20 VC 052 How To Make The Leap From Seed To Series A with Ari Helgason @ Dawn Capital

Summary Notes


In episode 52 of the 20 minutes VC, host Harry Stebbings interviews Ari Helgeson of Dawn Capital, a Y Combinator alumnus and former entrepreneur with a background in SaaS and e-commerce. Ari shares his journey from bootstrapping startups to entering the venture capital world, highlighting the importance of strategic fundraising and maintaining a cash buffer for startups. He emphasizes the need for founders to set ambitious yet achievable goals and to understand their business's value creation to attract investors. Ari also discusses market dynamics, the growth potential in enterprise software and fintech, and London's emergence as a fintech hub. The episode concludes with Ari's insights on time management challenges in VC and a recent investment in the connected car platform, Automile.

Summary Notes

Introduction to Ari Helgason and Venture Capital Insights

  • Ari Helgason is a former entrepreneur with operational experience in London and New York.
  • Before joining Dawn Capital, Ari founded a SaaS sales and workflow management system called World on a Hanger and an e-commerce clothing marketplace, Fabricly.com.
  • He also launched e-commerce sites for fashion and luxury brands.
  • Ari is an alumnus of the Y Combinator startup accelerator.
  • His move into venture capital was influenced by his entrepreneurial background and the opportunity to join Dawn Capital as it launched its second fund.

"Ari is a former entrepreneur with operational experience in London and New York. Prior to working at dawn, Ari founded SaaS sales and workflow management system world on a hangar and ecommerce clothing marketplace fabricly.com." "So I came across dawn, which was a venture firm founded by entrepreneurs that had an exceptional portfolio in the first fund and they just launched their second fund."

These quotes outline Ari Helgason's background as an entrepreneur and his transition into venture capital, highlighting his experience with startups and his decision to join Dawn Capital.

Ari Helgason's Entrepreneurial Journey

  • Ari was born in Iceland and grew up in Denmark and the UK.
  • His brother taught him programming at the age of eleven, sparking his interest in technology.
  • After university, he started a business focused on sales and supply chain management software for the fashion industry.
  • He also launched an online marketplace for fashion designers, described as a "Kickstarter for fashion."
  • He chose to bootstrap his businesses due to a lack of track record and low personal burn rates.

"My brother taught me programming when I was eleven and I was always quite excited about technology and playing around with computers." "We made sales and supply chain management software for the fashion industry. Very good kind of bootstrap business, but quite a small market."

These quotes provide insight into Ari's early interest in technology and his approach to starting and funding his first businesses, emphasizing the decision to bootstrap due to circumstances.

Transition to Venture Capital

  • Ari's transition to venture capital occurred after his marketplace business did not work out, and he decided to try something new.
  • His SaaS business continued to thrive under his co-founder's leadership.
  • Ari was drawn to Dawn Capital because it was founded by entrepreneurs and he wanted to be part of building the team for their second fund.

"Eventually the marketplace business didn't work, but the SaaS business is still going strong." "So it appealed to my entrepreneurial instincts to be part of that second fund from the beginning and kind of help to build out the team and have."

These quotes explain the reasons behind Ari's shift from entrepreneurship to venture capital, including the desire to apply his entrepreneurial instincts in a VC context.

Venture Capital Experience and Perspective

  • Ari finds venture capital less stressful than being a founder.
  • The VC role requires a broader portfolio view and a familiarity with many different areas, diving deep into a few.
  • Being in VC allows for more strategic thinking and a more analytical approach compared to the day-to-day of founding a startup.

"It's less stressful than being in the trenches as a founder, but it quite appeals to me in that you can kind of take a step back and think more strategically and be more analytical, rather than having to be in kind of animal mode every day."

This quote captures Ari's perspective on the differences between being a founder and a venture capitalist, highlighting the strategic and analytical aspects of the VC role.

The Leap from Seed to Series A Funding

  • Ari wrote an article discussing the transition from seed to Series A funding.
  • He agrees with the cliché that founders should always be fundraising but clarifies that it applies mainly to companies that are not yet profitable.
  • Founders need to ensure they have enough money to keep the business running and to grow, which can come from profitability, a path to profitability, or the ability to secure additional funding.

"I do agree with this, but my phrasing in the article may have been slightly misleading." "And what I really mean is that if you're going to run out of money, it's never too early to begin preparing for the next."

These quotes reflect Ari's agreement with the concept of continuous fundraising for certain startups, emphasizing the importance of financial preparation for the next funding round if profitability has not been achieved.

Fundraising Strategy and Timing

  • Having a clear plan for securing subsequent rounds of funding is crucial.
  • Timing the acceptance of funds is important to maintain a strong negotiating position.

"You really have to have a plan from the beginning as to how you're going to get that next bunch of funding in the bank."

This quote emphasizes the importance of forward planning in fundraising to ensure financial stability and growth for the business.

Taking Advantage of Available Funding

  • When funding is available, it's advisable to accept it due to the unpredictable nature of business and fundraising environments.
  • A cash buffer extends a company's options and strengthens its negotiating position.
  • The fundraising climate and hype cycle are subject to change, which can affect access to capital.

"When the money is there and is available, take it."

Ari Helgason advises that securing funds when available is strategic, as it provides a safety net and more options for the business.

Fundraising Preparation: Setting Goals

  • Clear and measurable goals are a fundamental aspect of fundraising preparation.
  • Success metrics vary by business, and founders should focus on what indicates value creation in their specific context.
  • Investors are attracted to strong businesses and ambitious teams with realistic plans to achieve their goals.

"So focus first on building a great business and second on impressing investors."

Ari Helgason highlights the importance of prioritizing the development of a solid business over solely trying to impress investors.

Balancing Ambition and Realism

  • Founders should aim for a balance between audacious ambition and practical conservatism.
  • Having a clear strategy to reach ambitious goals is essential.
  • Founders should have a 'sanity-checked' story for achieving their milestones.

"There's a sort of sweet spot somewhere between insane audacity and being too conservative."

Ari Helgason suggests that founders should be ambitious but also realistic and prepared with a clear plan to reach their goals.

Investor Expectations at Series A

  • Investor expectations at Series A vary based on the business type and the investor's risk profile.
  • For SaaS businesses, key metrics include annual recurring revenue and customer acquisition costs versus lifetime value.
  • Founders should research and communicate with those who have raised funds to understand relevant KPIs for their business.

"We want to see a business that's doubling annual recurring revenue run rate year on year, at least fast approaching 100,000 pounds a month in revenue..."

Ari Helgason outlines specific metrics that are considered attractive for SaaS businesses at Series A investment stages.

The 40% Rule for SaaS Businesses

  • The 40% rule suggests that growth and profit should total at least 40% annually.
  • This rule is a benchmark for evaluating the financial health and growth trajectory of SaaS businesses.

"I think that's a fair rule."

Ari Helgason agrees with the 40% rule as a reasonable standard for assessing SaaS business performance.

Readiness for Series A Fundraising

  • Series A is typically raised when a business model is established and product-market fit is found.
  • The core engine of the business should be working efficiently before considering Series A.
  • Founders should engage in casual investor conversations to gauge interest and receive feedback.
  • Positive feedback from these conversations can indicate readiness to start a formal fundraising process.

"So typically a series A is raised when you've figured out your business model, you found that product market fit and you're ready to start just scaling out the business."

This quote emphasizes the importance of having a proven business model and product-market fit before attempting to raise Series A funding. It suggests that a company should be prepared to scale operations at this stage.

"I think the best thing to do is to start off some quite casual investor conversations...to just check whether what do they think of what you're thinking of raising both the amount and the stage you're at and take that feedback on board."

The quote suggests that informal discussions with investors can provide valuable insights into whether a business is ready for Series A funding and can help founders understand investor perspectives on their fundraising plans.

Networking and Connecting with Investors

  • Warm introductions from trusted parties are the most effective way to connect with investors.
  • Networking through events, meetups, and conferences is recommended to meet venture capitalists.
  • Utilizing social media platforms like Twitter can be more effective than cold emailing.

"We listen to portfolio ceos or our venture partners. Really, anyone I trust I'll take an intro from, and that's pretty much always going to lead to at least a call or a quick meeting."

This quote highlights the importance of introductions from trusted sources in the investment community and how they can lead to initial conversations or meetings with investors.

"I'd say, failing that, to network your way in, go to events where vcs are in attendance. It's a good way to meet them."

The quote suggests that attending events where venture capitalists are present is a good strategy for founders looking to network and make connections when direct introductions are not available.

Market Size and Investment Attractiveness

  • A market size of at least a billion dollars is generally considered attractive to venture capitalists.
  • Markets that are growing rapidly or undergoing significant changes can also be appealing, even if they are currently smaller than a billion dollars.
  • Dynamics that allow new entrants to capture market share, such as technological shifts, are particularly interesting to investors.

"So I'd say a billion. But there are some interesting things about markets that often don't get mentioned when people are talking about those top line numbers."

The quote indicates that while a billion-dollar market size is a benchmark for investment attractiveness, there are other factors that investors consider when evaluating market potential.

"Typical cases when software moved from on premise to the cloud, that allowed new entrants, new SaaS entrants to capture market share."

This quote provides an example of market dynamics that can create opportunities for startups to gain market share, illustrating how technological shifts like the move to cloud computing can be advantageous for new companies.

Focus Areas for Investment

  • Dawn Capital focuses on enterprise software, including SaaS, open-source, and cybersecurity, as well as fintech.
  • These markets are well-understood by Dawn Capital due to their existing portfolio and past successes.
  • Both enterprise software and fintech are considered interesting and promising markets for disruption and investment.

"So at dawn we look at two things. We look at enterprise software, which is mainly SaaS, but also a lot of open source stuff, some on premise cybersecurity stuff. And the second vertical we focus on is fintech."

This quote outlines the specific investment focus areas for Dawn Capital, highlighting their expertise and interest in enterprise software and fintech sectors.

London as a Fintech Hub

  • London has become a significant fintech hub due to its concentration of financial institutions.
  • Companies building services for financial institutions have a strategic advantage by being located in London.
  • The city offers a talent pool with financial services experience, making it a prime location for fintech startups.

"I think you just need to walk around the city of London to see the logos on the buildings there. And in Canary Wharf, if you're building something that enables financial institutions or banks to serve their customers better, all your customers are here, here in London."

This quote highlights the physical presence and concentration of financial institutions in London, which is beneficial for fintech companies serving those institutions.

Importance of Sales Process in SaaS Businesses

  • "Predictable Revenue" by Aaron Ross and Marilu Tyler is recommended for its effective sales process.
  • The book is considered essential for software CEOs and salespeople.
  • It details the sales model used by Salesforce to achieve significant annual recurring revenue.

"Now, predictable revenue by Aaron Ross and Marilu Tyler. It's a brilliant book that outlines a kind of powerful sales process for building recurring revenue in SaaS businesses."

The quote emphasizes the value of the book "Predictable Revenue" in establishing a successful sales process for SaaS businesses, contributing to the growth of recurring revenue streams.

Perception of Success

  • Elon Musk is cited as a symbol of success due to his significant impact and the audacity of his ventures.
  • Musk's companies are considered unparalleled in their ambition and scope.

"Success? I'd say Elon Musk is probably not a surprising answer. But just the amount of impact he's had, the kind of audacious companies he's building, is unparalleled."

This quote reflects the speaker's admiration for Elon Musk's achievements and the scale of his entrepreneurial ventures, using him as a benchmark for success.

Challenges of Being a VC

  • Time management is a significant challenge for venture capitalists.
  • Focusing on strengths and areas of understanding is crucial for effective investing.
  • The necessity of adding value and not being distracted by less relevant opportunities is emphasized.

"You have lots of people that want to talk to you and you just really have to be careful to focus and to make sure that you're playing to your strengths, that you're investing in things that you understand and where you can add value."

The quote addresses the challenge of managing numerous demands on a VC's time and the importance of maintaining focus on areas where they can contribute most effectively.

  • SaaStr by Jason Lemkin is recommended for building SaaS businesses.
  • AVC.com by Fred Wilson provides a mix of macro-level insights and specific advice for founders.
  • The mention of Jonathan Lipov from Union Square Ventures connects to the upcoming episode and the relevance of Fred Wilson's blog.

"So you had Jason Lemkin on recently, and I think his blog, SaaStr is excellent. There's a lot of great content on there about how to build SaaS businesses."

This quote suggests that the SaaStr blog is a valuable resource for insights into building successful SaaS companies.

Investment in Automile

  • Dawn's recent investment was in Automile's Series A funding.
  • Automile is a connected car platform with a hardware component and software for fleet management and mileage tracking.
  • The investment was driven by the exceptional team and the potential of the connected car market.

"So our most recent investment at dawn was the automile series a. So automile is a connected car platform."

The quote explains the rationale behind the recent investment, highlighting the innovative nature of Automile's technology and its market potential.

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