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November 14, 2023
Esther Romanoff

Raise Capital Like a Pro | Insider Tips from a VC By Esther Romanoff

Raise Capital Like a Pro | Insider Tips from a VC By Esther Romanoff

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Show Notes

Mudassir (00:03.261)
the pad is on. Okay. All right. Do a clap for me please.

Yeah, that's fancy. That helps us in syncing the audio and video. So the moment you clap and the moment it produces a sound, so that helps us in post-production a lot. Okay? So we should be good to go now. All right, so hey Astro, welcome to the show. How are you doing today?

Esther Romanoff (00:21.419)

Esther Romanoff (00:26.998)
Good, good. Thank you for having me.

Mudassir (00:29.785)
It's our pleasure to have you here. How's the weather? Where are you located? I think San Francisco?

Esther Romanoff (00:36.438)
San Diego, California. So a little bit south of San Francisco, yeah. It's cloudy, it should be nice and sunny, but no, not today, it's okay though.

Mudassir (00:38.393)


Mudassir (00:44.865)
Okay, okay. All right, so Everybody that that's been on the guest in the podcast and we have like a lot of people like dozens of people I ask everybody a specific question Where did they come from? What is their story? What's the context of their life? So same question. I want to start us off with Who is Astor behind all the fancy things that you do today? Who are you?

Esther Romanoff (01:10.094)
Of course, oh well, I grew up in New York, Brooklyn. My parents moved to New York from Azerbaijan. They got their passports pretty much mailed to them because of as refugees, but also my dad had a computer science degree in the early 90s. And so very quickly hired up in Brooklyn, helping code for the New York Stock Exchange.

And so I was born out of that, in the middle of the stock market in the 90s, but also my mom being an architect and an artist, which I think helped me throughout my career as well, because I had a very good parental system that was half right brain, half left brain.

Esther Romanoff (01:53.71)
pretty much just stayed in New York until around 16. My father passed away when I was around five or six. That was a little unfortunate, but mom carried it through. Moved to Seattle for college. So I went to University of Washington there and studied accounting. I early admitted I knew from pretty much middle school that I wanted to be in finance because, I don't know, I just knew that I was one of those kids. And moved to San Diego after college.

That's kind of where I'm from in my general movement through America. But yeah, and settled on a career pretty early, started trading. I've done a variety of really miscellaneous hobbies that don't look related at all, but that's the majority of how I started, I guess.

Mudassir (02:43.809)
Okay, what are you doing today?

Esther Romanoff (02:46.846)
Well, I run a VC with my business partner Jeremy Barr and an early accelerator with him as well. I also work on commodity deals for very high net worth individuals and institutions and other than that just read a lot of books and share as much knowledge as I can.

Mudassir (03:08.037)
Okay, what are you reading today? Or like these days?

Esther Romanoff (03:11.182)
Oh, okay. Today, or these days, I've been kind of going through a personal development, but more spiritual side of things. So Eckhart Tolle powers now. I currently working on his book, The New Earth. I just finished Alan Watts's The Book and I'm on a Frederick Nietzsche

Mudassir (03:20.683)

Esther Romanoff (03:29.57)
novel or you know his journals essentially. So those are the three that I'm working on and on the side of like two or three herbalism books because I've been really interested in natural medicines recently. Very aside from finance I know it's like my reading taste is very eclectic but here we are.

Mudassir (03:31.081)

Mudassir (03:46.457)
Yeah, yeah, okay. All right, so full disclosure, I want this podcast episode to be somewhat of a master class on fundraising, okay, because given the background that you have on finance, you know, dealing with a high-worth individual, doing angel investments, running a VC firm, running an accelerator, all of that stuff. So I want this particular episode to be very much focused on

every single thing that people can think about when it comes to fundraising, okay? And just so you know, so most of the audience that we have, that the people like were aspiring entrepreneurs, so like first time, second time founders, haven't been able to replicate the same level of success that most people in our circle. So yeah, just keeping this thing in mind. So we just wanna start us off with one thing. When it comes to raising money, right? And like, who should raise?

venture capital, who should raise money.

Esther Romanoff (04:49.51)
Okay, venture debt, somebody who's ready for it. I would say that investor capital like angel investor capital and venture capital, the money like taking on the money from those two parties look very different both from the expectations of the investor but also the pressure puts on the team. So I would say that if, yeah, venture debt would be more for the people that are prepared to put in

Mudassir (04:58.075)

Esther Romanoff (05:17.166)
the work needed to provide them with work they can actually and usually during the vetting process it's very easy to see whether or not a company could match that rigor or whether it's like okay let's find investment within our circles first and then move on to venture once we have an understanding of what they can need maybe.

Mudassir (05:18.858)

Mudassir (05:38.433)
Okay, so one thing that you mentioned is, I just wanna take it to a really grassroot level. So one thing is angel investment, and the other one is venture capital and all of that. And usually, and quite rightfully so, I think the expectation is somebody who's investing, I don't know, 5K, writing a 5K check, 10K check, or something like that, he's okay to take more risk, he's okay to be a little bit more patient compared to a firm that's investing, I don't know.

a couple million dollars or something like that. They obviously want you to perform a lot of that. The question that comes to my mind is, most companies, a few years ago, they were thinking, okay, so if we go down that fundraising doubt, that means success for us. Like, that was the hype, you could say that, that was the hype cycle. And now it's just like, bootstrapping is back in the game. It's just like, no, don't raise venture debt. Just...

build sustainable quote unquote, sustainable companies, be profitable, profitably sexy again. So the question that I ask like, who should raise money is who should focus on bootstrap and who should focus on going after venture capital.

Esther Romanoff (06:56.846)
Gotcha. So before around the 1970s, the precedency that we know now were actually seed in series A, in the sense that there was no investing in revenue pre-revenue. Companies would only really get invested in after they hit revenue.

Mudassir (07:07.207)
Oh wow, okay.

Esther Romanoff (07:15.794)
And so I think because of how much money started to get flooded into the economy, they added a couple more rounds. They added seed, they added pre seed to try to get companies started beforehand, but it's still a fairly new metric. So I think what it's going, what the economy is taking it, it's taking it back to what it kind of used to be in a way, or it's trying to scale down because of the risk, right? Because of the risk, risk vendors are kind of taking it down. So that's the first step that I kind of want to mention is.

Mudassir (07:16.011)

Mudassir (07:41.097)

Esther Romanoff (07:46.869)
This isn't new, it's also not scary that they're doing this, but it's just something to keep in mind, right? So before, a pre-revenue company, like you mentioned, can get venture debt all the way in. Now, we're not really seeing as much of it. We're expecting more of like... So, to your question, the person who should bootstrap is definitely the first-time founder. The founder that doesn't have a lot of...

Mudassir (07:50.721)
Mm-hmm. Yep.

Esther Romanoff (08:13.242)
not experience because they could have experience, but not a lot of rapport within like exits. If they don't have an exit, if they have a team that doesn't have a lot of exits under them, say they have a five person C-suite team, right? And maybe one of them has one exit, but nobody else does. That would be a good candidate for building traction. So building a customer list, making sure that you interview those customers and then...

Mudassir (08:27.637)

Esther Romanoff (08:40.082)
They actually want the product and the business that you're creating before bringing it to an investor. And then once you actually get the revenue rolling from it, you can see what your predictions were, start coming true when it comes to revenue, when it comes to expenses, that's when you're experienced enough, then you can bring it to venture. But for that first time founder that maybe is still building their team, still looking for advisors, I would say to avoid venture.

Mudassir (08:44.179)

Esther Romanoff (09:09.25)
for a while.

Mudassir (09:10.877)
Yeah, usually first time founders, they have a really hard time raising any money at all, right? Like most people would not consider investing in first time founders unless your idea is like, I don't know, you're building the next Google or something like that. So yeah, I think so. Yeah. Okay. Yeah. All right. So following up on that, how much equity do you think early startup employees should

Esther Romanoff (09:27.37)
Yes, absolutely.

Mudassir (09:41.077)
So I actually wrote an article slash newsletter on that this week. So one of the things that comes to my mind is.

early stage, sorry, you know, when you're like really early and you're just hiring like your first three employees or something like that, one of them eventually becomes your co-founder or something like that and you're looking for angels who can write you, I don't know, 5K checks, 10K checks or something like that. What do you think the equity split should look like at that point? I'm sure you have seen like a lot of cap tables. So how would you see, okay, so that's a fair deal between the co-founders or that's a...

That's a crap table. That's how I would like to say that. And it's gonna be a problem going forward. So how would you, you know, have a look at that.

Esther Romanoff (10:27.338)
Yeah, absolutely. I mean, it depends on the amount of founders going in. I would say that the person who started the company, if there's one founder and they took on a couple founders, what I really like to see is, say there's not too skewed. You want people, especially your founding team, to be on the cap table, but you also only want them on the cap table. You don't want like extra people on there, which it seems obvious, but it's still an important note.

Also, I love seeing vesting schedules and milestone based like initiatives within the equity for the first, for the team, right? For the C-suite team where they'll give a four-year vesting schedule with a one-year cliff, which is normal, right? Even for their head C-suites that they're bringing in, like to say the one founder founded the company, they're putting everybody else on a same schedule. If two people found the company, I would expect to split that's

Mudassir (11:02.944)

Mudassir (11:07.56)

Mudassir (11:14.921)

Esther Romanoff (11:26.506)
fair to both of them because both of them will want or need to be working on it, right, but still leave enough space for obviously their current investors, the ones they're expecting to raise. So if they're expecting to raise a pre-seed or a seed, leave 15% so that like, hey, this is the equity that we're going to sell off in exchange for capital, even if it doesn't happen. Just like, you know, this is where we bring in angels and then the founders, right.

Mudassir (11:38.89)

Mudassir (11:48.757)

Esther Romanoff (11:56.322)
that takes one.

Mudassir (11:56.769)
Yeah. OK, so I want to ask you the most notorious topic that people talk about, or people ask us all the time. What's the most common mistake you see when founders make pitch decks, or when they actually pitch you?

Esther Romanoff (12:12.44)

Okay, this is maybe it's not the most common but it is one that personally I get a little bit miffed at the most. I my What I do and what I have done is pretty easy to find on LinkedIn.

venture capital, I have a background in finance, very heavy background from trading to accounting to financial statement creation to fundraising to commodity deals. I know all of it. When a person, when a pitch deck is created, I find that founders create one and pitch to every single investor the same way. But

Mudassir (12:31.829)

Mudassir (12:52.85)

Esther Romanoff (12:54.882)
That doesn't really apply when you're, because really what a pitch deck is a conversation. You're trying to share your idea, your vision to an investor that will then want to put some of their time and money, money or time into it, right? When I see decks that are very heavy finance but they walk through from the very start of it until the conclusion of what they're trying to build.

for 30 minutes especially, or even for five, right? It's like, if you're building an exchange, I'm a finance person, I know what an exchange is, I kind of get, I'm going to, it would be lovely if I could drive the conversation, right? Whereas for certain founders, they'll come in and they'll be like, all right, this is what I memorize. And they'll go through their entire company and it's been the whole time and I have 10 minutes left. It's like, that's a wonderful, wonderful pitch deck. However, I knew 75% of what was in that and I really wanted to know these five topics.

more. So now we have to schedule a follow-up so that I have the time to give that founder, you know, the space to answer those questions, to kind of go back and forth, figure out where the possible gaps are so that I can bring people in to help them even if I'm not investing in them. Right. So there's opportunity there that they're missing out on by not holding off, reading the experience of the investor, but also giving gaps so that

if I do have a couple questions, I'm probably going to be like, you know, like, can I?

get into here, you know, before you keep going. And that could give them a better chance of maybe a partnership, even if I don't invest, right? A hearing my side, maybe I'll bring up a point or a question that they haven't thought of, or even if they have thought of, maybe they'll answer it in a way that I could be like, okay, great, you and this person would be great to like, this could be a client for you, this could be a contract opportunity. Yeah, so just giving time.

Mudassir (14:50.141)
Yeah, what's the craziest, craziest pitch that you have ever seen?

Esther Romanoff (14:50.475)

Esther Romanoff (14:54.95)
Oh goodness. The craziest pitch, when it comes to business or pitch in general.

Mudassir (15:03.157)
Both. Now that you mentioned both.

Esther Romanoff (15:06.762)
Right, right. There is one that was really cool. So I'm in also the crypto space, Bitcoin mining, very familiar with those kinds of companies. There's one company that really stood out that I found absolutely fascinating.

that was using Kalmanure to get the methane from and then run Bitcoin miners from it. It's actually decently common to do a methane capture Bitcoin mine, but the way they did it was very fascinating. This was one of those projects though that I know so much about Bitcoin mining and they did a nice 20 minute chunk on it and I was like, yes, yes I know, yes, continue, I want to hear about the fun part of this. So I would say that was the oddest pitch that was like, huh.

would never have thought of it this way, but cool, Cal's leading to Bitcoin mining, great. And then the one that kind of...


Esther Romanoff (16:04.582)
I always find pitches during conferences very fascinating, the ones in person, because you really tell whether or not a founder knows their business and knows how to explain it to people that are normal outside of their deck.

Mudassir (16:19.761)
Isn't that hard? Like that's not easy. Yeah.

Esther Romanoff (16:23.345)
It is. But it should be easy. Because if a founder knows their company right, is building a company.

and you walk up to someone, you're trying to explain your company. You're being like, Hey, this is what I do. I run, you know, the pre company that's we're raising money, but this is, we have three team members. One of my team members was incredible. He's worked at NAS, NASA building. Right. So that passion that comes through is really the important part. So it's very hard to, what I find is it's hard to cater to the person standing in front of you when they're so technical, when the founder is so technical. So I think a lot of the crazy.

ones are ones where in the web3 space specifically I was at conferences and some of the individuals were pitching as if I knew code and it was great but I'm like I'm so lost there's no way you could catch me up let's back up and figure out what exactly your company does and how many people are on it you know so those are the hardest to follow at least

Mudassir (17:28.177)
Yeah. So in your opinion, if you were to just describe like what are the red flags, you could say that of a pitch deck slash pitching to a BC.

Esther Romanoff (17:40.722)
Ooh, the red flags. There's a couple of them. Number one, not doing research for sure. Also, this seems like a minor one, but it's actually pretty major. Reading the body language of the investor or the venture capitalist in front of you. If they look away, I don't see it. Yeah.

Mudassir (17:56.253)
They usually don't give it away, you know. They usually don't give it away. It's just not like, yeah, you're pitching them and they're like, ah, yeah, I'm not interested. Just, you know, pack up and go or something like that. You usually don't do that.

Esther Romanoff (18:05.962)
That's true, yes, that is true, but you can tell, well, I guess it depends on the individual, the founder itself. Red flags for pitch decks. Anything longer than 10-12 slides, I would say is a no-go. If you can't do the short summary, so, usually when a person pitches, it's good to have like a little summary of the company beginning.

And then going into whatever you're going into. Team should be kind of big in it because that's what investors are looking for. If the team isn't mentioned, if their experience isn't listed, and if there isn't a short verbal summary of what the company is at the start of the pitch deck, usually that's a symbol that they don't really know what they're doing in a way.

So those would be some of the ones that I would mention to start and anything that's really lengthy, it's fine to have in resources, but having the pitch deck and the pitch be short is usually preferable so that the investor and VC could ask questions and comment.

Mudassir (19:08.113)
Okay, so suppose you got an opportunity to invest in any startup. You know, we can pick like XYZ startup and you got an opportunity. When do you think it's like, no, you're like, no, I'm just not investing in them. Like, what's that point for you?

Esther Romanoff (19:27.55)
I mean it depends. It depends on how well built the companies are because sometimes there are companies that are well built that are just not within the space that I want to personally invest in. And it's not them at all. It's just that like, seems like a great company, everything is figured out, you got your advisor down, your team down, but I personally don't want to.

Mudassir (19:29.201)
Okay, onward.

Mudassir (19:36.885)

Mudassir (19:43.677)
Yeah, not comfortable.

Esther Romanoff (19:51.594)
like help this particular mission. My goal is somewhere else. And I'll clearly state that. But if it's a company that is in my realm.

there's uh if regulation if i think regulation is going to start impacting their business i'm going to wait because i'm not 100 sure if that's a safe investment for either me or my company so that's another reason that i would potentially be like okay this is a little you know getting into the area the gray area that i'm not fully comfortable investing in yet

Or if they don't have a good team is one of the biggest ones because the people you work with, especially in founders for long periods of time is extremely important. So if they're, they're missing something within their team and I ask them, Hey, are you planning on getting somebody in that covers, you know, marketing or HR or whatever they're, I feel like they might not have under them between the personalities, their skillsets, their experiences. I'm going to kind of like. Ask what their plan is.

And if they don't have, and I'll be like, maybe not. So I guess for me personally, I think a lot of investors, there's a slew of reasons. Cap table, if it's split different, I might not want to invest. If it's further down to diligence, if it's people, if it's regulation, there are so many things. And that's something that I would love if founders could get into themselves and into their companies. It's oftentimes not personal.

It's a lot of times it's impersonal and they shouldn't take it as their business is bad. There are maybe there are a couple tweaks, maybe it's the wrong market, maybe their idea is just not quite developed enough for somebody to take a risk on them. It's oftentimes it's outside of their control and I know it's unfortunate, but a lot of times there are other investors that will be willing to take on that risk. So it's a numbers game at that point.

Mudassir (21:19.253)

Mudassir (21:32.159)

Mudassir (21:43.953)
Okay. Hmm, that's interesting. Interesting. Okay, so most of the times, most of the time, I happen to sit on the both side of this table. Like, you know, we have fundraised and happen to be a lot with friends with some VCs as well. And we are fortunate enough to interview both of them. Like, you know, VCs and the founders of both sides. One thing that in particularly struck me is,

Usually, VCs are asking a lot of questions, right? So in founders' mind, they already have this thing, like we just need the money, like we just need the check. Usually it's just that, because some founders think that they have this thing figured out, others think that they will figure it out, which is fine. If it comes down to a couple of questions that you think every founder should be asking investors, what would those be? Because I think people don't ask those questions.

Esther Romanoff (22:20.501)

Esther Romanoff (22:38.95)
This is true. So first, there is a fiduciary responsibility that founders take on by taking investor capital. And the questions I would say, or the questions that founders aren't asking have to do with this. And part of it is they might, there's a whole slew in this little section right here, but.

Mudassir (22:49.034)

Esther Romanoff (23:05.522)
I don't know if they fully understand the expectations of the capital and how that personality and that relationship will be formed. So if there's a person that's waiting to give you investment as a founder, or a venture capital that's willing to put money into you, post questions. Some of the questions that the founder should ask them is, what are your expectations from me?

Is it weekly, monthly, annually? Is there things that, and usually they'll tell you as well, they're like, hey, this is what you want. But if that founder has particular, okay, what does that look like? Can you send me something that I could then send you on a basis, a certain amount, right? Some VCs are like, no, it's fine. But some of them will be really detailed on that and that will matter. And the relationship, yeah, essentially, to be detailed on that.

Mudassir (23:49.45)

Esther Romanoff (23:55.742)
And angels look different from venture capital funds, obviously.

Mudassir (23:59.365)
Okay, and what question do you think VCs should ask that they usually don't to all founders before writing a check, regardless of the economy?

Esther Romanoff (24:11.31)

Esther Romanoff (24:15.598)
I would say that most VCs do ask questions around most of the things that we would expect them to, if they're doing good, if they're doing fine. What I would say they don't focus as heavily on that I would love is the...

Esther Romanoff (24:42.734)
Tractions in different ways. So yes on customers, they look for the customer traction, but you're also looking at employee traction, partnerships, investor traction. And they do loosely, right? Most of them focus on customer, which is entirely understandable.

but there is also the end hiring talent right partners maybe aren't as visible unless you unless the company puts them on like a pitch deck or like hey these are the people that we're with right but a lot of founders especially first time founders don't think to mention oh yeah one of my best friends runs a accounting firm that handles accounting for everybody in my industry or oh

Mudassir (25:02.059)

Esther Romanoff (25:28.736)
for a while is in the legal space, but I just didn't think to mention it because it's not one of my partners. So one of the questions there could be like, is there anyone in your circle as a first time founder and somebody who hasn't raised yet that you're close to that gives you input on your business, but isn't on this deck and isn't on this list of customers and these partners?

Mudassir (25:51.521)
Okay, how's that gonna help? Assuming that, okay, so like you got a good network.

Esther Romanoff (25:53.982)
It makes a difference. It makes a... Yeah, well, it makes it makes a large difference because, I mean, your circle and who you gain advice from does impact the business decisions themselves. And so what Avenger Capital or any investors trying to do is like, will you make good decisions on behalf of your business?

and they're looking for the people associated to you that will give you advice on where to target your business. So if they have people that aren't listed on the deck or within their, you know, here are my people, that would give them good advice, then that's missing information that would otherwise help them come to a decision of like, oh, they've got a little good legal team that's probably not expensive because they're probably not gonna charge their people. And they've had experience with this in the past, even if they take a little equity.

you know, in exchange for helping them, they're going to do the best that they can. So the founders and the Loeb, you know.

Mudassir (26:50.973)
Yeah, you mentioned advice and stuff like that. So in your opinion, and I already know that you and Jeremy, you guys advise a lot of startups, what's a good advisor? What is exactly? Because a lot of the time what happens is like, advisors get on the cap table, they have a couple of percentages or whatever that thing is. The question that I wanna ask is, what if there's an advisor that's on the cap table?

Esther Romanoff (27:02.942)
A good advisor.

Mudassir (27:19.585)
who's a hot shot, I know CEO's running a hundred million dollar company or something like that, but he's providing zero value, like zero value, but he's on the cap table. So in your opinion, like in your experience and learnings, who's a good advisor is?

Esther Romanoff (27:37.198)
So a good advisor in my opinion is one that meets you where you are. So what I find is like those big shots, they will not talk to their people, their companies that they're advisors of until they're similar in scale to them, which obviously is going to take forever. So

Mudassir (27:53.487)

Esther Romanoff (27:55.49)
The good advisor is like, they're able to take the experience. Say it's the same big shot. The way that he would turn into a good advisor is he's like, okay, they're currently in pre-seat to seat, right? They are struggling with financial help, probably, and they want...

customer list right so a good advisor goes okay financials huh well one of my friends runs this thing has a couple templates he could send me I could send them right that's a good advisor because you're like helping them out with where they're at even if it takes five minutes of your time you're like hey could you send this to me please like I'll wipe it I'll get rid of all the numbers and I'll just send it them as a template you're bringing off or you're offering value that to you seems insignificant but to them will actually make a huge

And the same happens with connections.

So if somebody is going to offer, hey, you meet this person, the introductions that happen as a good advisor are with people that could help each other out, not somebody that's way far out because they're not gonna have things to actually exchange information, customers, employees. So it's somebody who introduces at the right time, provides tangible value that the action to create it will be more difficult than the...

Mudassir (29:16.202)

Esther Romanoff (29:17.782)
to just share it. Yeah, and then just supporting, honestly, mental support, being there and feeling, making the founder not feel like they're alone and like super separated is actually really important and what I find valuable.

Mudassir (29:19.431)

Mudassir (29:28.941)
Yeah. I just happen to know one thing, and that is the type of network that you're building tells a lot about the type of person that you are. So most of the time, and this is one of my very good friends. He runs a very successful VC firm out of New York. And then he told me this thing. He was like, people have 50,000 people or 10,000 people, whatever that number is, on their LinkedIn.

uh... did the getting crazy engagements this and that and then they're looking for help there's like nobody out there to provide actually nobody's giving them their time nobody's giving them their money aka zero help and then that's it i was like oh yeah okay so that the whole follower game with the number of connections game or something like this it's not as good as people think or portray unless you actually know and you can you know send someone a message or ask someone for help or something

It's exactly the same for the advisors. A lot of people have somebody on the pitch decks, on the cap table, but when it comes to providing value, it's like literally they're missing or something like that. Totally agree to that, yeah. So help me understand one more thing, because you mentioned a very interesting fact which I did not know, that until 1970, there was like no pre-seed or seed stages or something like that. And I never got this answer because there's like

Esther Romanoff (30:55.255)

Mudassir (30:58.473)
bunch of bunch of blogs written, like thousands and thousands of words, which I obviously never gonna read. So just tell us one thing, how do you differentiate, okay, so that's a pre-seed, that's a seed, now it's a series A, now it's a series B. How do you actually break the startups down, label them with these stages, so to speak?

Esther Romanoff (31:20.158)

Mudassir (31:20.737)
what metrics you have in mind. Like there has to be something tangible, right? It can't be something like, yeah, that's subjective because I feel like that's series A, so I'm just gonna give it a series A label. So how do you do that?

Esther Romanoff (31:24.686)

Esther Romanoff (31:31.391)
Yes, so...

Let me put context to that too. One of the reasons why seeding and pre-seed became more common was because the American de-pegged the dollar from gold standard. So when that happened, that's when the money started flowing. Before then, when we're looking at a society that has a very good economic structure, all money is created by work. Work is an exchange. When somebody invests money into a company, it's like, this is the work that I've put in to gain this money.

Mudassir (31:35.861)

Esther Romanoff (32:03.364)
I'm going to make sure that it's placed as accelerant capital, capital that makes the company grow, not experimental capital, capital that just like we might, it might work, it might not because otherwise that investor will be like, well, I'm not putting in my hard work into this. Right. What started happening is because the money was an increased without the work associated, which is gold standard, right? There was no work. So people kind of are like, oh, well, let me just put it somewhere so that it makes more money for me.

Right? So pre-seed and seed, what we understand now was a little bit different. So series A was pretty much where it started. Sometimes seed rounds would exist, but that would be already company. This would be the excelling capital of like, okay, a company exists, they are getting revenue. They need an investment to buy a warehouse to store stuff. I'm going to invest. It's going to be put into this warehouse by...

way of equity in land, right? And then the company will function larger scale and then pay me back after, right? That's how it used to run. With seed and pre-seed, seed started coming up where like, okay, they don't have revenue yet but they have, you know, this plan they're set up. They have the team, they're already running but they're not like making a lot of revenue but they need to score, they scored this contract, right? This revenue contract. But in order for them to do it, they have to hire

this many people and in order to hire that many people they need the money so very similar loving there's a reason for it and then pre-seed started up where it's just idea you're in idea phase you need investment to hire your first engineer to hire your you know people so it's there is no there is like an idea there is a direction but there's nobody already working

They're kind of just like, we think this will work. And over time, seed also became this way. So in 2021, where the valuations went crazy, pre-seed and seed were like this. And series A were like way, the difference between series A and seed were very large in concept. Whereas I think in the past, it was pretty.

Mudassir (34:04.613)
Mm-hmm. Yeah.

Esther Romanoff (34:21.546)
It was similar in a way. It's just the number got larger, you know, as time went on through series A.

Mudassir (34:24.255)

Mudassir (34:31.728)
Okay. So do you think it's... Why do you think it's so difficult to raise money now, apart from the economic conditions?

Esther Romanoff (34:40.862)
apart from economic conditions.

Oh, it depends because I feel like some founders now feel like the first hundred investors are really all they have to pitch and within that hundred they'll raise their round and the reality is they just need more numbers. They need more, they need to talk to a lot more investors to build a much bigger network to close their round because of risk parameters, which I mean, it's not economy, but kind of, sort of. And also founders are not.

Esther Romanoff (35:13.75)
To find a founder that has an extremely detailed plan, including finances, when they approach an investor is pretty rare. There are things that they are missing that then make it harder for them to raise the money.

Mudassir (35:29.297)
Okay, so it's just like, you know, finding people who are aware of the situation, people who are aware of the environment, and they have all the boxes checked, like, you know, they got the financials, got the people, got the right pitch deck, got the story figured out, got the product market, or something. It's hard to find those founders. And, yeah, right? And those founders, like, they're still raising a lot of money, because they already know how to do all of that stuff. Okay.

Esther Romanoff (35:47.89)
Yes, usually.

Esther Romanoff (35:57.718)
That last part, they're still raising a lot of money. Oh, oh, yeah, it's easier. It's much easier when they have a team already figured out and the details set up, you know, the advisors, because then it's a risking. You're looking at de-risking metrics. If, yeah, the more de-risking there is, the easier it is usually to have somebody to give you their hard earned capital or cash or money in general.

Mudassir (36:04.875)

Mudassir (36:08.224)

Mudassir (36:11.711)

Mudassir (36:21.989)
Okay. So yeah, what metrics or milestones should precede or seed stages companies should focus on?

Esther Romanoff (36:31.534)
depends on their industry to be fair. What it would be is

Mudassir (36:33.853)
Okay, let's pick B2B SaaS. Let's pick B2B SaaS or D2C, D2C e-commerce. Yeah, because two of the sexiest industry out there. I don't wanna name AI because that's not, we're not there yet that you're gonna see like hundreds of people raising money in AI space yet. So let's pick B2B SaaS and D2C. What's the metric they should be focusing on early in the journey of the company?

Esther Romanoff (36:40.243)

Esther Romanoff (36:47.452)
Yeah, not there yet.

Esther Romanoff (37:02.798)
Yeah, B2B SaaS is a big one. It's one of the biggest ones. So what I would call them internally, just because I am a finance person from within the accounting books is key performance indicators to make sure that they're aligned with the revenue and also the partners. So two buckets.

The money side and the people side. Are you meeting the people that are interested in your company, like the expectation of, oh, we think that 100 people will put on this wait list to get this. Or we signed those three giant clients and we have communication with them that we're going to sign, right? The other businesses, because it's B2B SaaS, it's like, hey, we have three already, the potentials, and they're already there, and they're already waiting, and we're keeping them involved in there.

the people side of things and the money side of things is price pointing like making sure that your price for that company is at the correct place

Um, I'm not sure if that answers it entirely, but when it comes to metrics, what I find is some, sometimes people under price their companies, like their products, and sometimes they over price it. And the way that you'll know is from their customer list, like what can they afford if you're targeting a specific person, what would they invest or what would they spend for something that you are offering, which I think at this point, if it's a B2B, it's, it's common.

Mudassir (38:20.97)

Esther Romanoff (38:34.224)
those metrics out there and figure out okay this is my target this is how many people I need to meet revenue numbers and employees.

Mudassir (38:36.105)

Mudassir (38:42.141)
Yeah, yeah, okay. I had a guest on the podcast and I asked him a very small question which led to a big discussion and that was like, why so many people like TAM, like Total Addressable Market, and why a lot of people think that's misleading? Like, what do you think about that? Like, why do you think TAM is misleading?

Esther Romanoff (39:11.955)
I think it's misleading because you're not going to get them all. Like, it's much easier to, especially with B2B SaaS, right? There's competition in it, that it's much easier to target the people that you're actually going to communicate with and receive.

Mudassir (39:17.683)

Mudassir (39:26.913)

Esther Romanoff (39:36.518)
Oh, could you clarify a little bit further too? Because I don't...

Mudassir (39:36.587)

Mudassir (39:40.649)
Yeah, so here's I'll say this thing. So usually, you know, when you talk about any fundraising now or something like that, people start with, oh, the time is like, I don't know, five billion. Let's pick a number like, you know, five billion dollar market or something like that. And investors will be like, yeah, well, you know, there's a crazy amount that we can grow. So we picked an example of liquid death. So he gave us an example of liquid death. And he was like, so ideally speaking, anybody who consumes packaged bottled water,

is an audience for them, right? Is a TAM for them. And suppose if that market is like a billion dollar market and they just manage to get like 10%, the SAM is like 10%, they should be able to get the company to a hundred million dollar company or something like that. So, you know, and then we were just like chatting on that, like why do you think most people's focused on TAM? Is it just like, I don't know,

fancy number to just put on your pitch deck or something like that, or like there's an actual value behind it. So yeah, that's where the question came to mind, like, you know, why people just focus on TAM and how can it be misleading?

Esther Romanoff (40:48.318)

Esther Romanoff (40:53.718)
I think it's big number. It's a big number thing for sure. Where they're like, look at all this opportunity. But the reality is it's about hope. It's a red ocean field, a field that's very busy with companies that are like them. There's a very small likelihood that they'll start eating up somebody else's customers. It's much easier in a blue ocean because if it's not touched then, but then also the valuations are different. How do you know in an industry that hasn't been touched yet how much value there is, you know? But yeah, it is misleading in the sense that,

Mudassir (40:59.029)

Mudassir (41:09.147)

Mudassir (41:17.885)

Esther Romanoff (41:23.772)
it's big, if we get 10% of it, we'll get those customers. But reality is it's probably going to be a tough journey to fight into that space, to then get those customers. It's more about the team and the people themselves that are running the company, that if a company is run well, we'll bring in customers. Right. So the focus is not on the customers existing. We already know they exist.

Mudassir (41:26.334)

Mudassir (41:33.193)

Mudassir (41:46.369)
Mm-hmm. Yeah.

Esther Romanoff (41:53.552)
them can they pull in? So maybe the growth ratios of customers would really be more important than look how many of them are there. Well, yes, we're all human and we all need water. But how many of them can you pull in as a gravity ball of partners and clients?

Mudassir (41:55.368)

Mudassir (42:01.417)

Mudassir (42:07.441)
Yeah, yeah. Yeah, okay. So when you guys invest in any of the companies, how much of the investment is actually based on the founding team or founders compared to the idea? So like how would you balance both? Like okay, crappy idea, great team, yeah. Take the check. Great idea, crappy team, no. How do you do that?

Esther Romanoff (42:28.11)
So there.

very, very heavily on the team, extremely heavily. Because so the way that you're, my venture capital friend Jeremy and I split it is, there's the problem and solution space. So there's like an industry, right? So there's the team, the people on the team, the industry, and then the idea. If the idea falls within the industry that like their founders are like incredible at, like yes, these people, all these have done so amazing in B2B.

Mudassir (42:35.466)

Mudassir (42:47.215)

Esther Romanoff (43:02.268)
right? And that kind of model and they're specifically focused on, say they're focused on education within that, where they're like obsessed with it, everyone loves it, even if their idea is not the greatest, they're going to take that idea and they're going to pivot it to something else within their education space that will then have a higher likelihood of success. If you're investing in the idea itself and don't focus on the people that are running it,

Mudassir (43:05.074)

Mudassir (43:25.074)

Esther Romanoff (43:29.182)
and their focus of what they've done and like what they're passionate about, then that idea when it doesn't work will not work. And that's it. There's nowhere else for them to go because there has to be this cohesive, we love this. Our team loves this.

Mudassir (43:37.799)

Mudassir (43:43.849)

Esther Romanoff (43:46.426)
But this is not the idea, it's the purpose behind it. It's the solution, it's people that they're helping, which is why a lot of people like investing, when VCs like investing in those services, the service oriented things, because they care about the customer, which is all customer centric, right? That's where you get that success.

Mudassir (43:50.302)

Mudassir (44:00.288)

Mudassir (44:03.825)
Okay. Yeah, that is helpful. Okay. So one of the things that we do is,

We have a decent big of an audience. Like it's not a big audience, but it's a decent size of an audience. So every single time somebody's coming over the podcast, I send them out an email like, hey, tomorrow Aster is coming, and if you wanna ask her any questions, you know, she'll be more than happy to reply. So we get all kinds of like crappy questions, something like that, like all kind of those. So we narrow it down to like five or six, the top ones, just to, you know, it's interesting and engaging. So.

Esther Romanoff (44:33.093)

Mudassir (44:41.001)
So they're like not in any particular order. So let's start the first one. So what's your take on accelerators? Like what do you think of all these venture studios slash accelerators that are out there compared, like coming from somebody who's running a VC from, like what do you think?

Esther Romanoff (44:58.328)

I appreciate the work that they're doing. I really do. It's not easy work. It's also, what do I think about the exciters? I'm a little biased.

Mudassir (45:11.919)
Is it more like hand holding? I actually wanna know. Is it more like, yeah, you know, so they actually get their hand dirty, take the product to the market, validate that, do all of that kind of stuff. So like, I'm sure that they're doing a lot of hard work, but do they actually spend that much amount of time getting their hands dirty, working with the founders?

Esther Romanoff (45:34.606)
I think it depends so, so much on the accelerator and on the actual event video itself. Cause some of them, yes, absolutely. But some of them not so much. I think the best way that like, if a founder is interested in that kind of stuff, interview the people that have already gone through it, figure out what the ratio is, and also the personalities of the people that you're talking to that have already gone through it. Usually when an accelerator finishes their year, right? On their LinkedIn, like a Techstars and then the year, or this accelerator and then the year

Mudassir (45:38.398)

Mudassir (45:48.26)


Esther Romanoff (46:04.64)
graduate or they've gone out of message them and just talk to them because I also feel that accelerators they change year by year of the partners they take on and let go so what I say now based on information I have might not still be the case right so the best scenario

Mudassir (46:07.571)

Mudassir (46:13.435)

Mudassir (46:19.006)

Esther Romanoff (46:23.418)
ask the people that have already gone through it, take a look at their personalities and how much they actually gain from it. Because a lot of it is a founder's own like resourcefulness within the space. Some accelerators are very handholding, some are not, some are like, you're here, here's all the resources, like come to us. Go crazy, like we've got it all figured out for you, here, just take it. So it depends so wildly.

Mudassir (46:26.175)

Mudassir (46:35.911)

Mudassir (46:42.561)
Let's go crazy. Yeah.

Mudassir (46:50.833)
OK. So the next one is, what type of customer validation do you want to see in a C-Stage startup?

Esther Romanoff (47:00.51)
In a seed stage startup. You mean so customer validation, just like making sure that people are OK. It depends on the industry, but usually customers that are interested into it will meet. When a company is starting, right, they're doing campaigns, doing marketing campaigns. They get a list of people that are interested when it's coming, like the coming soon, put your information here and we'll show you, right? That kind of stuff is great for a company that is like a software, maybe, that isn't quite there.

Mudassir (47:02.762)

Mudassir (47:07.134)

Mudassir (47:16.569)

Mudassir (47:23.219)

Mudassir (47:28.625)

Esther Romanoff (47:29.406)
because there's nothing you can, or like a demo, and then here, put your information in for more information, right? There's also the retail type of companies that are pre-orders, right? So like, hey, we'll get a thousand people, pre-order it, and then actually build the thing based on their revenue. Those are another role that I could see as really good customer, you know.

Mudassir (47:41.333)

Mudassir (47:45.545)

Mudassir (47:49.833)

Mudassir (47:54.305)

Esther Romanoff (47:54.778)
retention, not retention, but traction, right? You're looking for traction in whatever industry that company is and how it looks like, whether that looks like if it's a solution that's really needed in the space, the people that are about to buy it or have already bought it, waiting for you to produce it, or waiting for software to come out.

Mudassir (47:58.483)

Mudassir (48:10.036)

Esther Romanoff (48:16.33)
LinkedIn is great to find lists of people that are actually within your space and know that you can connect to them. So that's the other thing I would say is when founders say, like, hey, we've talked to these people, I've worked with them, this is what they need, I'm providing them what they need. That's incredible.

Mudassir (48:16.77)

Mudassir (48:22.271)

Esther Romanoff (48:33.43)
like to actually talk to the customers in some way, whether it's a giant community, if you have a million followers and 80% of them are Jeep fans, and you're like, I'm making this Jeep decal, and let me tell you, it's going to sell like crazy. And first of all, I'm gonna say, why haven't you already made it? Because the decal is simple. But other than that, like that's perfect traction. You have a customer base or, you know, 20% whatever, you can math out the click through rates as well as the.

Mudassir (48:48.843)

Esther Romanoff (48:58.53)
the purchase rates from that number and be like, okay, you guys are doing your numbers correctly. Like we wanna see revenue predictions that match up with numbers that are in existence rather than just roaming around. Yeah.

Mudassir (49:08.127)

Mudassir (49:12.258)
Okay, okay. How do you feel if the product has a market fit or not? This is my favorite actually on the list, yeah. Because a lot of the time it's just like, oh yeah, it's a gut feeling, we got it. So how do you know if you have a product market fit or not?

Esther Romanoff (49:17.063)
and time.

Esther Romanoff (49:27.394)
Talk to your people, talk to the customers, honestly. Because they're, not only that, right? If a person's saying like, well, I'm not gonna talk to a hundred thousand people, what you can do is talk to somebody.

Mudassir (49:29.269)

Esther Romanoff (49:40.15)
that is associated to the industry and be like, hey, is this something that this person would really be thankful for and would really use? You don't have to talk to the actual, every single one of the customers or even put a post and be like, hey, comment below on everything then, or ask somebody that you know has a big following to post something, like pay that $200. I don't know how much it takes for you to post a question on somebody that has 5 million followers on, you know, this one business.

Mudassir (49:50.89)

Mudassir (49:58.386)

Mudassir (50:04.106)

Mudassir (50:07.415)
Only... yeah. Yeah.

Esther Romanoff (50:08.682)
Yes, like more creative because that's really the way to do it. That like those answers when you're looking for those honest answers, you get creative.

Mudassir (50:15.153)
Yeah, okay. Okay, that was a good one. Okay, so I think we already covered the Pitch Deck ones. We covered the equity at the beginning, so equity is done. How much does traction versus product play in your investment decisions at different funding now?

Esther Romanoff (50:34.906)
mmm traction versus product okay

Esther Romanoff (50:42.878)
We like to see an MVP, obviously. So I would say product is important to have an existence. And then where the traction comes into play is the A-B testing of that product. Like once that launches and you don't see traction, have you adjusted it? Have you seen more traction from that? So a lot of times, rather than this is the thing, it's like, has the product evolved and changed? And are you tracking?

how many people are buying it and kind of like where it's going cyclically. Because what that shows is a founder that's pivoting, right? But not extremely, but like just enough. They're like, okay, not enough customers, copy lane changed, 100 more customers next day. Okay, you got something, like good, keep going. So it's a combination of product is extremely important, but...

Mudassir (51:30.545)

Esther Romanoff (51:37.466)
If you already have a product market fit and the customers aren't there, it's probably the copy line. You're probably not explaining the item correctly. They're probably not. So that would be when traction is more important than product is when that's like the weaker area in a way. That's where I would focus on most if the product is so good that it can't be ignored, but they're not getting the sales that they need.

Mudassir (51:44.821)


Mudassir (51:52.409)
No product. Yeah.

Mudassir (51:59.613)
Mm-hmm. Okay, that's a good one. The last one that we have on the list is like, why companies fail to scale? Like they have the initial traction, they got something going on, they got some revenue or something like that, but they're like unable to scale. Why do you think so? Again, it's gonna depend on a lot of things, I think, but yeah, if you could just generalize that.

Esther Romanoff (52:18.121)
You think?

Esther Romanoff (52:21.684)

Esther Romanoff (52:24.882)
There's two things that I'm thinking, but the main one is maybe just from my lens of an extreme personal development and self-development junkie. Usually it's because, and I'm, not usually, the thing that I find most often in the experiences I've had is there is, the founder, right, cannot.

pivot their mindset to then get to the scaling point. Because what scaling means is everything has to change a little.

the way you do things, the way that you partner up with people, the customers. And sometimes there's a little bit of resistance of like, well, no, I'm not going to, I have to do all of this work. And you're like, well, delegate. You have to change how you do things to get to the next level in all aspects of life. And so usually it takes kind of sitting down with that person and being like, where is this like, there's, there's like a blockage somewhere. We're going to find it. It's in your business somewhere. Whether it's yeah, the employees, whether it's.

Mudassir (53:06.232)

Mudassir (53:10.951)

Mudassir (53:22.738)

Esther Romanoff (53:25.76)
you can't say there the HR is just cannot handle them and you plays like okay you need to scale to do that you need systems have you set up those systems or other bottlenecks that are causing a lot of strain in your company and then for not letting you get up there or if it's the founders mindset it so it really just depends on but usually what I find it's there's pain points there's like funnel issues

Mudassir (53:51.745)
Okay, all right. So, appreciate it, Astor, really appreciate the time. So we do have one small ritual on the podcast. So what we do is we ask all our guests a question for our next guest, without knowing who the next guest is gonna be. So we have a question for you, and obviously gonna take the question for our next guest from you. Again, won't be a part of the recording. So the question that the last guest left for you without knowing who you're gonna be. In a parallel world, what would you be doing today?

Esther Romanoff (54:18.974)
Ooh, in a parallel world, what would I be doing today?

I'd like to think that in a parallel world, I probably have by this point ended up in exactly this venture capital space. And this is kind of where, because I personally as a personal mission, investing in other people's dreams has always been something that I've been obsessed with. And so whether or not I find myself in venture capital, I think that doing something of that

Mudassir (54:32.232)
Oh wow, okay.

Esther Romanoff (54:54.202)
existence would probably be what I'd be doing but then again it's 10am on a Friday so maybe I'd be cooking breakfast.

Mudassir (54:55.533)

Mudassir (55:03.269)
Okay, okay, that's a good save. All right, thank you so much. I appreciate the time. Really, talking to you again. Thank you for all the insights, all clearing up the air when it comes to fundraising and stuff like that. So let's say the goodbyes and stuff and then we'll take the question once the recording is stopped. So we just don't have to, okay? So yeah, thank you so much, Astor. Really appreciate the time and enjoy the weekend. Thank you.

Esther Romanoff (55:29.326)
Sounds good. Thank you.

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