 12 out of 13, which was far more than, than I sort of expected. But these are people that are very close to me. And I had the benefit of developing that strong Angel Network over the better part of eight to 10 years. Always the wise thing to do, go to the people you’re closest with and, and tell them look, don’t invest in me as the friend or me as someone that you know, I want you to invest in this company. And what you think I’m the one that’s that’s leading the company. And I want to hear the absolute truth from you because it’s only going to help me going forward. And I had some very critical feedback, which was extremely important. Fortunately, a lot of those that offered critical feedback, invested with the caveat that, that I implemented their feedback, which was always welcomed, and that that really established a base. And it gave me a group of advisers that I could go to, at any point in time. That weren’t these are people that weren’t just checks, they were important to me. They’ve been important to my network for a while. And they were going to be important to ride going forward. And that certainly served as a springboard as we have more and more conversations with, with institutions.
Matt DeCoursey 26:42
I’ve served as a mentor and investor to a lot of early stage companies. And I think one of the things that those that don’t have experience are often guilty of is either chasing the wrong feedback or not understanding when to listen. Now in your case, you talk about talking to 12 or 13 people, if you want to know what what the most valid feedback as I always tell people, I say, listen for the echo. Because there was there, was there were a resounding echo and any one point of feedback that you heard from a bunch of people, and you’re like, Oh, well, this, this is probably pretty valid. If 8 of 13 people all gave me the same feedback point here, they might be on to something where if you get that one out of 13, that is kind of out there, those are the shiny things I think you have to maybe sometimes look to avoid. It doesn’t mean that’s not good feedback. But there are definitely, there are definitely always things that have a resounding echo.
Jon Ricketts 27:43
Yeah, we didn’t have an echo. And there is a reason. I know exactly what you’re talking about, and that’s it. That’s a fantastic point. And that’s really important. And as someone who listens for for an echo, not getting one was a little bit alarming. But here’s here’s why.
Matt DeCoursey 27:59
And that would alarm me too, by the way. I’d be like, that could be confusing. Yeah.
Jon Ricketts 28:03
it was it was very, it’s a mixed signal, right. And so what you’re dealing with, though, in in any sort of early stage, generative AI, when you’re going with with investors that have that have been successful angel investors for a while, they’re pretty well versed. They’re very broad and have a level of knowledge across a multitude of industries. This is such a unique technology, that, and mind you, ChatGPT when I began having this conversation hadn’t hadn’t come out. No one was really talking in the news about AI at the at the level that we are today. And so really having to get them an understanding and walk these investors from this is what AI is, this is what it can do, and this is where I think we can take it. You know, this is sort of my vision for it at this point. We have a little bit of, of alpha product feedback from the market. That was really good. It was very supportive. But here’s, here’s where I want to take this. And here’s why. And here’s the team that I have in the bullpen that that can get it done. And so really, it was it was very foreign to these investors. But really, what it comes down to is a couple of things. It’s it’s your, your, your total addressable market, which is certainly satisfies that, you know, will the product work? You know, we had some very good evidence that that the product not only works but works really well. We had some team members that were ready to commit to come on that had some incredible backgrounds and were incredibly talented. And so I think early on for at least, you know, my particular case, it was more of they were betting on on the jockey not the horse, which is what an angel investor in an early stage company typically knows how to do. Now, over the last, I don’t know, 12 months, 13 months as we’ve sent out monthly investor updates and everyone’s become more in line and certainly seeing the market grow. Everyone’s a lot more familiar and they see now what I saw, you know, 12 months ago, but it wasn’t anything special. It wasn’t, you know, I saw something different than everyone else. It was just that I had been involved in this for far longer and just that, I’ve developed my own assumptions. And some of those have proven correct. And some of those were were incorrect.
Matt DeCoursey 30:19
Yeah, well, but I still go back to that whole point of, if you can, if you can prove if you can prove it, if you can prove it, you’re really on to something. And I want to encourage those of you that haven’t gotten on this road before, because I think a lot of a lot of people that haven’t raised capital before, tend to try to want to cover the flaws, you’re going to make a better impression on sophisticated investors, if you can show that you’ve identified the flaws you and demonstrate that you have some kind of plan for fixing them or eliminating them. And you know, to me that that represents a more sophisticated founder and entrepreneur than someone that comes in and wants to tell you, everything’s rosy and happy all the time. You know, and that tells me at that point, like, you gotta have sunny and rainy day plans, you know, and understand what you’re going to do. And either way, now, look, anytime someone’s going to write you an investment check or put money into your business, they want to know what you what are you going to do? What’s your use of funds, what are you going to, no one’s going to write you a huge check, if you can’t give them a basic idea of what you’re going to do with the money. And that’s, that’s, that’s, I mean, it’s okay, you can be in a meeting and say, hey, look, we have found tremendous success, we’re only a year old, there are a lot of things that we can improve in our platform, here are three or four of them, that will make a big impact. And that can’t do it. And look, anytime you talk about a feature, you need to make sure that you talk about its advantages and benefits, otherwise, you’re not really building much value. Don’t assume that anybody listening, regardless of how sophisticated you think, knows what the benefit of a feature is, you know, like, I mean, it’s true, like, and I always tell the story about going to buy a camera at Best Buy. And the kid there just blew my mind with so many features. I was sitting there thinking, I don’t care about any of this, does it take a clearer picture on Christmas morning, because that’s what my wife wants. And, and that’s an example of a benefit. And that relates a little bit more. You know, like, if you’re outside San Francisco, I think it’s fair to assume that whatever network or investor, whoever you talk to, you might want to still take it from square one. Because, as you mentioned earlier, like the true level of understanding of things like AI are just beginning for the whole. I don’t know dude sought like, Well, I mean, I employ hundreds of software developers, and if you want to come, well, we get John, we get the weirdest asked to be like, we had someone inquire and they, this was in January, and they wanted an open AI developer that had two years of experience with chat GPT. And we’re like, Ha, no one even heard of that a couple months ago. You know, some of that’s like, Yes, I but but on the flip side, you get back to the Okay, so if I’m sitting in an investment meeting, you’re asking me for a bunch of money, say, Well, what are you going to? What are you going to do with it, John? And you’re like, we’re going to build out our dev team big and fast. And I would immediately be like, no, no, you’re not? No, no, you’re not because like, and that can be a tough thing. So like, you get back to that, like use of funds and not like you got to stand out and not look like an idiot. I mean, some of that, like, if you’re going to build a massive team that works with any of that stuff, you may have, you probably should be saying, and there isn’t a lot of expertise out there. So we’re gonna have to create some. Now to me, that would be a lot more sophisticated. And show me that you did understand, like, you know, like what it takes to build it. You can’t you can’t build things that with people that well you can but that doesn’t go as fast when people don’t have experience. Think about anything you’ve ever done. And when you do it the 19th time, you should theoretically at least be doing it better or faster than the other. So I think that level of transparency is important, though, because I don’t know, man, don’t don’t go into the meeting. Without it, folks. It’s Can you when you sit down and talk to someone or if you’re in a pitch me, and I’m assuming you have friends and peers that also asked you to look at things occasionally. And I can smell the lack of passion or lack of transparency. And it’s a deal killer for me every time like if you’re not passionate about what you’re pitching me about. I really can’t smell it because you can just feel it like you know, and that and what that tells me is you’re probably going to quit because it’s I mean passion is the thing that drives you to get up and do it on the days when other people that aren’t passionate are going to take the day off now. If you are truly in fact passionate know that that is a huge differentiator. You now you mentioned the jockey and the horse, which is the exact same question that I use and for the history of this podcast, we’re coming up on six years of doing this. Now, Jon, I have consistently asked investors and fund manager whoever that’s in the habit of writing checks, do you invest in the jockey or the horse? And no one has told me the horse yet. It’s a jockey every time so you get back. So if you’re in a saturated market, who cares if you have the all-star team of all all-star teams? That’s a differentiator. Well, later raise capital who’s on your team? Do you? How do you have the expertise? Do you outclass everyone, you know, making a baseball reference it’s it’s you don’t need a great defense, if you have a guy that strikes out the side every time he gets on the mound. But at the same time, if that’s the only good player on your team, that isn’t really a team, that’s one good player on a team of shitty players.
Jon Ricketts 36:05
Well, I think it’s, you know, from the jockey and the horse analogy, it’s, obviously the jockey has to have a horse, you’re not going to bet on the jockey without a horse.
Matt DeCoursey 36:12
It’s really good point. I’ve ever really proved that one of
Jon Ricketts 36:20
The horse matters to an extent, right?
Matt DeCoursey 36:22
The jockey does and you know, having I’m gonna write that down.
Jon Ricketts 36:25
It’s, yeah, so the horse does matter.
Matt DeCoursey 36:30
To the Startup Hustle Hall of Fame on that one, by the way, congrats. I can already see that home.
Jon Ricketts 36:38
But I think you’re, you’re exactly right about about everything else, there just there has to be there has to be passion. And you have to be a source of truth, you know, the, the things that I see. And this is, this is what we tell our commercial team to, and learn this, just in just as a background in sales and business development. Rarely will you ever win a deal on the first and this goes to to a founder pitching to for capital, it’s really hard to win a deal on a one on a one and done basis, right, you’re gonna have multiple meetings. But it’s really easy to lose a deal in one meeting. So when you see things that jump out, that scream, hey, this person doesn’t understand the market, or they’re a little naive, or they’re arrogant about what their abilities are. Those are really bad signals that can really sink a good opportunity, and perhaps really good product market fit. But it comes back to the founder being a source of truth that can say, hey, this is the reality, this is where we’re going. This is where we’re going to really excel. But this is where we’re vulnerable. And we have to strengthen and to be able to understand and know that about yourself and then portray it is very refreshing. And that’s also very rare because you’ve seen it, people come into pitch meetings, and it’s all sunshine and rainbows.
Matt DeCoursey 37:56
Or I’ve never failed, or I’ve never failed and you’re like, you’ve never failed. I’m not giving you my money because you’re still we all never failed until we did. And, and that, and that and until you did fail, especially if you find some success early on, it’s so easy to feel like you’re bulletproof and, and you’re gonna take an out man, like there’s any entrepreneur that’s done it for more than like a week, and says that they haven’t taken some L’s along the way they’re full of shit. It’s not true. Either that or they’re not paying attention. It’s one of the two guaranteed or some subcategory of either and that’s a huge red flag for me like you mentioned like that arrogance that and I guess they’re I want to I want someone with confidence but I don’t know I’ve gone through this my whole life because I see some people will find me here again and I’m like I’m just confident so it can land a couple different places as well. But the one thing like you mentioned like so I think that’s kind of in congress as I mentioned earlier about people trying to cover up the flaws the st you know a lot there’s a lot of founders out there that are on startup two plus and have had and they failed in the past. I’m fine with that. I like founders with scars, I think that it you you learn from it. And and back to that point, I don’t want you feeling too bullet proof with my money because the further you get down that road and the more you feel bulletproof, the more you’re standing in front of bigger bullets and you’re going Yeah, they just bounce off me until they don’t.
Jon Ricketts 39:28
Till they don’t, right?
Matt DeCoursey 39:29
And eventually they want their Yeah, and it’s just like yeah, so I and I really do think that the sophisticated investors are okay with that. Like I’m okay with some past failure. Like I said, That’s doesn’t exclude you from from being in there. Now. I think if you have had a fail in the past be you know, you don’t have to get into like a 10 minute doesn’t have to be like a 40 minute episode of Startup Hustle about why you fail you say like I was associated with, with this startup. It didn’t go, this is why, this is what we learned from it. This is what I learned from it. And that’s made me a better founder to help bring you this.
Jon Ricketts 40:07
But you know, that was probably a $250,000 mistake made in the past, that could be a very, very beneficial avoidance of another quarter of a million dollar mistake in this venture. And I love I love that. I always love hearing you say that, because the scars are important, you know, because we’re lost you in the past could be an opportunity to not only save but to really benefit from the future. And it’s real, you’re going to fail. At some point, failure is inevitable. You know, if you’re taking big enough steps, and big enough leaps, you know, if you play it safe, you’re probably insulated to an extent.
Matt DeCoursey 40:44
All right, if you need to hire software engineers, testers, or leaders, including AI people, we got some. Let Full Scale help we have the people the platform and the process is to help you manage and build a team of experts just go to FullScale.io. You answer a couple questions, our platforms gonna match you up with fully vetted highly experienced software engineers, testers, and leaders. Full Scale, we specialize in building long term teams that work only for you. Learn more at FullScale.io. While you’re down there in the shownotes, clicking that link, click the one at Writerly.ai. I was checking out before for the record. And I’m going to sign up here when we’re done because cuz your copy probably sucks. Let’s just be realistic, you need better stuff. And it’s hard man. Like I remember when back in the day of like, you know, when so many people just had a website, and I used to tell people, it takes longer to write the shit on the website than it took to build it. Not anymore. So we’re here at another, at the end of another episode of Startup Hustle, brought to you by FullScale.io. Whenever I get a founder and a CEO on the show, I like to end with what I call the founders freestyle. And I like to you know, anything you want to say what did we miss, anybody you need to thank like, what’s, what’s the, what’s the, what do you want to freestyle your way through on the way out of today’s show?
Jon Ricketts 42:07
Yeah, I think just reiterating everything that that you covered. When it comes to anybody out there that’s interested in raising money, you know, what I would first say is get involved in a local Angel syndicate. If you’re if you’re interested in becoming an entrepreneur, or you’re an entrepreneur right now, and you want to better understand how investors think. Go join an angel Syndicate, they’re typically free. Go to some meetings, network, they’ll hear how other people pitch. That’s, that’s how I started. And it really served as a good basis of knowledge, you’ll build your own network, you know, obviously, from a, from a, from a place of gratitude, I always want to acknowledge all of our investors at Writerly. The early investors and everyone that’s currently on the table. All the team members that have gotten us to this point, we’ve just we’ve got an incredible team. And it becomes a lot easier to attract new talent when when you’re having a level of success. And so, you know, we always want to make sure that we acknowledge everyone that’s gotten us to this point, and into all of our users, you know, we wouldn’t be here without everybody that’s on platform right now. You know, startups are fun, startups are very frustrating. And you kind of oscillate between great days and really bad days. But at the end of it, you know, growth is never always up and to the right, you’re gonna have downturns. But to be able to come back and, and overcome a lot of those challenges and ultimately, build something for the long run. Don’t just build something that you think you can sell in 24 to 60 months. That typically doesn’t happen. What you want to think will occur in the marketplace. Typically, the most entertaining option is the one that occurs. Build something that’s that’s that’s built to sustain and to last, and you’ll be surprised. But yeah, I certainly enjoy it. I’m very fortunate to be in this position. And obviously to talk with folks like yourself, Matt, who’s got a wonderful platform to be able to help people like like I was at one point, who maybe had more more, more questions and answers. And even today, I still have more questions than answers, but just have a little bit more experience. So thank you for having me on. I really appreciate it.
Matt DeCoursey 44:18
Oh, thanks for joining me and congrats on your success you know, for for my freestyle on the way out. You know, when I think about raising capital in a saturated market, the first thing that comes to mind is I’m just gonna have to ask more people. And you know, there’s I was thinking about that yesterday as I was mowing grass, which I I somehow had, for whatever reason have my strongest moments of clarity out in the yard? That’s why I bought a farm did more grass to mow more, I could become a genius here soon. Who knows? But with that, you know, I was thinking I was like, you know, no matter what it is in life, you’ve got, I mean life is about selling and whether it’s an idea or a business or just like what you’re gonna have for dinner, like, you are selling a point with that, and you need to figure out what it is that gets a buyer excited. And that’s an investment as an investor as a buyer, you want to speak in their language and you need and no matter what you’re you’re doing or asking for. There’s a number of asks that may occur. And you know, there’s most of the time I It breaks my heart when I talk to people, and they’re like, I failed to raise capital. And I’ll say, well, how many people did you reach out to emobile? Dude, like, 10. I’m like, you’re like 90 Short of the average. And then, you know, I think another thing too, is just for the purposes of efficiency, if you’re going to have to ask more. That doesn’t mean you should spend a bunch of time sending out marketing or investment or one pagers are anything to funds and organizations that simply don’t invest in your kind of business. Like there’s nothing like if you have Okay, so I’m in Kansas. And, you know, honestly, Tennessee is not too far away from this, there’s a lot of agriculture in the Midwest, and like me really reaching out to an agriculture technology fund to invest in my tech enabled services business, that’s not even largely in the United States, isn’t going to isn’t going to lead to an outcome that’s productive, because that whole investment funds set up to invest in a specific type of business. So when I say make sure you go out and ask 100 people, you got to ask 100 people that actually could write a check, or specialize in what you do. There are almost 6000, funds, accelerators, family offices out there, like there are enough people to ask, trust me, you can get after and do it, I think that you’re going to find, keep it simple. You know, Jon mentioned earlier, you, it’s almost impossible, if not improbable, in that first meeting, to walk away with a check. You’re trying to pique interest you’re trying to build value in who you do, and your opportunity. And remember, define that opportunity, like, create your platform does X, Y, and Z. Investors care a little bit about that what investors really care about is what you’re hoping to do with the company, what your horizon looks like down the road, what kind of return could be possible, what it might take to get there. And all that now you can’t promise returns, you can’t promise that’s that’s illegal guys don’t do it. But you know, with that, you can paint a realistic transparent future for what could come up. And you know, that’s really remembered that so I mentioned speaking to who your the buyer is, now look, your platform users thereafter, thereafter, your stuff for a completely different reason, they don’t really care about your, like your five year exit plan. In fact, they don’t give a shit at all about it. So you know, but your investors do so tailor your message towards who you want to write a check. Be transparent, list your flaws and show that you know that you have a plan to fix them. And that’s why by the way, they know that’s why you’re there to raise the capital. And I think the last thing is, is you need to become an asking machine. And I don’t mean just like asking for a meeting like act like don’t just send a deck, give a pitch and then turn into vapor you got to treat that like a sales process. You need to follow up you need to ask, are you interested in this opportunity? And you’ll because look, these are busy people with a whole lot. They’re okay, look, massive bank accounts have an endless amount of places to park, that endless bank account. You’re not the only one out there asking. So, you know, if you’re out there, hey, we’re great at sales and business development, and you don’t follow up on your pitch. No, you’re not. So, you know, get out there and ask and there’s a number of asks that everything comes with it might be 100, it might be 1000. And then it’s also different for different people like I it might take Jon and I, 25. But it might take you 100. Whatever your number is get to work on because it is what it is. And the whole fundraising and startup process is very Darwinistic. And there’s, there’s, there’s a reason for that. So if you’re not going to show toughness and resilience in the beginning, you’re not going to chase down what you want. You’re not going to be aggressive and getting it why as an investor do I believe that you’re going to do that with everything else? So, get out there and get it people. Create your own luck. Jon, I’m gonna catch up with you down the road.
Jon Ricketts 49:45
Let’s do it.