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By Nathan Beckord<\/em><\/strong><\/p>\n Don’t make the mistake of pitching to investors who don’t “get it.”<\/p>\n <\/fbs-accordion>getty<\/small><\/figcaption><\/figure>\n Sometimes a company comes along with an idea that seems so obvious in hindsight (Oh, of course\u2014that makes sense!) <\/em>that it\u2019s almost surprising to learn its product hasn\u2019t been the industry standard for years. Product management platform Productboard<\/a> is one of those companies.<\/p>\n After raising more than $260 million with a total valuation of $1.725 billion, it\u2019s clear that investors see Productboard\u2019s value. But that wasn\u2019t always the case. Cofounder Hubert Palan<\/a> tells me that early on, he made the mistake of pitching investors who just didn\u2019t \u201cget it.\u201d<\/p>\n He spent quite a bit of time trying to persuade VCs with no product background that there was a market for a platform similar to Jira or Salesforce designed specifically for product managers. Platforms like Jira are essential to the task management process of developing apps and web features, like coding, testing, and other aspects of engineering delivery.<\/p>\n \u201cBut product management is not project <\/em>management,\u201d says Hubert. \u201cIt is <\/em>about understanding who the customers are and the pain points they have.\u201d<\/p>\n Before Productboard, there was no end-to-end platform for the entire product management lifecycle. Product teams often relied on a patchwork of spreadsheets and workarounds to incorporate things like customer, design, and manager feedback into their processes. A better product management system assures that startups can \u201cde-risk the whole delivery process,\u201d Hubert adds. \u201cAnd end up building the right things … not waste years of our lives building stuff that nobody needs.\u201d<\/p>\n Rest assured, that\u2019s not <\/em>Productboard. Here Hubert shares his top tips for raising capital, whether or not you\u2019re the next startup unicorn.<\/p>\n Productboard wasn\u2019t an overnight success. Hubert and his cofounder, Daniel Hejl, founded the company in 2014, but didn\u2019t debut the platform until TechCrunch\u2019s Disrupt Startup Battlefield<\/a> in September 2016.<\/p>\n And the road to unicorn status is paved with quite a few rounds of fundraising. Most founders I speak to haven\u2019t gotten quite as far as a Series D\u2014or raised $260 million. \u201cIt is a big number,\u201d says Hubert. \u201cBut for me, the absolute number is almost irrelevant, because it’s like, What is the opportunity?<\/em>\u201d<\/p>\n The opportunity, of course, is massive. The product management space is broad and Productboard is quickly becoming essential to companies large and small, especially those with distributed teams. That\u2019s why Silicon Valley was very<\/em> interested once Hubert and Daniel found VCs who understood Productboard\u2019s value: Dragoneer Investment Group and Tiger Global led the Series D, while previous rounds included funding from Bessemer Venture Partners, Sequoia Capital, Kleiner Perkins, Index Ventures, and Credo Ventures.<\/p>\n Hubert says that whether you\u2019re raising a Series A or D, the basic concepts of fundraising are the same. You should ask yourself questions about what you really need: Mostly cash? A great board member with experience in a specific market or a specific skill set? Someone who can help you attract the best talent to build out your team?<\/p>\n \u201cOptimize for your goals,\u201d he says. \u201cClearly spell it out.\u201d<\/p>\n By the time Hubert and Daniel raised the Series D last year, Productboard needed capital that would allow the company to scale. It had already grown to about 400 employees (there are 500+ today) serving more than 6,000 customers, including household names like Disney and Volkswagen, big startups like Zoom, legacy institutions like JPMorgan Chase and \u201cmany, many small customers.\u201d<\/p>\n Before Productboard became the hottest tech startup in Silicon Valley (as well as the Czech Republic, where Hubert and Daniel built their initial engineering team), it found a champion in Ilya Fushman<\/a>, a former partner at Index Ventures and former head of product at Dropbox.<\/p>\n Ilya was one of the first VCs who, because he shared a background as a product manager, \u201cunderstood the pain point,\u201d Hubert recalls. \u201cI didn’t have to explain to him what product management was about. Zero time spent on that\u2014it was much more about like, How are you going to solve it? What proof points do you have<\/em>?\u201d<\/p>\n With Ilya\u2019s support, Index Ventures co-led Productboard\u2019s $1.3 million 2016 seed round (with Credo Ventures and participation from Spread Capital).<\/p>\n Lesson learned? Don’t waste time trying to educate investors who don\u2019t understand the problem your startup solves. \u201cThere are people who invest in the space who understand the problem. Find those people,\u201d Hubert says. \u201cYou want to go the easiest route, the fastest route.\u201d<\/p>\n That\u2019s why it\u2019s critical to research and identify your ideal investors. Hubert took a \u201csegmentation\u201d approach to this step, creating a spreadsheet that listed the characteristics of each firm, its partners, its reputation, and even its logo. He noted whether a firm or VC had previously invested in a similar space. But he cautions founders to beware of anyone who might have invested in a competitor. Reputable investors will quickly exclude themselves from making a deal that represents a conflict of interest.<\/p>\n More articles from <\/strong>AllBusiness.com<\/strong><\/a>:<\/strong><\/p>\n When raising later rounds, Hubert asked his investor, senior advisors and mentors to review that spreadsheet with him. He asked them to rank those firms, so to speak, based on how well they knew them, whether they had partnered with them before, and how good of a fit they were for Productboard.<\/p>\n \u201cLater on, I had some inbound interest because we were known already,\u201d Hubert says. But before he started getting approached, Hubert asked his network\u2014professors at the University of California, Berkeley, where he earned his MBA, and friends in the industry\u2014for introductions. He often wouldn\u2019t provide any digital information prior to initial conversations with investors: \u201cI would just show up and talk to them about what we do, without any deck . . . just paint the vision.\u201d That allowed him to gauge interest and compatibility without spending time on a formal pitch.<\/p>\n Each round became easier and easier. After Kleiner Perkins led Productboard\u2019s Series A investment in 2018, the startup became a known entity in the VC community. Sequoia and Bessemer agreed to share its Series B round after fundraising became what Hubert tactfully calls a \u201cvery competitive situation.\u201d Representatives from a team of interested investors \u201cshowed up in our hallway and said, ‘We’re not leaving until you sign our term sheet.’ They literally did leave for the night, but they were there back again at 6 a.m. the next day.\u201d<\/p>\n (Readers: If you walked into the offices of a venture fund and told them you wouldn\u2019t leave until you got a term sheet, you’d probably get arrested. But I guess it’s cute when VCs do it.)<\/em><\/p>\n A startup is only as strong as its team, and Hubert emphasizes the importance of hiring great people.<\/p>\n \u201cTake time to back channel people and learn about who they are,\u201d he says. He recommends asking investors to introduce you to potential team members in addition to fellow VCs. They might provide an intro to someone who has \u201cbeen through a rough patch\u201d that proved their mettle, or even people from a company that went bankrupt\u2014\u201cinvestments that didn’t work out,\u201d Hubert adds. \u201cThe best investors will happily introduce you.\u201d<\/p>\n They might even be a CEO who was fired by the investor, he notes.<\/p>\n \u201cBut was it for the right reasons? Was the investor reasonable and empathetic about the situation? The job of the investors is to protect the investments and do the best thing for the company, which might be to fire the CEO or founder . . . But if you’re being militant, unfriendly, an ignorant, no-empathy type of person . . . that tells you something,\u201d he says.<\/p>\n \u201cAnd I did find people like that even amongst the top firms, I did dig out stories and was like, ‘Well, I really don’t want to work with that<\/em> person,\u201d he adds.<\/p>\n Basically, investors are people too, with interpersonal disagreements and opinions you might disagree with. \u201cYour ability to sort out these differences and opinions is critical,\u201d says Hubert, who advises founders to choose their partners wisely\u2014and work to nurture those relationships.<\/p>\n \u201cSometimes people raise the money and then they see the investors once during the board meetings,\u201d he says.<\/p>\n Hubert recommends instead, \u201cGet to a texting basis. Involve them even in things [even if] you don’t really need the input . . . just bringing them there with the intention to build the relationship. Especially now in this crazy, \u2018distributed\u2019 world\u2014how much time are you actually spending together? You need to engineer it. But it pays off. Because then when things get tough, when you really need deep advice . . . you know them and you can rely on them. It\u2019s all a matter of trust.\u201d<\/p>\n Article is based on an interview between Nathan Beckord and Hubert Palan on an episode of the <\/em>How I Raised It podcast<\/em><\/a>.<\/em><\/p>\n About the Author<\/strong><\/p>\n Nathan Beckord<\/em><\/a> is the CEO of <\/em>Foundersuite.com<\/em><\/a>, which makes software for raising capital. Foundersuite has helped entrepreneurs raise over $9.7 billion in seed and venture capital since 2016.<\/em><\/p>\n<\/div>\nHow to raise capital for your startup<\/strong><\/h2>\n
1. When raising capital, know what you really need<\/strong><\/h3>\n
2. #IYKYK: Find investors who understand your value<\/strong><\/h3>\n
3. Gather momentum among venture capital investors<\/strong><\/h3>\n
4. Build a dream team\u2014and steer clear of the jerks<\/strong><\/h3>\n