20VC Why Raising A MegaRound Makes Your Life Harder Not Easier, Why Your Board Is Not Your Boss and Lessons on Successful Board Management & The Biggest Breakpoints in Company Scaling with Emmanuel Schalit, Founder & CEO @ Dashlane

In this episode of "20 Minutes VC," host Harry Stebbings converses with Emmanuel Schalit, CEO of Dashlane, a company revolutionizing internet navigation and authentication with its all-in-one password and payment solution. Schalit, with a background as CEO at CBS Outdoor France and COO at La Martinier Group, discusses his journey from corporate leadership to startup innovation, emphasizing the risk and reward of transitioning to a technology-focused venture. The conversation delves into the strategic decision-making behind raising substantial funding rounds, the challenges of company scaling, and the importance of maintaining a strategic advisory role as a VC while allowing the CEO to steer the company. Schalit also highlights the need for diversity in tech and his vision for Dashlane to significantly improve the user experience of the internet within the next five years.

• Harry Stebbings hosts Emmanuel Schalit on Founders Friday on the 20 Minutes VC.
• Emmanuel Schalit is the founder and CEO of Dashlane, a password and personal information management company.
• Emmanuel has raised over $192 million in funding for Dashlane from top-tier investors.
• The episode features discussions on Emmanuel's career transition from traditional companies to startups, the inception of Dashlane, and insights into risk-taking and the current state of venture capital funding.

"You are listening to founders Friday on the 20 Minutes VC with me, Harry Stebings and I'd love to hear your thoughts on the show."

Harry Stebbings introduces the podcast episode and invites listener feedback.

• Emmanuel Schalit transitioned from CEO of CBS Outdoor in France to founding Dashlane.
• His passion for technology and background as a software engineer drove him back to tech.
• He was initially hesitant to join the early team at Dashlane due to the risk involved.
• A chance encounter with a headhunter on a train to London changed his mind about joining Dashlane.

"I was fascinated by their idea of solving what was one of the biggest unsolved problems of the Internet, how we navigate, how we authenticate from services to services."

Emmanuel Schalit explains his fascination with Dashlane's mission and the problem it aims to solve.

• Emmanuel Schalit had an "aha moment" for Dashlane during a train ride.
• A headhunter helped him realize that Dashlane met all his criteria for an ideal job: technology-focused, high-growth, and global.
• He decided to join Dashlane for a trial period of nine months to build a team, develop a product, and raise capital.

"It's the best decision I ever made to follow Bernard's instinct that this would be a big market."

Emmanuel Schalit shares his satisfaction with the decision to join Dashlane and the success it has brought.

• Emmanuel Schalit has a natural inclination towards risk, reflected in his hobbies and sports.
• His career prior to Dashlane involved less risk, and he felt the need to build something from scratch.
• He agreed to a trial phase with Dashlane to test the waters before fully committing.

"I think appetite for risk is something that changes over time."

Emmanuel Schalit discusses how his willingness to take risks has evolved over his career.

• Emmanuel Schalit acknowledges the current excess of capital in the market.
• He believes the abundance of capital is a reality driven by low returns on traditional investments.
• The decision to raise a large funding round depends on individual company circumstances rather than a one-size-fits-all approach.

"The excess of capital available today is a fact."

Emmanuel Schalit comments on the abundance of venture capital available for startups.## Impact of Raising a "Mega Round" of Funding

• Raising significant capital changes the dynamics of company growth and management.
• Large funding rounds increase pressure on the company due to higher expectations.
• A "mega round" raises the bar for potential exit valuations, creating a one-way, high-pressure situation.
• Rapid growth can lead to operational challenges, such as inadequate middle management and strained company culture.

"It's actually quite the contrary, because, and I'm speaking from experience, because six months ago, we raised the mega round because of a couple of things."

This quote emphasizes the counterintuitive experience that raising a large amount of capital can complicate rather than simplify a company's operations.

"You have to exit at a much higher valuation. So suddenly you've raised the bar for you and your team by a massive amount, and it's a one way decision."

This quote explains that after raising a large funding round, the company must aim for a significantly higher exit valuation, which cannot be reversed and adds pressure.

• Hypergrowth can reveal weaknesses in company structure, such as insufficient management layers.
• Company culture is at risk when a large number of new employees join in a short period.
• Logistical issues like inadequate office space and IT infrastructure can arise with rapid expansion.

"When you grow at that pace, you don't have the management, you don't have the bench, you don't have the management layers."

This quote highlights the management challenges that come with rapid growth, indicating the need for strong organizational structures to handle expansion.

"Half of the people that are at Dashlane were not there a year ago."

The quote illustrates the dramatic change in company composition over a short period, which can significantly impact the company's culture.

• Senior executives should understand the company's goals and outcomes due to their compensation and shareholder perspective.
• Broad team motivation should focus on the opportunity to build a significant business and the pride associated with success.
• Pressure for executives often comes from internal motivation rather than external sources like the board or investors.

"We are very generously compensated for the job we do. We should look at the company as a shareholder and as such, yes, we need to understand what these hurdles mean and what a good outcome is versus a bad outcome."

This quote explains that senior executives, due to their compensation and stake in the company, should be acutely aware of the company's goals and the pressure to achieve them.

"For all the people on the team, this is going to be something they remember all their life."

The quote conveys the idea that for the broader team, the motivation comes from being part of building a memorable and impactful company.

• Market conditions and the creation of a new consumer category can justify a significant funding round.
• The company's business model and capabilities must be able to create value from the capital deployed.
• High gross margins in pure SaaS businesses provide a foundation for profitability and justify large capital deployment.

"The opportunity was actually going to be much bigger."

This quote refers to the realization that market conditions and the potential for category creation warranted a large funding round.

"If we can grow fast, we can get to profitability quickly."

The quote suggests that for SaaS businesses with high gross margins, rapid growth can lead to profitability, justifying the deployment of significant capital.

• Advice should be taken with context in mind, as each company's situation is unique.
• Founders should be convinced that they can deploy capital effectively to accelerate growth.
• The decision to raise and deploy capital should consider the leadership team, business model, and investor risk tolerance.

"Every company and every set of circumstances is fundamentally different, and you can only benefit from advice if you understand what in it applies to your."

This quote advises founders to contextualize advice based on their specific circumstances.

"Do you have the leadership team? Do you have the business model and the gross margin?"

The quote outlines the considerations a founder must evaluate when deciding to raise and spend significant capital, emphasizing the importance of having the right team and business model in place.## Risk-Taking in Business

• Companies are learning to take higher levels of risk than before.
• Having the right market, leadership team, margin structure, and supportive board are crucial when taking on new risks.
• Taking risks can be justified when all the necessary ingredients for success are in place.

"We have to learn how to take a level of risk we're not used to taking. All the ingredients are there, the market, the leadership team, the margin structure, the board that supports a new level of risk."

The quote emphasizes the need for businesses to adapt to taking greater risks and the importance of having the right conditions and support in place to do so successfully.

• The abundance of capital available to companies can lead to different strategies, such as warehousing cash for security.
• The growth curve of a company should dictate how it uses excess capital.
• Raising and holding too much capital without growing the company's value can lead to difficulties in justifying valuations and potentially devalue equity.

"But if you're not growing at an incredible rate, if you are not guaranteed to be worth way more money without using that capital, then you must deploy it, because otherwise you will have raised your exit bar."

This quote highlights the strategic decision-making needed when managing capital; companies must balance the security of having funds with the necessity to grow and increase value to justify their valuations.

• VCs can be incredibly helpful, but their value varies depending on their strengths, such as networking, pattern recognition, or community building.
• Some VCs provide opportunities for CEOs to connect and exchange ideas without the VCs being present.
• The decision to work with certain VCs can be influenced by the non-monetary value they bring, such as expertise, networks, and brand reputation.

"So VCs, way beyond the money they bring, can be incredibly helpful."

This quote captures the multifaceted role of VCs in supporting companies beyond just financial investment, highlighting their ability to provide connections, advice, and community support.

• Understanding how to work with a board in a VC-backed company is crucial and differs from corporate environments.
• The board's role is to advise and consent, not to run the company.
• A negative dynamic can develop if the board oversteps its role or if the CEO allows the board to become too involved in running the company.

"But the dynamics are completely different with VCs, because your board is not your boss, you are running the company and you're running the board."

The quote explains the unique relationship between CEOs and boards in VC-backed companies, emphasizing the CEO's leadership role and the advisory nature of the board.

• Building relationships with board members outside of formal meetings is key.
• Preparing and sharing board materials well in advance allows for strategic discussions during board meetings.
• Tactical details should be addressed outside of board meetings to focus on strategic issues within the meetings.

"So investing time with your board members outside of the boardroom is the number one advice, I'd say."

This quote suggests that the most valuable interactions with board members often occur informally and outside of official board meetings, underscoring the importance of developing personal relationships with board members.

• Board members should maintain a clear distinction between advising and directing company founders.
• Recognizing one's strengths and where one can provide the most value is essential for board members.
• Board members should not try to assist in areas outside their expertise.

"So I think it's also about understanding you're not going to be able to help on every front."

The quote advises new board members to focus on areas where they can provide the most value, acknowledging that they cannot be experts in every aspect of the business.

• Emmanuel Schalit recommends the book "Sapiens" for its valuable insights.

"You should read sapiens, which I'm sure you've heard about."

This quote is a book recommendation from Emmanuel Schalit, suggesting that "Sapiens" offers important learnings.## Historical Lessons Applied to Business

• Yuval Noah Harari's book provides insights on the success of homo sapiens over other human species due to their ability to form large groups and share a vision.
• This concept can be applied to business, particularly the challenges faced when company culture expands beyond 150 people.
• Shared vision and culture are critical in larger organizations where individuals may not know each other personally.

"Which is why homo sapiens prevailed over neanderthalis and other human species because of their ability to form large groups of humans, because they were able to have a shared vision."

This quote highlights the importance of a shared vision in the success of large groups, an idea that is transferable to the context of growing businesses.

• Breakpoints occur at various stages of a company's growth, with the first around 10-20 employees, where the initial close-knit team dynamic changes.
• The second breakpoint happens between 50-100 employees, where clearer hierarchies and management structures emerge.
• At approximately 150 employees, personal knowledge and trust within the organization become challenging, necessitating a strong vision, culture, and people function (HR).
• Further breakpoints occur at 300 employees, where CEOs can no longer know everyone personally, and at much larger scales, like 10,000 employees, where personal connections are minimal.

"At that level, obviously, you have that number or that 150 limit, which is really, really very palpable, because it essentially means when you are in an organization where you can't know everyone enough to trust them implicitly."

This quote explains the significance of the 150-employee threshold as a point where personal connections and implicit trust within an organization become difficult to maintain.

• Diversity is a critical issue in the tech ecosystem, with a need for more women and people of color.
• The lack of diversity is described as a "cancer" that is challenging to address but essential for the health of the industry.

"Diversity. More women. More people of color. That is a cancer running through the tech ecosystem today, and it's one that's really hard to cure."

The quote emphasizes the speaker's view on the urgent need for enhanced diversity within the tech industry and the difficulty in achieving it.

• Memorable investor meetings include the first and the last ones, with the first being a series A round where an investor immediately showed strong support.
• Another significant meeting was with an investor who persuaded the company to reconsider taking equity instead of relying solely on debt.

"The first one was when we were raising our series A, and I was meeting with Habib Kerose from Roe Ventures here in New York, and I was halfway through my pitch, and he banged his head on the table right in the middle of it. I was not even finished. And he said, I love it. How much is it? I want to do it."

This quote recounts a pivotal moment in the company's funding journey, where immediate investor enthusiasm marked the beginning of a long-term supportive relationship.

• New York was chosen over San Francisco for its proximity to Europe, facilitating a cohesive culture and presence across continents.
• New York's diversity across various industries, not just tech, provides a culturally enriching environment.
• New York is now considered a prime destination for European entrepreneurs looking to expand or start in the U.S.

"New York is also the city of finance, of retail, of advertising, of e-commerce. And so as such, I find it a very enriching environment that meets people that are not just startup founders and VC."

The quote illustrates the speaker's appreciation for New York's diverse business ecosystem, which offers a broader perspective than a tech-only environment like Silicon Valley.

• The company's five-year mission is to improve the user experience (UX) of the internet, particularly in transactions and authentication.
• The goal is to create a mainstream consumer brand and product that significantly impacts how the internet is used daily.
• Success would mean creating a new product category and building a formidable company.

"In the next five years, we want to build a mainstream consumer brand and a mainstream consumer product that will have made a significant dent in how the UX of the Internet is experienced every day by millions and millions of people."

This quote outlines the company's ambitious plan to revolutionize the internet's user experience and establish a significant market presence within the next five years.