Matt Hunckler 00:14
Hey Patrick fans. This is episode 111 of powderkeg igniting startups, the show for entrepreneurs, leaders and innovators building remarkable tech companies in areas decidedly outside of Silicon Valley. I’m your host, Matt Hunckler. And today, I’m really excited to bring you a very special conversation. This is from a live event that we did in Raleigh, North Carolina just a couple of weeks ago. In this short sort of highlight, our panelists are going to discuss the sort of ins and outs of raising capital in Raleigh Durham and the surrounding triangle area, but it’s very applicable to other tech hubs outside of the valley, very sage and wise advice from real people in the trenches. So you’re gonna get to hear from experienced tech leaders such as Sonia Ebron, CEO and co founder of courtroom of five, and they were fresh off of a win at a pitch competition. Mike Schneider, who is the co founder and CEO of first raising over $10 million dollars, they’re in the Carolinas doing some really exciting things in the real estate space. Other guests include Brandon Martin, who’s a principal at CLA, he came in from Charlotte, North Carolina, he talks to dozens, if not hundreds of tech companies around the Carolinas area. So he brought some really good advice and perspective on the financial side. And then finally, Molly Demarest, who’s the general manager of American underground, which is sort of like the biggest organization for tech startups, large scaling tech companies, they’re in Raleigh, Durham, Chapel Hill region, as they call it. They call it the triangle. They’re in North Carolina. And this is a really good conversation, lots to learn not just about that particular region, but specifically about how to grow and scale and raise the right capital, if you’re in a market. That’s not Silicon Valley, or New York City. So hope you enjoy the episode. And feel free to drop a comment as we go. I’m really excited to talk to all of you about what you’re seeing from a fundraising standpoint, it is one of the hot topics in every community around the country, we are seeing is the first time in history that tech outside of Silicon Valley, this year grew faster than tech inside of Silicon Valley from the standpoint of venture capital investment. So it’s turning but still a 75 80% of venture capital goes in just three states, California, Massachusetts, and New York, Boston, San Francisco area in New York City. How how can we kind of help change the trajectory of that? And what are you seeing here on the ground? And I’d like to start Mike with you, because you’ve raised 10 million in capital. You’re on a tear right now. But I imagine it wasn’t as simple as just kind of putting the call out for dollars.

02:56
No. I don’t know that I can speak to the systemic things, as well, as you know, some of the other people on the panel before this, I can just speak from my experience. And that is, you know, I think there’s great seed capital opportunities here to try. I think there’s we’ve got that covered, we’ve been really focused there. And I think the next phase is kind of this series a series B, and there is zero that the triangle. So

Matt Hunckler 03:18
how did you figure out how to do that for first?

03:21
Yeah, so from the time I told her board, we’re gonna go raise our a round, and we decided to go go out do that with six months in six days, when we closed our a round, talk to 76, different fun partner meetings, 76, you know, all across as close as Atlanta, but I knew all the direct flights to San Francisco. I was on them many times, multiple times a week sometimes. So San Francisco, New York, Chicago, we actually ended up raising from Chicago. So we had term sheets from San Francisco fund and Chicago from Chicago. So I’d say, you know, Scott Wingo, who’s mentioned the panel before this, he talks a lot about the tweeners million to 80 million. And that’s where we have a big funding gap. So get ready to get on a plane if you’re raising venture funding, and you’re a repeat round.

Matt Hunckler 04:04
Did what did you hear? Did you or did you get any feedback from the VCs about being headquartered in the triangle of pros? Cons? Yeah, I’d

04:12
say that of those that were interested in getting us a term sheet. Almost a third of them said when he moved to San Francisco. Wow. What it is, and and we’re serious about that, right. I mean, it was a this is a great product company, all the talent ecosystem, we can, you know, we’re excited to leave your eight Andrew V. You got to move out here. So we actually considered it my wife, I considered it we thought about moving small off team at that point. But we really felt convicted that you could build a great team here. We already had a remote dev data science team where we can hire the best and brightest, whether it was here in the triangle or anywhere. So we felt convicted that we can continue to build right here and until we found investors that were excited to bank that. That’s wonderful. But I wanted to, I’ve shared my list of funders that I talked to and the you know, it’s very painful to get all the way to that final count. First question, and then have them say I’m not gonna get on a plane. And so you to vote. So I think that, you know, I’m happy to share that list for anyone who wants it that’s excited to invest outside of San Francisco or New

Matt Hunckler 05:09
York. There you go. Feel free to email me if you want to get connected to that list. I can I can play mediator if you’re busy running a scale. Sonia, I know you’ve just came off the heels of winning a big competition. Congratulations. Can you talk a little bit about what it was like getting that startup off the ground and getting that initial funding? Yeah,

05:33
absolutely. You know, we’re still a two person firm, we do a lot of freelancers, we bootstrapped. We’ve raised about $100,000. So far, family money, grant funding. 10 million, right, we’re starting. That is all stars, you know, for us. It’s really just the commitment, the passion, the story, making sure that we’re able to communicate that, and really just working 20 hours a day, you know, that’s what you have to do when you decide to bootstrap for as long as you can. So it’s been very gratifying. We’re glad to be where we are. But it’s, as everybody knows, it’s hard. It’s hard work.

Matt Hunckler 06:14
Well, you just want to pitch competition, any any pitch tips, founders out here,

06:19
I talk to investors talk to have as many conversations as you can. One of the beautiful things about being here in the triangle is that, as we’ve already heard, it’s easy to get a meeting. But the beautiful thing is that they also give you great feedback on your concept. And particularly when you’re starting small. They have great ideas, things you just may never have thought about that should to take you in the woods. So have a lot of conversations, try to get yourself on that investor vibe. And that really you find helps you improve your pitch.

Matt Hunckler 06:47
That’s great advice. Molly, how about you I know you work with I don’t know if it’s 200 or over 300? Or if there’s an accurate count right now ever changing? What are you seeing in American undergrad, I know you’ve seen lots of companies start their grow their graduate them to bigger space.

07:04
One thing that’s been really surprising over the past couple of years, but I really this year is how many companies are focused on revenue and traction more than I think I’ve talked about bootstrapping, like this desire to own their company, they want investment, but they want to have controlled investment when they’re ready, like on a level I’ve not seen before. And it’s actually directed some of our approach for how we’re supporting team. So I guess about a month ago, we shared with the community that we have a goal of connect that all AAU companies would connect to at least one customer investor, if they’re raising employee if they’re hiring a resource through the AU community by September next year. So all of our programmatic support our partnership approach, everything is going to be around that goal. Partly because customers, that’s that’s a funder, and we want you to own your company, when you think about generational wealth, and we want you to get the funding that you need to scale quickly. And so trying to connect them in all the different ways that they need is definitely an approach and then part of why funders exchanges here, we did an investor day and we had over 20 investors from across the country somewhere regional, somewhere national that came in and we spent the morning giving them an overview on the history of entrepreneurship in Durham, Black Wall Street, Black Wall Street Homecoming was happening that same week. overview on the region, so it included like idea fund partners, as well as Motley Fool, or growth backs that were coming in to understand how many flights are coming out a day. Why is this a place that you should invest? Talk about the universities? What does the quality of life look like? Because if we can educate them, and empower them with the stats on why they should fund a company here, then they might tell their other peers. And so that’s another big approach that we’re taking right now to educate more investors, we actually have a list of over 10,000 that we’ve been working with. And it’s been really interesting to see on a national level, how they’ve started responding. And like we had one come a couple weeks ago, and $27 million fund and she was just like, I want to come meet with companies and she met with eight companies on the spot. That’s all easy. Yeah, there’s definitely an appetite for it. And we have to educate people.

Matt Hunckler 09:16
What are the biggest stats that really make investors eyes light up?

09:21
I mean, there are investors in the room. Other people perspective, what I’m hearing is they want to know traction. They’re investing and the individual. I think what you’re seeing with the we work stuff and other things is making people question where their money’s going in their approach to that. But they’re ultimately an investment is in your company’s investment in view. And the other thing when I think about our approach with AU is how can we help the founders we work with be the best, like the highest functioning individual, healthiest individual their companies will be a result of that which will make them a better candidate. bid for investment, which is often what we’re hearing.

Matt Hunckler 10:02
Yeah, absolutely. When Brandon, you and I talk a lot about traction, we talk a lot about what kind of metrics companies need you work with tons of companies out of the Charlotte office, but across the Carolinas, what are you? How are you coaching entrepreneurs to get their financials ready, besides pay their taxes to get their financials ready for that next, or first or next round of funding.

10:25
And let me start off first, let’s say this is a really humbling space to be and I feel very inadequate, small, being here with all you guys. So I want to acknowledge that on the front end. So appreciate you having me here. You know, the biggest thing that I find to being the core of a conversation is that we can’t be reactive, right? You got to be proactive. You know, you mentioned Brendan, having that conversation with the, with an attorney. Hopefully, we’re not having that after you get some kind of notice of deficiency, right? You want to have those personal advisors, that audit advisors, whatever that is, that starts having that conversation early on, because all of this stuff done in the right time in the right place, can be done in a pace that’s more of a marathon versus the disrupter. Because the last thing we want to do as a, as a firm or a CPA is just to come in and just totally turn the world upside down. So that you’re doing the exact opposite of what it is that I’m trying to coach you against, which is, you know, be in the weeds of the financials. Right. So that to me is always the challenge, right is to hear we can help you with the detailed stuff, right that most CPAs can do. But what we really want to do, and what I really enjoy doing is helping you and getting a 30,000 foot, look at what’s going on with the business telling you maybe here’s a blind spot, have a candid conversation about something that maybe you aren’t thinking about, and then connects you to other folks that were that are in the ecosystem, they might be able to help you with that some of those folks might be on my bench. Some of those people might not. But at the end of the day, I just want to help you out. And I think most folks, we already talked about that just about the ecosystem. And that’s not isolated to the triangle in Raleigh. It’s all the way down to Charlotte. It is the Carolinas it’s a spirit that’s here, that I can attest to going into other offices, even within our firm, the only two other offices and other regions. And just There’s a spirit here giving and leaning in and starting from how can I help you and then the rest of it just naturally kind of takes care of itself.

Matt Hunckler 12:27
Mike, when you were raising that growth round, what kind of metrics were investors honing in on most agree that at that point, you certainly weren’t pitching on idea and founder pedigree?

12:39
Right. Yeah, I think that. I think that it varies. I think one of the things that the SE funds will are all about sales and, and efficiency and growth, right? Which is a very different conversation from the A rounds in San Francisco that are looking at how well is the product doing? How are people engaging? How big can this be? Not assuming you figured out your growth yet. So if you’re, if you’re in San Francisco, talking about a $10 million a round that is to build your growth engine, assuming you have the product. If you’re looking for a $10 million route in southeast, you better have some great revenue, and margins. And it’s just it’s fascinating how different those conversations are. And I think it’s important that you know, what kind of company you’re building, and if you’re building a product driven company and start those conversations at your seed round. So you’ve already built relationships and tracking?

Matt Hunckler 13:26
Yeah, I mean, I know when we raise our friends and family round, it was like, what’s the model? How much money are you putting in? And how much is coming out? And it’s just different? It’s totally different paradigm. Glad we had. Molly, how about you? How are you coaching entrepreneurs on the ground, when they’re looking at preparing a pitch to your network of 10,000 plus investors?

13:52
And I think it varies on the entrepreneur. So part of what I think that we as an organization can do well is build a curated audience when a company is ready. And that’s a big focus of ours, even more recently is how do we engage with the audience so that the minute that you’re ready to raise and we know what your profile is, we can get you connected with that investor immediately. We’re actually working with some local angel investors right now, to do an understanding funding option, but also to create like a quarterly process for our founders to upload their pitch decks, to then get it to the regional local investors and try to automate that a little bit more. And hopefully, some of those processes will kind of spread the wealth a little bit. I think one of the things that we can also do is make sure we’re connecting people with the information that they need so that they’re empowered to make the decisions. And so I don’t, I don’t ever want to be in a position where I’m like, You need to raise funding, this is exactly what you need to do. But if you can get connected to the people that you need to talk to, so that you can understand what this I mean this is like one form of investment But you’ve got to understand how the asset class works to know if you actually want to take that on. And I think a lot of people assume that that’s exactly what they want to do. But that’s just because it’s like VC talk in the community. And that may not be the path for them.

Matt Hunckler 15:13
That’s really great advice.

15:15
Sorry, VCs, you have a role just by everything.

Matt Hunckler 15:20
Oh, absolutely. You want to raise VC dollars for VC scale type of businesses?

15:25
Sorry, one more thing? Yeah. board seats is something that we talked a lot about black founders exchange was, with money can come a board seat, which can lose control, how do you negotiate through that to also maintain control where you can. And that’s a whole nother level of all the other things that come attached with funding that people often think about?

Matt Hunckler 15:44
Any advice on that front center that you took away? Those conversations?

15:48
Oh, yeah. You know, at our stage, it’s really impossible to value the company, particularly that we’re a legal tech company, there’s a lot of flux in the in the legal industry, we have no idea what this company is going to how it’s going to be valued in a very short period of time. So we’re trying to avoid those valuation conversations with convertible notes, convertible securities, and that sort of thing. And it’s a difficult conversation to have here in the triangle, it’s still fairly new. So, you know, in terms of having board seats and stuff, we’re trying to, again, just avoid those conversations as a whole. With some of the newer financing instruments.

Matt Hunckler 16:27
Yeah, that’s a great opportunity for founders starting out, to raise that first round, and just defer that conversation. Keep moving speed is everything, right? Yes, that’s right. Absolutely. Any any closing advice, micro, Brandon, on raising capital in the Carolinas that you learned, either through the school of hard knocks, or from advice that you got externally,

16:50
I think it’s tangential, but similar to what Chris was saying is that this is becoming a great place to recruit to. And I’m really excited about that, when you do have something that you’ve proven has has ventured scale, there are a lot of people sitting in San Francisco with families crammed into an 800 square foot house is that they’re paid a $1.6 million for that we’d love to move here, and have a great growth opportunity for their next career move, as well as a life and real estate. So we’ve actually been very successful recruiting people that have, you know, scaled companies before. And I think that’s a huge asset, if you can bring those people on the team early, because you’ve proven that you are a better basketball. And, you know, we’re at great success with that.

Matt Hunckler 17:31
Absolutely. How about you.

17:32
So maybe two things, one that continually hear out in the, in the market, as you’ve worked with entrepreneurs is, is at some point, they have this epiphany that their idea may not be as unique as they thought it was. So they’re sitting there hiding it and not want to have a conversation with with somebody that they think is going to go take their idea and go back to a lab and start coding it that evening, or you know, whatever it is that they think they’re going to do. So they miss the opportunity to connect with folks in their ecosystem that can help them take their game to the next level. So to get out there to have those conversations, figure out what it is that you’re trying to do and allow folks to help you when they really are trying to do that would be a great thing for you to do. The second thing is as you kind of go through that process is figure out what you need to get to that next mark, and your journey, whatever that may be. You had conversations with folks, and they say they’re bootstrapping this thing, or they’re gonna go out and get some money. And they’re pre, you know, pre designed, and they’re saying, This is what we think it’s worth, we’re gonna go out there and get up to a million dollars to do this. I said, Well, within a day, where does that leave you? You know, if you’re gonna go out and get all this money, and your pre development, let alone pre revenue, and you want all this money? where’s that going to put you on the cap table? So taking a step back, figuring out what it is you’re trying to do, and say, Okay, maybe all I need is this 250 Or this three, or 500 grand to get me to where it is I tried to go and then have another conversation is always something that is a pretty candid conversation, but to bring in. It’s one thing here from me as a service provider sai CPA guy debits credits, which talked about but to go green, another player that’s in the market and say, No, I learned that lesson myself and then not only have that person, but maybe another one that helped bring that all together and makes it a lot more tangible and real. It’s a good conversation. Those two things, I think, continually hear that people need to be thinking about.

Matt Hunckler 19:29
It’s great advice. I appreciate you all sharing your perspective on raising capital in the Carolinas and beyond. So can we give it up for all of our speakers?