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

Ari Helgason is a VC at Dawn Capital in London and a former entrepreneur with operational experience in both London and New York. Prior to Dawn, Ari founded SaaS sales and workflow management system World on a Hanger and ecommerce clothing marketplace Fabricly.com. More recently, he launched ecommerce sites for fashion and luxury brands in London and New York. Ari is an alumnus of the Y Combinator startup accelerator and he regularly visits Silicon Valley where he has extensive relationships. In Today's Episode You Will Learn: How Ari made his move into the VC scene? Why Ari decided to bootstrap his first business? Does Ari believe that Founders should always be fundraising? Should Founders take more money than they need, 'a war chest'? What type of goals do VCs want to see from founders? What do investors expect from startups at Series A? How can founders learn what KPI's make sense for their business? How can founders know when is the right time to fundraise? How can startup founders get their foot in the VC door? Items Mentioned in Today's Episode: Predictable Revenue: Aaron Ross (Mandatory Reading for All SaaS CEO's) Elon Musk: How The Billionaire of SpaceX and Tesla is Shaping Our Future Saastr by Jason Lemkin AVC.com As always you can follow Harry, Ari and The Twenty Minute VC on Twitter here!

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  You're listening to episode 52 of the 20 Minute VC with your host Harry Stebbings. And on today's episode of the 20 Minute VC, I'm thrilled to welcome Ari Helgason at Dawn Capital. 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 Hangup and e-commerce clothing marketplace Fabricly.com. More recently, he launched e-commerce sites for fashion and luxury brands in London and New York. And Ari is an alumnus of the Y Combinator Startup Accelerator. But before we jump into today's interview with Ari, I would like to say huge congratulations to HiringScreen

• 0:44Harry Stebbings?

  for joining one of Asia's leading tech accelerators, Blueprint, run by Swire Properties. And we will be checking in with CEO of HiringScreen, Richard Hansen, to see what life is like inside a tech accelerator. But ladies and gentlemen, without further ado, here is Ari Helgason.

• 1:07Speaker 01

  You have now arrived at your destination.

• 1:10Harry Stebbings?

  Ari, welcome to the 20 Minute VC. I'm so pleased to have you on the show.

• 1:14Speaker 02

  Thanks for having me.

• 1:15Harry Stebbings?

  Now, can you start off with a little background on yourself and how you made your move into the venture capital scene?

• 1:22Speaker 02

  So I was born in Iceland, grew up in Denmark in the UK. My brother taught me programming when I was 11 and I was always quite excited about technology and playing around with computers. I started my first business right out of university with a co-founder. We made sales and supply chain and management software for the fashion industry. Very good kind of bootstrap business, but quite a small market. We also launched an online marketplace for fashion designers, kind of a Kickstarter for fashion.

• 1:57Harry Stebbings?

  And now, why did you choose to bootstrap?

• 2:00Speaker 02

  So bootstrapping was really the only thing that we considered feasible. Um, I I had absolutely zero track record. I I didn't think any investors would would even consider backing me. And, you know, we had very low but personal burn rates at the time. So bootstrapping just seemed like the way to go.

• 2:19Harry Stebbings?

  Sure, and so, sorry, you're doing a marketplace.

• 2:22Speaker 02

  So we did a marketplace, um, went through Y Combinator, spent some time in the U S. Eventually, the marketplace business uh didn't work, uh but the SaaS business is still going strong. I decided to to try something else as my co-founder took over as CEO of that business and and decided to go into V C. Uh, so I came across Dawn, which uh was a venture firm founded by entrepreneurs that had an exceptional portfolio uh in the first fund. And um they'd just launched their second fund. So it appealed to my entrepreneurial instincts to to be part of that second fund from the beginning and and kind of help to build out the team.

• 3:04Harry Stebbings?

  And have your preconceived ideas about going into venture stacked up? Is it what it's what you thought it would be?

• 3:11Speaker 02

  Absolutely, it's um, it's. The interesting thing is that you have to take kind of a broader portfolio view. You have to look at kind of a lot of different things and become not necessarily expert in many things, but just kind of get a get a passing familiarity familiarity with a lot of things and then and then dive deep into a few of them. Um, it's less stressful than being in the trenches as a founder. Um, but it quite appeals to me in that you can kind of take a step back and think more strategically and and be more analytical rather than having to be in kind of animal mode every day.

• 3:49Harry Stebbings?

  And I'd love to dive deeper on an article you you wrote recently on how to make the leap from seed to series A funding. Uh, you stated the the this uh kind of cliched status that founders should always be fundraising. Do you do you personally agree with this?

• 4:05Speaker 02

  I do agree with this, but my phrasing in the article may have been slightly misleading. I think as a founder, you're responsible for having enough money i- in the bank to at least keep the lights on and preferably have some some cash to grow the business as well. And there are really only three ways that this happens. Uh, one is being profitable. The second is uh making, you know, be burning cash, but but be in a on track to becoming profitable. And the third is making sure that that you're going to be able to get funded again if you're not profitable. So the fundraising part, the constantly fundraising part, only really applies to the last scenario. And what I really mean is that if you're going to run out of money,

• 4:50Speaker 02

  it's never too early to begin preparing for the next round. You really have to have a plan from the beginning uh as to how you're going to get that next bunch of funding in the bank.

• 5:02Harry Stebbings?

  And if there's a lot of hype around your business or your project, and you've got a lot of offers on the table, do you agree with the kind of taking of the war chest in case the rough times come in the future?

• 5:13Speaker 02

  I absolutely agree with that. You know, when the money's there and it's available, uh, take it. Um, you know, things take to tend to take longer than anticipated. And the reality is that when you have a cash buffer, your options are extended. You have the advantage of picking your timing uh rather than having to play to someone else's schedule. Um, and if you're running out of cash, whatever you're trying to do, you're in a weaker negotiating position. So cash just ends up buying you more options. And the fundraising climate can change, uh, the hype cycle can move on from from whatever your particular business is doing.

• 5:56Speaker 02

  So when cash is available, uh, my recommendation is to to always take it, given it, given that it's the right partner.

• 6:03Harry Stebbings?

  And let's talk about the kind of preparation for the fundraising now. The first point of preparation is is setting kind of clear and measurable goals. Uh, and you stated in your article, can you expand on this a little? What type of goals do VCs really want to see? Is it revenue? Is it downloads? Is it traction?

• 6:23Speaker 02

  So there's really no set of magic numbers or magic key performance indicators or KPIs that that are applicable in every case. I'd say the most important thing to focus on as a founder is to understand what success looks like for your business. So where is value being built in the business and what objective measures can you use to track how that value is being built? So focus first on building a great business and second on impressing investors. Investors get excited by good businesses and ambitious teams that move fast. So just set ambitious goals and have a plan to hit them.

• 7:05Harry Stebbings?

  And do you have a potential problem when a founder comes in with very lofty ambitions? Or do you appreciate that as just being inspired and being part of the journey?

• 7:15Speaker 02

  There's a sort of sweet spot somewhere between, you know, insane audacity and being too conservative. And, you know, I'd say founders should err on the side of of being audaciously ambitious, but you should always have a story and a clear picture of how you're going to achieve those milestones. It needs to be kind of sanity checked. It can't just be be shooting for the stars and not knowing how you're going to get there. But but as long as you have a story of how you're going to achieve those goals, then that's fine.

• 7:54Harry Stebbings?

  And in the article, you say avoiding surprises about what investors expect at Series A is pretty important. So what do investors expect at Series A typically then?

• 8:04Speaker 02

  So different investors have very different sweet spots for the metrics that they want to see, depending on the business and the risk profile that they're comfortable with.

• 8:15Harry Stebbings?

  What would yours be?

• 8:17Speaker 02

  So so ours would be for a SaaS business, for example, we want to see a business that's doubling annual recurring revenue run rate year on year at least, approaching, fast approaching, you know, a hundred. A thousand pounds a month uh in in revenue uh or kind of about to get there. Uh we look at businesses that are slightly over there, but that's kind of our sweet spot for for a SaaS series A. Uh but other investors are going to have their own ideas of of of of where they want a business to be.

• 8:56Speaker 02

  Uh and it's not just about that top line number, you know, there are important things to look at in terms of. You know, customer acquisition costs versus lifetime value, uh really on to understand how the business uh will scale going forward. We look at things like how engaged customers are, uh the customer churn rate uh to figure out, you know, what's the what's the sustainability of. Of of how you're selling. So there are really a lot of different factors. I think the tricky thing about getting exact numbers is that typically uh VCs and founders alike are quite cagey about.

• 9:34Speaker 02

  Uh releasing those numbers. So the best thing for a founder to do is to, you know, speak to people who've who've raised money. Uh speak to the VCs and kind of get get the feedback on what KPIs uh make sense for your particular business at series A.

• 9:51Harry Stebbings?

  And you said about SaaS businesses and the KPIs that you look for. And do you agree with the the forty percent rule, I think, performed by, I think, Brad Feld and Mark Suster?

• 10:02Speaker 02

  The forty percent rule being.

• 10:04Harry Stebbings?

  Being that growth and revenue should equal forty percent increases.

• 10:09Speaker 02

  I think that's a that's a that's a fair rule of thumb, but again, there are no kind of hard and fast rules.

• 10:15Harry Stebbings?

  Absolutely. And and it can be dangerous to raise a series A before you're ready, uh as the article says. So how do you know when you are ready? Are there any clear signs to know that your business is now approached the fundraising time? And and you should commence the fundraising round?

• 10:32Speaker 02

  So typically, a series A is raised when you've figured out your business model, you've found that product market fit. Um, and you're ready to start just scaling out the business. Um, so, so it's really kind of, once you're comfortable that the core engine of your business is working. Um, and you're ready to build on that, that's the correct time to, to go out and raise a series A. Uh, that can mean very different things for different businesses. So I think the best thing to do. Is to, you know, start off some quite casual investor conversations. Whether the, you know, phone calls or, or sort of half hour chats.

• 11:11Speaker 02

  To just check whether, you know, what, what do they think of, of, of what you're thinking of raising, both the amount and, and the stage you're at. Um, and take that feedback on board and, you know, if that's positive, then consider kicking off. A proper process where you go out and, and talk to everyone in the market.

• 11:31Harry Stebbings?

  And how can startup founders kind of get their foot in the door per se for that phone call? Is it through going to meetups or is it cold calling or what would you recommend?

• 11:40Speaker 02

  So I think pretty much every investor will tell you that you should get introduced by someone, uh, they already know. Uh, we listen to portfolio CEOs or our venture partners, uh, really anyone. Anyone I trust, I'll take an intro from and, and that's. Uh, pretty much always going to, going to lead to at least a call or a quick meeting. Um, at Dawn, we also respond to, to all, uh, inbound direct approaches, but, but they're just not. They're not as powerful as getting an introduction from, from a trusted party. I'd say failing that, you know, to network your way in. Um, go to events where VCs are in attendance. It's, you know, a good way to meet them.

• 12:23Harry Stebbings?

  Are there any in particular that you would recommend?

• 12:26Speaker 02

  Um. So I'd say, you know, there are lots of meetups, uh, lots of conferences, uh, sort of accelerated demo days, uh, places like that, you know, I, I often go out to events and, and, and, and go on panels and things like that. So without mentioning, if I start mentioning specific events, I'll, I'll probably miss out a lot of good ones, um, but, but it's, it's quite easy to find those. Um. Another way to, to get in touch would be via Twitter. Uh, I'm quite active on there and, and it's usually a better way to catch my attention than, than, than sending an email. Um, so, so those would be the main ways.

• 13:06Harry Stebbings?

  And, and I'd love to talk about market sizes now with you and how big is big enough for you. You know, often we hear that VCs are looking for the billion dollar market minimum. What, what is a big enough market for you to be attractive?

• 13:19Speaker 02

  So I'd say a billion, but there are some interesting things about markets that, that often don't get mentioned when, when people are talking about those, those top line numbers. Um, so we've, uh, we've invested in, in businesses that are addressing markets that are today smaller than, than, than a billion dollars. Uh, but what we look for there is that the market is growing very, very fast, allowing a new entrant or a startup to kind of capture a significant chunk of, of, of a new market. Uh, the other thing we'll look at is, um, what are the dynamics of that market? So certain markets

• 14:00Speaker 02

  have, uh, you know, are changing in ways that make it possible for, for new entrants to capture market share. Uh, you know, typical cases when software moved from, um, on premise, uh, to the cloud that allowed new entrants, new SaaS entrants to, to capture market share. Uh, we're kind of seeing a repeat of that in the enterprise software space of new entrants that are coming in with, with mobile solutions. So, you know, you had a cloud CRM and now you have a new generation of mobile CRM. Uh, uh, uh, and because of that shift in the market, uh, new entrants are able to, to capture market share.

• 14:40Harry Stebbings?

  And would you say enterprise software is your kind of, uh, market of choice at the moment? Is that the market you believe will next be disrupted?

• 14:48Speaker 02

  So at Dawn, we look at, we look at two things. We look at, at enterprise software, which is mainly SaaS, but also a lot of open source stuff, uh, some on-premise cybersecurity stuff. Uh, a- and the second vertical we focus on is, is fintech. Uh, so, so those are really the two, the two markets that, that we understand quite well through, through having built port- a portfolio in those, in those spaces, uh, and having had some successes there. Um, a- and also they're just, in their own right, very interesting, uh, very interesting markets.

• 15:24Harry Stebbings?

  And why do you think London is the fintech hub that it really has become over the last few years?

• 15:30Speaker 02

  I think, you know, you just need to walk around the city of London to, to see, you know, the logos on the buildings there and in Canary Wharf. Um, if you're building something that enables, uh, enables financial institutions or banks, uh, to serve their customers better, all your customers are here, uh, here in London. And I think if, um, if you're trying to hire teams that have, you know, that financial services experience, then London's by far the best place in Europe, uh, and one of the best places in the world, uh, to do that.

• 16:07Harry Stebbings?

  And I'd love to move into a quickfire round now, where I say a word or statement and you give me your immediate thoughts.

• 16:14Speaker 02

  Sure.

• 16:14Harry Stebbings?

  So, favourite book and why?

• 16:17Speaker 02

  So right now, uh, Predictable Revenue, uh, by Aaron Ross and, and Marilu Tyler. Um, it's a brilliant book that out- outlines a kind of powerful sales process for building, uh, recurring revenue and SaaS businesses. It's based on the model, uh, that Salesforce use, uh, to get from zero to a hundred million dollars in annual recurring revenue. And I really think it should be mandatory reading for every software CEO or, or salesperson.

• 16:49Harry Stebbings?

  And when I say success, who's the first person that comes to mind?

• 16:53Speaker 02

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

• 17:08Harry Stebbings?

  And, and are you going to be reading his new book?

• 17:11Speaker 02

  I'm sure I will.

• 17:12Harry Stebbings?

  Okay. Uh, and then what's the most challenging thing about being a VC?

• 17:16Speaker 02

  I'd say time management, um you know, you have lots of people that want to talk to you and you just really have to be careful to to focus and and to make sure that that you're you're playing to your strengths, that that you're investing in things that that you understand and and where you can add value, uh rather than kind of jumping around and and picking up every opportunity that might be interesting for whatever reason, uh even though it's very easy to get excited about things that that kind of fall outside your your core focus. Uh but I think, you know, that focus is is very important.

• 17:53Harry Stebbings?

  And do you have any blogs or websites that you recommend in particular for maybe SaaS or just general tech investing reading?

• 18:00Speaker 02

  So you had um Jason Lemkin on recently. And I think his blog, Sasta, is is excellent. Uh there's a lot of great content on there about how to how to build SaaS businesses. I'd I'd say in terms of kind of a a general read, um abc.com, Fred Wilson's blog is is very good. Lots of kind of, you know, combination of of of interesting thoughts uh on a kind of macro level with uh more specific um applicable advice for for founders as well.

• 18:35Harry Stebbings?

  And actually Jonathan Lipov, uh an analyst at Union Square, will be on the show next week. So that's rather relevant and pertinent too. Um and then finally, the most recent investment you've made and why you said yes.

• 18:48Speaker 02

  So our most recent investment at Dawn was uh the Automile Series A. Um so Automile is is a connected car platform. They have a hardware dongle that's kind of a a Fitbit for your car, I guess is one way to describe it. Uh you plug it into the car and and then it kind of tracks where you're going and and some other diagnostics data. Uh the reason we invested is that it's an exceptional team uh tackling uh the fast-growing connected car market. Um connected cars are kind of a nascent category, um but but they're tackling that market and they've solved some very tricky engineering problems uh in doing that.

• 19:30Speaker 02

  Uh the first application they have is fleet management and mileage tracking, which they're building a very nice business around. Uh but, you know, the long-term opportunity is is huge.

• 19:42Harry Stebbings?

  Well Ari, thank you so much for joining us today on the 20 Minute VC. It's been an absolute pleasure having you. Thank you. As always, all the items mentioned in today's show can be found on the blog at www.thetwenty minute vc.com. Likewise, we'd love it if you followed us on Twitter at 20minutevc. But before we leave today, Jason Kalkanis told me, "It's all about design, it's always, always about design." And HiringScreen's unique interface offers an in-depth analysis of candidate profiles, making a clear assessment of strengths and weaknesses, before building up a shortlist with HiringScreen's drag-and-drop functionality. Thank you so much HiringScreen for providing my brilliant Jackie, I couldn't have done it without you.

• 20:25Harry Stebbings?

  Thank you so much for listening to today's show and we look forward to seeing you in the next episode.