A Founder's Journey from Pitch Deck to $80 Million

Sean Weisbrot: Welcome back to another episode of the We Live To Build Podcast. Raising funds is something that entrepreneurs struggle with in many regards. The first question we ask ourselves is, should I bootstrap to profit or raise VC funding to grow at all costs? Before you make that decision, you should listen to today's episode with Ben Sanel, the founder and CEO of Mode Analytics.

Sean Weisbrot: After working at Yammer and going through their acquisition to Microsoft, Ben left and started mode with a few coworkers in 2013. Today Mode has raised $80 million, and Ben is going to share with us how raising money from investors changes yourself, your team, and your business. Hopefully what you hear today will better inform you on if you should raise capital and if you do, how to do it wisely.

Sean Weisbrot: All right. Thank you for taking the time to, uh, talk with me today. This is really going to be an important episode, not only for myself, but for. A lot of the people I've talked to because it seems like 2021 is the year of the raise. I think after people were afraid Last year. It seems like investors are getting really excited about a lot of different, uh, industries like artificial intelligence and no code and in the future of work.

Sean Weisbrot: So what you talk about will give them some ammunition to have better conversations with investors. So thank you for joining us. Absolutely. Yeah. Thanks so much for having me. So before we go any further, why don't you talk a little bit about what mode is.

Benn Stancil: Yeah, so Mode is a tool for analysts and data scientists to be able to create and share their work more easily with, with their coworkers and people around their business.

Benn Stancil: So my former role was that of an analyst or a data scientist, or kind of whatever you wanna call it. My job was to help other people around the business make decisions and do so with data. And so the kind of problem that we saw back when I was. Doing that job, uh, was, it wasn't easy for me to be able to create things in the tools that I wanted to create and then easily share them with folks, uh, around the business.

Benn Stancil: So if I'm helping a product manager or an executive or someone on the marketing team try to understand the, the data that they have and, and help them make a decision about which feature to build or which marketing campaign to focus on, I wanted to work on a set of technical tools that were designed for me and I wanted to be able to share something with them that was, that was kind of a packaged up.

Benn Stancil: View of those results that I found, the, the charts, the graphs, the insights, whatever it was. Uh, and there wasn't a great way for me to be able to do that in an environment that felt comfortable for me, that also felt comfortable for the person who was, who was consuming it. So ultimately that was kind of the, the key thing that we wanted to start building at mode was can we create that kind of workspace for analysts and data scientists, but doesn't just provide the tools for them, but also provides good ways for them to be able to share their, with their coworkers, collaborate with their coworkers.

Benn Stancil: And make it something that's not just a tool for, for technical folks, but it's also a tool for the rest of the organization.

Sean Weisbrot: It does sound really interesting. I did check it out briefly, but uh, it is something I mentioned to my marketing director, uh, to see if it was something he'd be interested in trying.

Sean Weisbrot: Let's get into, uh, the raising and all that. When we were talking in our intro call, you said that you've raised money. Based on your pitch deck before you started building, and then you got into a C and an A and a B and a C and a D. And overall, these rounds, you've raised $80 million. So I guess one of the questions I'm interested in is which of those rounds was the hardest for you to run the process for

Benn Stancil: me and the other two co-founders came out of Yammer.

Benn Stancil: Uh, Yammer was a company that was acquired by Microsoft back in 2012. We were able to kinda ride the coattails of that acquisition to, to the first money that we raised. And this part of the. The way that Silicon Valley works, for better or for worse, we were associated with a company that had a successful exit.

Benn Stancil: Um, Yammer was bought for $1.2 billion, I think. Um, which at the time seemed like a lot. Uh, now is, you know, the, the valuations of companies in their A rounds. So, so Yammer was a company that was seen kind of around the Valley as a success. And so anybody who was coming out of Yammer still had that success.

Benn Stancil: Kind of sheen to them, us included, whether or not that was deserved or not, whether or not we were, you know, con meaningful contributors to that, to that outcome or not was, was kind of a material, you know, fortunately we had built some good relationships at, at Yammer when we were there. And so we knew some folks from, from the CEO down who, you know, were essentially, they were people who had made some money from this acquisition and, and much like Silicon Valley, the first thing people do when they do that is they turn around and start saying, Hey, like, invest in companies that I think are built by people that I know and trust and things like that.

Benn Stancil: So, so we basically raised a, a seed round of roughly like half a million dollars or so from folks that were coming out of that acquisition or people we had built connections to through that. And it, and that was essentially on top of a pitch deck of saying, Hey, these are the ideas that we wanna build.

Benn Stancil: Um, these people had context into the things that we had worked on before. They also had context into the product we wanted to build because it was inspired by some internal tooling that, that we had built at Yammer. So a lot of that was, was we were raising it off of, off of an idea and off of. People trusting us as individuals that they had worked with before.

Benn Stancil: From there, a lot more of it came and we had to start proving traction. There was kinda this early seed round and then a later seed round. We raised, I wanna say probably a year later, um, where people we, that was from other investors that weren't affiliated with Yammer in any way, and at that point we had to start proving, hey, we had a product, we have traction, we have customers, things like that.

Benn Stancil: In all of this, I think that the A was probably the hardest for a couple reasons. I think it is, it is the transition from. An idea to a business that is the point at which you have to start showing like you have customers that are happy, you are growing, your revenue is growing. The initial seed round was kind of on, on, hey, we, we have an idea, and then it was on.

Benn Stancil: We built a thing that has a few people who are trying it out. They didn't expect anybody to be paying like meal, meaningful money for it. They just wanted to see that, that we weren't crazy and we hadn't invented something that nobody cared about. But, but for the, the a, it's, it's like, all right, show me your customers.

Benn Stancil: Show me your retention rates. Show me, you know, customer cohorts and how they're growing. The numbers aren't huge. We weren't making a ton of money or anything, but they were, they were evaluating the business, not just the idea and the team. It's also a much harder raise. Because we had never done it before.

Benn Stancil: It's one thing to get up and give a 12 slide pitch deck that half of it's about some problem that you already understand. The other half is about your thing that you've built and why you care about it. It's something else to, to wrap that story around like, here's the traction we have. Here's the market that we think we're going after.

Benn Stancil: There's a lot more pieces in that, and I think we were, we were still very much figuring out how to do this, and so by the time we got through that then, then two other things happened in later rounds. First of all, you just. Get more experience doing it so you get more comfortable kind of figuring out what the story is that investors wanna hear, how to tell that story.

Benn Stancil: For instance, we had no real familiarity with like how to tell a story about a market and the market opportunity, uh, with the a and I think we kind of figured some of that stuff out. The second thing is the rounds become a little more mechanical because. The very early rounds are very much you telling a personal story.

Benn Stancil: The later rounds are, send us your financials, we'll run it through a model and we'll decide if we wanna invest. Um, that's not entirely true. People are obviously investing on more than that, but a lot more of their decision comes from, show me your growth rates. Show me your customer cohorts. Show me things like SaaS metric, where SaaS business. So there's so many SaaS metrics.

Benn Stancil: We wanna see this in kind of standard financial terms. Then we'll make invest decisions on that. It's much less of a, a personalized pitch and more of here's the data you decide from there.

Sean Weisbrot: I can't say I'm surprised that you said the a round was the toughest. I know I started talking to investors considering that we're approaching an A round and mostly they seem to only care about who are your other investors.

Sean Weisbrot: Do you have users? Do you have revenue and can you show me that data? That seemed to me the, like, the only thing they cared about. Well, but when I talked to C round investors, they're like, I love what you're doing. Here's my money. They didn't, they didn't even do any, any due diligence on me. They were just like, yeah, we understand what you're doing.

Sean Weisbrot: We think there's a great opportunity. Here's the money.

Benn Stancil: I don't wanna generalize too much, and I think, I'm sure this is somewhat geographic. As well. But the Silicon Valley kind of approach to this is, is one thing. That's the one that I'm familiar with, so, so that's kind of what I would talk about. But the seed rounds in those cases are definitely get to know people.

Benn Stancil: People will invest, I don't wanna call it emotionally, but on, Hey, I like you, I like your idea. I. Seems promising. I'm a seed investor that I've invested in a hundred things and you know, if one of 'em gets big then it all pays off. And I think there's a lot more willingness to, to take, take those chances and also just do it on like, there's not that much to prove.

Benn Stancil: You just kinda have to do it off of, do you believe in the market? Do you believe in the, the founders? Do you believe in sort of the early stages of what they've done? Again, the A is kind of crossing that chasm a little bit to show me a business that is at least. The initial way that it starts. I think the one caveat I would add to that, given that you brought up like who are your other investors, is investors are people too.

Benn Stancil: There will be some formula to how they decide to invest, but they will consistently override it if they want to like, like they can be sold just the same as everybody else. You can walk into a car dealership and think, you know, I'm gonna buy a car in a very particular way with a very particular budget, and then some salesperson comes along and gives you a great sell.

Benn Stancil: You very well may walk out with a different car than you thought. Uh, and investors are no different. Like if, if you sell them or build the relationship with them, or if they see some other investors involved and they trust that person or that firm, they can be sold just the same. All, all of this kind of comes with the caveat that this is typically how it goes, but there's certainly ways to break out of those patterns if you have a particularly compelling pitch or seem like a particularly compelling founder or whatever.

Benn Stancil: Like, there's obviously extreme examples, but you know, you look at companies like. Theranos Theranos was sold entirely on, on the founder, essentially. There was obviously nothing there, but enough people got on board that they just all sort of believed it. And that's, you know, the worst sort of case. But you see that all the time in other startups that, that just seem to have some sort of, they catch some investor's eye for some reason.

Benn Stancil: They develop some sort of emotional attachment to it, and, and so it's after the race.

Sean Weisbrot: So when you were going to do each round, did you start to prepare to update your documents when you knew you wanted to start raising? Or did you just constantly review your documents and keep them updated throughout the years?

Benn Stancil: Yeah, that's a good question. So there were two big pieces to our fundraising process each of these times, and, and they tra again, they transitioned more from one to the other over the course of the rounds because it became less about the story and more about the business. But in the early rounds, the seed rounds, the A to some extent, the B we did, we, we built materials for those rounds that were, this is the story, this is who we are.

Benn Stancil: This is our vision for the market. This is what we wanna do. Those were stories that were catered very much to where we were in that moment. So it was, okay, what have we built so far? What is on our roadmap? What proof points do we have to this point? You know, which customers have we closed right before this round?

Benn Stancil: But can we, can we turn this one customer into a bigger story about the opportunity for mode? For instance, I believe this was our, A round shortly before we closed our A round, we signed, what was the time? Our biggest customer? I have no idea what they actually paid us. Uh, that I remember signing it and thinking like, oh my God, I can't believe someone's paying this as much money.

Benn Stancil: But it wasn't that significant amount, but it was a healthcare company. And so I remember part of the story with the A was we just signed this healthcare company mode is a cloud product that sells a data product, which at the time people were pretty uncomfortable with now, less so, but still a little bit.

Benn Stancil: This was like part of us telling the story that, hey, look at. Look at how data is moving to the cloud. This is sort of the, the first signal of we can sell to companies that you wouldn't sort of traditionally think of as companies that would be okay with the cloud because we have this customer that sort of proves that for us.

Benn Stancil: And so, you know, we built stories around that very particular thing that had happened shortly before the round. To tell kind of the, the narrative arc of what mode is. Those pitches even evolved throughout the fundraising process, where we'd get feedback from one firm as we pitched 'em and realized, Hey, this part doesn't work.

Benn Stancil: Or we'd realize like, Hey, we need a better part to tell this story. Or they'd ask about some, you know, competitive situation, and we'd have to kind of tweak the story in that way. So those stories were evolving throughout the round. But weren't things that we maintained over the course of, of the time in between rounds, maintained, sort of formally obviously, like these are the stories of your business and so you always have some version of this kind of in your head that you're slowly adapting the numeric side of the business.

Benn Stancil: What investors call the data room, I have no idea why it's called. That is essentially a giant. Spreadsheet, uh, of a bunch of different things. That's something we actually figured out reasonably early, and I think this was in our a as as companies were or found, firms were doing diligence. They would ask for this data room.

Benn Stancil: They asked for data format in kind of a particular way, modes of data companies. So this was something we were fairly comfortable doing. We basically put together what that report looks like, and so it is essentially a handful of tables of data that's like one row per customer, per month and how much they paid you, and so that way they can compute all their SaaS metrics from it and things like that.

Benn Stancil: That is something we realized, hey, we should just be maintaining this from, go like it. It's just a thing we should have. And actually what it became was later in the, in the later fundraising processes, when we realized that was such an important thing. As soon as we became serious with a potential investor.

Benn Stancil: So past kind of the coffee dates and the first, you know, Hey, who are, you? Get to know each other. As soon as we were basically comfortable sharing that level of information with 'em, we would just say, here's our data room. Let's talk after you look at it, rather than them having to pester us for data, we just said, we know this is what you're gonna want.

Benn Stancil: Here it is. Have at it, and then we can talk if you're interested, which was very helpful for us because it made the fundraising process much less burdensome because we weren't having to create this stuff for everybody every time. But it also, I think, was generally a very good thing for people being more interested in investing because they saw that we knew how to do this.

Benn Stancil: Uh, you know, they looked at this and like, oh, these people have it together. Like they know what we're looking for. They're running their business in a good way. We're not asking 'em for a bunch of stuff and they're giving us some obscure numbers back, or trying to spin it in their own way. They're just giving us the standard stuff and they're giving it to us upfront and they're giving it to us, formatted in a way that we can make ease of it.

Benn Stancil: Obviously, it doesn't mean they're gonna invest in that, they're still gonna run it through their process, but I think that that sort of thing just made the fundraising process much easier because. We could kind of skip to the story part and like, do you believe in the market and where we're going rather than you're gonna have a, a month long back and forth asking for this data, that data, that kind of stuff.

Sean Weisbrot: I started doing something like that alongside my COOA year ago when we started talking to investors originally, one of the guys who, uh, we've signed with, he had said, oh, well, like, give me this and this. And I was like, here, hold on a second. Just give me a week. We put together a spreadsheet that had links to all of the things on our Google Drive and we're like, here you go.

Sean Weisbrot: And he was like, holy crap. This is way better of a format than even I was prepared to use. Thank you. And I was like, here, I'll give you the, the empty template and you can just give it to the other startups and just tell them to fill it out like that. He's like, oh, fantastic. I love it. Thank you.

Benn Stancil: We got a couple responses that were sort of similar, that were like, oh great, this is, this is like a better template than what we use.

Benn Stancil: We're gonna ask more people for this. And that standardization just went a long way for us. And it also preempted some questions where I'm sure that one of the things, things that we don't, didn't want investors doing, mostly for the effort that it required, but also because we had a story we wanted to tell and we wanted to tell our story, was not having them ask their slight variance of a bunch of different things that we could look at.

Benn Stancil: So. We could share, share information, like here's how we think about a RR. So a RR is not as easy to compute as you might think. You have a bunch of like mode charges, overages, like how do we consider those sorts of things? How do we consider customers that, that are in free trials or in paid trials, all these sorts of like.

Benn Stancil: Small things that affect the way that you might compute some metrics. If we didn't give 'em stuff upfront, what we would be concerned about was, well, they're gonna come back and say, we care about a RR computed in this way, compute it in a specific way for us. Which one is bad? Because that's just a lot of extra work.

Benn Stancil: If you're chasing out a bunch of investors, computing different metrics for all of them, and two, you lose kind of control of the way that you're telling the story and, and the way you're describing your business. It ends up being like they wanna look at it through their lens. And while investors are smart and they, they understand this stuff.

Benn Stancil: Their lens may not be the right one for your business, but businesses are a little bit different. They can measure things in different ways. We're not like meeting sort of gap accounting standards. Um, we're doing this in a way that we think measures whether or not mode is being successful or not. And so we wanna be able to tell our story in that specific way.

Benn Stancil: And by having kind of all this stuff paired up front, we could say, here's how we measure it. And people mostly like, okay, we'll measure it the way you wanna measure it. I mean, within reason, there's plenty of space there for you to be able to control the story and kind of keep the narrative where you want to keep it, which I think is, is just makes it a much easier conversation.

Sean Weisbrot: I love how you, uh, sprinkled in the terms gap standards. I actually just published an episode last night with a woman, Angela Rice, episode 57. She's a certified fraud examiner. And so we talked a lot about accounting and the difference between A CFO and, and these different positions and who you should be hiring and when and all that.

Sean Weisbrot: So, uh, if you haven't heard that episode, definitely go for it. But with you, I'd like to go into more of the relationship with investors after investment. I, I first wanted to kind of get people into your story and get them understanding, you know, how you think and how you do and things like that. But I think what's, uh, more important for them.

Sean Weisbrot: 'cause I think there's probably a lot of podcasts and a lot of interviews out there, like what we were talking about that go even deeper. I wanna go and talk more about how do you know if the investor is the right one for you? How do you know that they're not selling you a story for themselves that isn't actually just a pipe dream, or isn't just them lying to you?

Sean Weisbrot: Like, how, how do you make sure that you are accepting the right money?

Benn Stancil: You don't always have a choice.

Benn Stancil: I mean, you always have a choice of whether or not to take the check or not. It's like job hunting where you may have a dream job and you may not get it and you may have two jobs that you didn't think you were so excited about that you've gotta choose from.

Benn Stancil: That's not to say that like the people that invested in motor, people who aren't excited about, it's just that there are plenty of times you go out and you have 10 people you've talked to and, and you're not the one who's gonna say which 10 of those you get to choose. Like, they're gonna tell you who wants to invest, and you have to choose from the, the lot that you get if, if you have a lot of options, that is a luxury in itself just because.

Benn Stancil: You know, good for you for building something that's very appealing. It doesn't mean it's anything bad to get one option. I know plenty of su successful companies that you know, have gone out to raise money and they've gotten one term sheet and that's the one they take. That's perfectly fine. Plenty of good businesses have done it that way.

Benn Stancil: But suppose you're choosing that or you have the option, you do have some like, control over who you pitch or, or you know who you actually wanna talk to and things like that. I think the things that we. Cared about initially in the process of figuring out who to talk to. One of the big things is, and this is a little bit cheesy, but like the, the values of the firm and the people you're talking to, there are certainly people who say, like, believe the thing they wanna do is they wanna build a big business at all costs.

Benn Stancil: And, and, and everything else sort of be damned. If that's what you wanna do, that's what you wanna do and that's fine, but. You should be sort of aware of the approach that those folks will take versus ones that care about other things as well. So, you know, if you care, for instance, say you wanna build a diverse team, say you care about hiring for, for diversity, you believe that's something that that is important.

Benn Stancil: Um, there are some investors that will put a lot of pressure on you to do that, and some investors that will put a lot of pressure on you to not do anything that slows down hiring. And so hiring a more diverse team is more effort. It takes time. It is more expensive. Uh, but if you value that, then great.

Benn Stancil: And, and like we do, and that is a thing that I'm, I'm willing to say Mo will sacrifice some growth as a business to be able to do that. Um, long term, does it? Pan out. I think it, yes, but, but like does that mean we can hire as fast as we absolutely could if we had sort of no interest in sourcing from diverse pipelines?

Benn Stancil: No, but I think like, you want your investors and, and, and people like that to be aligned on those fronts, that instead of it taking us one month, it's gonna take us three months to find a, a head of engineering because we are sourcing from more diverse pipelines. You don't wanna find yourself in a position where you disagree on, on sort of the value stance on which you are making when you make the decision.

Benn Stancil: You know, I think it's like what is the ambition for the company? What is it that they see in it? I think you should be aligned on that stuff too, for the most part. In, in Silicon Valley, the ambition is make the thing really big. You know, there are people who, again, will be more comfortable or less comfortable.

Benn Stancil: Skirting, I don't wanna say necessarily ethical lines. The investors in Uber were probably comfortable skirting some ethical lines. At the end of the day, they most, most investors are in it for making companies really big and making a lot of money. But I think it's, it's worth. At least kind of acknowledging the pace at which you think that is important, the pace at which they expect you to do it.

Benn Stancil: Some, some investors will expect you to raise a whole bunch of money and then go spend it really quickly and kind of like, you know, take this thing to the moon as fast as you can. Some will will be a little more patient and are are willing to accept sort of slower growth rates. So I think there's just some alignment on that, on the direction, the business, kind of the thing.

Benn Stancil: You wanna build those kinds of things. Beyond that. I think the other kind of thing is what is it they bring to the company? Like they're not just writing a check. They should be part of the reason that they are. What they are is because they want to help out and they're involved and you can turn to them for help.

Benn Stancil: And so wherever you are in, in the company can be meaningful. If you're a company that's still trying to figure out kind of a product and, and what to build, they're investors that can be really beneficial in that regard. Um, if you're coming from a product background and your team is engineers and PMs and designers.

Benn Stancil: Um, it can be helpful to, to have investors that really understand sales and marketing because there's a, just an expertise gap there that, that you or your early team may not have, um, that they can help point in the right direction. Investors aren't gonna, aren't gonna come in and do all that stuff for you by any means.

Benn Stancil: And some will be more hands-on than others. They're investors, they're gonna kind of be there occasionally, but they can provide some really valued advice. They can provide really valuable networks. They can help. Source things in all sorts of ways. And so everybody brings a sort of different set of attributes there.

Benn Stancil: And I think kind of figuring out what it is that you want can help go a long way in that too. The, the other thing I guess that I would mention that we did once we were further in the process is it's, it's also very helpful to do references, uh, on investors. And that that mostly goes from talking to other, other companies that have had those investors on their board and getting a sense of what happened.

Benn Stancil: How did those investors treat those companies in certain difficult situations? So a lot of the kind of questions we would ask would be, you know, like what, what was sort of the biggest thing that went wrong and what happened at that time? Say you had a really big challenge at your company. You know, you had one of these sort of life and death moments.

Benn Stancil: What happened when you turned to this investor and asked them for help? Those sorts of things that are sort of like the stress test. Of, of how people will, hopefully you never have to run into those situations, but kind of inevitably will. What will happen when those situations happen? How do the investors respond and, and do they respond in the way that you want?

Benn Stancil: There's not a right answer to that. Sometimes you want someone who's, who's there to help out. Sometimes you want someone there who's like gonna get in the trenches with you. Sometimes you want someone who's. Who's gonna get outta your way, but you should have some thought of, of like what you think the right thing is there and how, how folks will respond to this situation.

Sean Weisbrot: Yeah, I think it's a very good idea to get references and talk to founders that have been invested in by these people. I tried to do that in my initial research of investment firms last year, and I know that investors like to have warm introductions, so I tried to cold approach. Companies that had been invested in by the VC firms that I wanted to have invest in.

Sean Weisbrot: Me hoping to learn more about their experience and if they liked what I was doing, get them to introduce me. That didn't work out very well, but whatever. That's a different conversation. So you were talking with me about having investors changes you, and I think that's. Probably where the heart of this conversation should go.

Sean Weisbrot: What has been the largest change in yourself, your team, and your business as a result of having investors? The good and the bad?

Benn Stancil: You mentioned at the top about sort of, should I raise, should I bootstrap it? You know, there, there is a question there and sort of a, a real crossroads. Some businesses will come to trying to decide whether not to take sort of institutional money or grow from, from their own revenues or from maybe some like small seed money that is a little bit more like friends and family type of money, that it has sort of no institutional expectation.

Benn Stancil: The the change that that really causes is it puts you on a path that your expectation is now to build something big and you start to lose a little bit of control of that. Not literally, like you still probably have voting control of your board and you can still do what you want as a business and all these sorts of things.

Benn Stancil: But in order to, in order to raise that money, you have to pitch a, a story of like, how are you gonna get this thing to a hundred million dollars in revenues? Like kind of the, the generic you go raise a C ground, I mean an a round. One of the things that people might ask is like, what's your path to a hundred million dollars?

Benn Stancil: Because that's ballpark, a billion dollar company, and that's kind of at that point what they expect. And obviously not what they expect in the sense they don't think they're gonna get it from everybody, but like that's what they want you to chase. So you put together a plan for that and like, okay, you know, this is my seven year plan to get there, and all those kinds of things.

Benn Stancil: You start to build the business around that plan and you kind of have to, because you just went out and raised money with the promise that the plan, that's the plan that you have. Over time, that can evolve. And like if you realize, hey, the opportunity is not there, then you can shift and you know, you will grow more slowly or more quickly than that happens.

Benn Stancil: Like, because you have a plan for how your growth rates or how many people are gonna hire, doesn't mean you're gonna go and do it. The, the motions start to move in that direction. And once those motions start to move in that direction, like it's, it's a difficult train to stop because you start to hire people with that plan to hire those people.

Benn Stancil: You have to hit revenue targets. Stay at revenue targets. You've gotta hire more people from like sales and marketing. As you have that company grow, you now need to have more money to finance it, which sort of puts you back asking for more institutional money.

Benn Stancil: There's valuations that get set such that you don't really have like a way to ratchet that down where the company needs to be worth this much for your investors to get their money back, and therefore you have to kind of keep pushing that upwards.

Benn Stancil: It isn't something that, that you. Lose any ability to do what you want. And certainly if he's like, believe, hey, we should be pivoting towards this other thing, or we should be growing more slowly or, or whatever, you can do that, but you can't go out and raise $10 million and then tell people you're gonna spend it over the next 10 years.

Sean Weisbrot: Okay. So one of the things that happens when you raise, uh, enough investment is that you are, uh, forced to create a board of directors. So who should get.

Sean Weisbrot: Board seats who shouldn't get board seats? What is a good number of seats to have and how can you make sure that these people are going to help you instead of hinder you?

Benn Stancil: You do have to start up, like there is a point at which you have to have a board, and I think a company has to have a board from the beginning, but like a lot of times it's a little bit of a. It's ceremonial, essentially like companies have to have boards. It's usually like, I think when we first started mode, it's three people, the three founders essentially were on the board and it's like, okay, this doesn't really mean anything.

Benn Stancil: It's, it's necessary for, for having sort of a voting mechanism. If we wanted to vote someone off the island that way, there is some official corporate governance for us to do it. I believe, and I think this is typically true, most companies will create a board. Once they hit a series A, um, like a, a sort of more material board.

Benn Stancil: And that's, that's for a couple reasons. One, it's the, the people who are putting in that amount of money. Once you're stopped, no longer raising sort of small checks and you're raising some, someone is leading around, the expectation is that person will have not just a. They will have some control of the company that comes from their shares that they bought, but it also comes from them having a board seat.

Benn Stancil: And so that board seat means they have voting rights. It means that they also have sit in on, you know, there are board meetings where people talk about the company and those meetings can have sorts of different flavors, but, but there is some like regular kind of involvement now from, from this person.

Benn Stancil: And as you raise sort of more. Around. Essentially each one of those, there becomes an expectation of that coming with a board seat. Once you get to the later stages, it gets a little more complicated because the board can get bigger. It, there's. Sometimes people will leave boards. That's like a situation that's a little bit different.

Benn Stancil: And when thinking about adding someone to the board, again, you don't necessarily have that much control over. If you're taking institutional money, then they will determine who it is and you'll know who it is because that's the person you'll be dealing with. Like, they don't, they don't like raise money from VC firm A, and then when they sign the check, they're like, and your board member is this person.

Benn Stancil: It's like, it's the person you pitch. It's the person who sort of does the deal. So you know who that person's gonna be. The thing that I is important is. It's generally good to control the board as long as you can. Um, so you know, if you have control it with either founders or friendlies. So for instance, say after raising a B, often what'll happen is you'll have a five person board.

Benn Stancil: It'll be, uh, the, A investor, the B investor, say two founders, and then like an independent person that's typically appointed by the founders, which is essentially just like a third vote for, for the founders. So that, what that means is like if you lose control of the board, then they can vote you out.

Benn Stancil: Probably doesn't really happen. If you get to these really contentious board meetings, you, that's a bad sign to begin with. But it's good to be able to, to maintain the control over if there is like decisions to be made. You can still be the person who's in charge of what happens with your business. Your ability to do that depends on where the business is.

Benn Stancil: Anytime investors give you term sheets, sort of everything is negotiable. There are standard kind of boilerplate term sheets that are, you know, this is the types of shares they get. These are the voting rights they get. These are their prorata rights. All that sort of stuff. These are like their triggers.

Benn Stancil: If stuff happens, there's like boilerplate language for that. Everything is negotiable. Some investors will basically give you the boilerplate and say, this is good enough. Some will try to fight for other things. Um, if your company's in a bad spot, they will be, people will be aggressive and take advantage of that and say like.

Benn Stancil: It's not only that we'll give you less money, it'll lower valuation. It's that we want certain rights on the thing we want. In the extreme case, I think I've only seen this once or twice. In the extreme case, they'll be like, we want two board seats, not one. So there's a bunch of stuff like that that can happen, but for the most part, you know, you just wanna be able to.

Benn Stancil: To maintain controllers as long as you can, and the longer you can do it, the better. And so, you know, on the other extreme cases, like I think Zuckerberg himself has control of the board in like a voting sense still today. Facebook was a promising enough company that basically people are willing to put in money without actually ever, ever giving up control from one person.

Benn Stancil: The only other thing I think that is worth kind of mentioning in this is, is the board meeting itself, it is worth kind of figuring out kind of what, what investors will want to do in a board meeting and how those things get run. It's easy to look at board meetings as sort of like you reporting to your boss.

Benn Stancil: That is how it can feel. 'cause like, hey, this investor's come in, they've given you money, they're now your boss. In a way you can treat board meetings as, as you sort of saying, Hey, here's what we think. Like, not tell us what to do, but like you can treat it as though you are, you are, this person is in charge and you are kind of asking them for whether or not you have permission to do certain things.

Benn Stancil: Or you can treat a board meeting as saying like, look, we're in charge. This is our company. We are telling you how things are going and then we're asking you for help. It is worth, in those times, like kind of remembering this is still your company. You are still in charge that just because someone came in and gave you some money and is.

Benn Stancil: Your boss in the sense that the CEO reports to the board. They're not your boss in the sense that, that you need to ask them for permission. It's, it's still your company. It's, it's something that you've built. The board is there, it should be there to help you, not the other way around.

Sean Weisbrot: I totally agree with that.

Sean Weisbrot: I think it's really important for entrepreneurs to be empowered in that sense. I mean, I, I have four investors right now, and I will feed them updates once a week. I haven't needed to ask them for help. I'm just telling them this is what's happened. And they're like, all right, cool. Thanks. I'm curious to know how has raising money affected your relationship with your co-founders?

Benn Stancil: Raising money and the rest of just building a business is a very stressful thing, and so it puts stress on any relationship just because you're trying to work through hard stuff, and there's gonna be times where things are hard or where you disagree, or where stuff goes wrong and somebody else makes a mistake, or where you make a mistake.

Benn Stancil: It's a relationship, and so relationships, especially when you, when you stress them as much as a company will stress them, is is gonna go through ups and downs. I don't know that raising money has necessarily affected that as much as just like the pressure that comes with building a business and growing a business and wanting to build something that is successful.

Benn Stancil: That is. Also in mode's case that a hundred plus people rely on for their jobs. You wanna do right by them. You wanna make sure you're protecting that business. You wanna make sure you're protecting their livelihood. You wanna make sure that you treat them right. Um, and you also wanna make sure you're building something that's successful, that's gonna help them.

Benn Stancil: And a lot more people work there and, you know, build a career out of it. That's hard. You know, you as founders or the rest of your exec team over time have to be responsible for all of those things. And, and so there will be times when that's just like. There are stressful decisions to make. Sometimes everybody agrees, but they're still stressful.

Benn Stancil: Sometimes people don't agree, and then you gotta figure it out on the raising money part on, particularly with the founders. The other part of it though is I do think it can be, and this is, this is potentially just myself, I do think it, like it brings people together in some ways. So this may be a little perverse, but like I in college used to kind of like finals weeks because it was this moment where like everybody sort of is suffering through this thing together.

Benn Stancil: Like I hated doing it, but there was some comradery that came from, okay, like I'm sitting in the library until God knows when. With other people in this class, we all hate it, but like there is some, some bonding in that shared suffering. And I think fundraising, especially in the early processes, was kind of that for us, where we didn't particularly enjoy it.

Benn Stancil: It was very stressful because it feels so existential to the business. It's like we have to go out and raise this money or else we all gotta tell these people to go home. You're trying to figure out like what's the right story to tell? You're trying to fight through this message and figure out like what's the magic thing to say?

Benn Stancil: You go to all these pitches together, you know, you have pitches where one person does great and another one does terrible, and the next pitch where it's flipped and you're not like mad at each other, but you're just like, we gotta line this all up and stuff and, and I think there is something to that experience.

Benn Stancil: That actually can be very beneficial. Where, you know, I remember us making drives to, to where we were based versus the, the Sandhill Road is the, the sort of strip of VCs in Silicon Valley. The 45 hour long drive down there for like two or three pitches coming back up, kind of going through the various, I.

Benn Stancil: Stuff that happened in the course of that, which for us was, you know, involved stolen laptops and us putting together pitches on, like having to redo the entire pitch at 3:00 AM And there, there is something to that that I, I do not look back at fondly, but I look back and saying that it like probably brought a lot of the.

Benn Stancil: Team and, and particularly I think the founding group more close together because you're going through these, these kind of experiences and developing friends and sort of stories and, and enemies honestly with like the people who reject you that have reasons that you disagree with in all of that. And I think there's just like a shared experience there that actually can be, can be a very valuable

Sean Weisbrot: looking back on your, I think it's now eight years with mode. How have you changed as a person? How have you improved or there's places where you've gotten worse or gotten better? How have you changed? I would say there's a few things I,

Benn Stancil: you know, in, in ways that you, you improve is you work on a ton of different problems and I think you understand like from a, from a sort of professional perspective, you understand a bunch of different things that I have.

Benn Stancil: No concept of whatsoever eight years ago. This fundraising stuff that we've been talking about is, is a small sliver of it. I knew absolutely none of this eight years ago and, and obviously like by no means I'm the expert in it, there's a hundred conversations like this that anybody who starts a company could have just because you go through things that you wouldn't experience otherwise.

Benn Stancil: There's also kind of some appreciation that you develop for the complexities and, and the challenges of doing something that pulls in a bunch of different directions. There's a lot of times where you want to make one decision. The business sort of seems to need something else. Um, you personally like want to do a third thing, figuring out how you navigate those situations.

Benn Stancil: Is something that changes you in ways? I think probably some ways that are good, in some ways that aren't, where the things that you kind of believe when you're in a position where you're not actually responsible for making those decisions. And then when the moment comes and you have to make those decisions, I think it's, it's a different thing.

Benn Stancil: What you think you would do and what you actually do in those moments is, is tough because. There's a lot of considerations you have to take into, take into account when again, you're trying to build a business, you're trying to do this, and there's a bunch of people whose livelihoods depend on it. That changes things and that, that changes your perspective.

Benn Stancil: I mean, I'm not a parent, uh, but I imagine it's not that dissimilar from, from being a parent where, you know, suddenly the, the way that you evaluate a lot of things shifts, uh, the moment you have a kid. Um, and, and a company is not a kid. Like by no means a company can die and, and people will be okay. But it is, I think like a thing that is.

Benn Stancil: That there is a responsibility for and, and you feel some responsibility for the people who work there. So, you know, I think that that certainly. Kind of shifts, shifts where you are. I think the third thing I would say though is like there is also an appreciation for what matters and what doesn't. To some extent that looking back at the things, especially in the early days, that like really stressed me out.

Benn Stancil: I think, you know, you were to do it all over again. There would be some appreciation I think for me on, okay, these are the things that really matter and these are the things that don't, we probably overemphasize some things and underemphasize some others. Uh, in, in the early days, were overly concerned with.

Benn Stancil: This or that, not concerned nearly enough with these other pieces. And I think, I think you start to develop a little bit better sense of like what is, what is meaningful? Meaningful to do right by the people who work there meaningful to build the right kind of cultures, meaningful, to build the right kind of relationships, the sort of day-to-day ups and downs, the rejections from investors.

Benn Stancil: Really don't matter all that much in the aggregate. You need to be able to get the money to build a business. But, but the moments where you're like feeling like this thing is all falling apart 'cause some VC told you no. Uh, really pretty insignificant in this scheme of things.