tl;dr: Raising early-stage capital today is more challenging than you might expect, even with traction, hype, and a strong pedigree.
The company helps consumers discover what services they pay for on a recurring basis, both wanted and not. It also helps its users rid themselves of the chaff. You could call the company a response to the growth of the subscription economy.
I caught up with Yahya Mokhtarzada, Truebill’s CEO, to chat about his recent fundraising cycle. Mattermark previously tagged Truebill as one of the more quickly growing companies from its Y Combinator batch1, so I wanted to hear how the pitching had gone down.
Interview has been edited and condensed for length and clarity.
Mattermark: What was it like to pitch at YC demo day?
Truebill: Demo day was definitely a once in a lifetime experience and a whirlwind of an event. YC really puts you through the wringer in the weeks prior, so by the time you get there, your pitch is tightly dialed and ready to go.
Inside demo day itself is pretty incredible. The pitch hall is filled with hundreds of investors—some seated and many standing in the aisles and around the edges of the room trying to suss out what may be the next Stripe or AirBnB.
The networking hall is a series of back-to-back elevator pitches about your startup, hurriedly discussing metrics, team, and funding. What’s amazing and (for me at least) shocking is how many of these conversations led to an actual offer of investment on the spot. YC has what’s called a “handshake protocol” which allows investors and startups to close deals in a matter of minutes and over email.
That’s not to say that every deal gets done in 5 minutes, obviously. But it definitely creates a sense of urgency and works in the founders’ favor.
Mattermark: You had some momentum from the press and investors heading into demo day. What did you already have in place, and how did that impact your fundraising experience after presenting?
Truebill: We raised a small pre-seed round of funding prior to demo day for a couple reasons. First, we wanted to make sure that we had money to continue operating if, for some reason, it took longer to raise than we’d like. Second, we hoped that by having a few prestigious investors already on board we could increase demand from those at demo day.
We started speaking with angel investors in late January. By the time demo day rolled around, we had raised $350,000, and had commitments for another $300,000 both from well known individual investors as well as from a couple institutional investors. Doing so not only took a lot of the pressure off of us (because we had several months of runway), but also I think helped us stand out a bit. It’s always nice to be able to say “we’re raising $x at $y, and ________ is already in”.
The Day After
Mattermark: After demo day was over, what was your fundraising experience like directly following? Did the broader investor climate meet your expectations?
Truebill: I think going through YC and participating in demo day insulated us from the overall funding climate. Leading up to demo day we saw a constant influx of investor emails, and there was the demo day feeding frenzy itself, during which we closed numerous ‘handshake deals’ in the span of a few hours. As the YC Demo Day halo wore off, we felt a real shift in investor sentiment and risk appetite.
During demo day people were asking us “how many users do you have? How fast are you growing? Where will Truebill be in 12 months,” then cutting checks based on that.
After demo day, the tone of the conversations shifted and monetization became a a key focal point for investors.
Mattermark: You went into fundraising with users, early revenue growth, and recently raised capital. For early-stage companies without similar initial traction or monetization results, how much more difficult do you think it would be to raise?
Truebill: The fact that we didn’t have revenue until a few weeks ago was definitely made more pertinent by the current fundraising climate. Interestingly, monetization is where we encountered the broadest variance of opinions. Our early investors were advising us to “forget about revenue, just grow,” but then new investors we pitched kept telling us to prove our monetization and then come back.
It seems like because everyone is anticipating a crunch on capital, VCs are doubling down on startups with a proven revenue model, which puts growth-stage companies in a tight spot.
The Venture Landscape
Mattermark: How has your now-completed fundraising cycle changed your perspective about what to expect, and how to operate in the current market?
Truebill: The process of raising our seed round led us to significantly revise our roadmap for the next 12 months. In a more bullish climate, I think we’d have focused on maximizing organic growth, tuned paid user acquisition, then gone out to raise with a thesis of “If we spend $X, we can buy Y users, with which we can achieve Z”.
Instead, a core piece of our strategy for the next 12 months is to continually increase ARPU, so that when we reach our Series A, we’ll at least be able to show a clear path to profitability.
Mattermark: There has been some grumbling among investors over the past few years about amateurs overpaying for very early-stage investments, and non-traditional capital overpaying for very late-stage companies. As you are on the earlier side of things, how many investors that approached you were what you might call inexperienced?
Truebill: One trend that surprised me was the number of investors wanting to put in money via their AngelList syndicate. For better or worse, AngelList has made anyone who wants to be a VC to quickly and easily spin up a “fund.” There’s definitely no shortage of outsiders eager to cash-in on tech (easier said than done).
We certainly were approached by our share of non-institutional investors looking to put money into Truebill. Ultimately, when raising money, it’s important to be clear with yourself about what exactly you’re looking for. From the outset, we knew we wanted investors with specific skill sets from tangental industries that would be able to help us with more than just money, and the collection of investors we were able to put together—both institutional and non-institutional—have been a terrific resource for us.
That is one company’s experience, making it a single data point. Still, it’s interesting to hear about investor mood variance on revenue, and Truebill’s intention to have a plan to profitability in place when it raises its future Series A.
All that sums to what we have been saying for the last month: Investors are being a bit more strict disbursing capital, and founders are increasingly aware of the need to have a functional business model, earlier. Not so bad. But also not at hot as things once were.
- The last time that Mattermark’s editorial team covered something directly concerning Y Combinator or its staff, the following disclosure was appended: “Editor’s note: Given the sheer number of investors that Mattermark has accreted over the years, it’s impossible to avoid them popping up here and there. Before Mattermark there was Referly. Referly went through Y Combinator. Sam Altman is Y Combinator’s President. I think I’ve met him once. He seemed to be Silicon Valley Normal. This concludes today’s conflict disclosure and character profiling.”