Andrew Warner: Before we start, look at this article about how Dave McClure raised $30 million to invest in startups. What’s the first thing that he did afterwards? According to the article, he went to 99designs to buy a new logo. Investors who put money into companies like yours, they get their logos from 99designs. Scrappy startups and big brands, they have their websites redesigned on 99designs. I have used 99designs. 99designs is the largest marketplace for crowd-sourced graphic design. When you use 99designs, you won’t get just one or two designs, you’ll be flooded with designs from designers all over the world and you only pay for what you love. 99designs.com.
Here’s an email that I got from a viewer about my next sponsor, Scott Walker of Walker Corporate Law. “Quick note. I was looking for a lawyer to do an updated terms of service agreement for our product. Long story short, I had a hell of time finding one who was charging reasonable rates and who was in the tech space. I ended up seeing Walker Corporate Law, your sponsor. They were fantastic and had great rates.” So, there it is. Walker Corporate Law is the firm you turn to when you’re raising money or when you’re selling your company. But as you can see from this letter, they’re even there in the early days to help you out. Walker Corporate Law.
Finally, check out PicClick. It’s a bootstrap startup by my buddy Ryan in San Diego and Ryan is already profitable. I don’t know why he hasn’t done a Mixergy interview yet, but I’m working on it. PicClick is a visual way to search eBay, Etsy, and other sites. Try it, and if you know anyone who buys anything online, please send them to PicClick.com. Ryan is a viewer like you. I want to support him, so PickClick.com is where you send your friends. Check him out yourself, too.
Here’s the program.
Hey everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. Today I’ve got with me Farbood Nivi. He is the founder of Grockit, an online social learning game company. I invited him here because he raised over $17 million, even though his site has less traffic than my blog. I want to learn how he raised so much money. I want to learn about the process and I also want to learn about his new approach to teaching online. Farbood, welcome to Mixergy.
Farbood Nivi: Thanks a lot for having me. It’s a pleasure.
Andrew: Before I get into that little dig about how you don’t have as much traffic as me, and I get to feel powerful for just a second, I got to tell you, you look powerful. You look good. I heard you got into an accident. What was the accident about and what happened?
Farbood: Yeah. I got run over last year in May and spent probably the bulk of between May and November either in the hospital or recovering. I put back some of the weight that I had lost. I was probably about 40 pounds lighter than I am right now after the accident. Last year was a wash in some ways for me physically, but I’m back in action. Everything’s good.
Andrew: How bad was it?
Farbood: It was pretty bad. I lost half a kidney on my right side, so I’ve got a mixed number of kidneys now. It went well, but I had some complications from the surgery about a month or two afterwards and ended up going back into the hospital for even longer and having a lot of complications to deal with.
Andrew: This was a car that hit your Vespa and knocked you out?
Farbood: Yeah.
Andrew: Who was running the company while you were out? Do you mind me asking questions about this? Is this too personal?
Farbood: No, not at all. You can ask away. I was, thanks to technology, I was able to run a lot of the company from my hospital bed and from my home. We had built, I think, a really stellar product and engineering organization before I had gone down. Product and engineering kept moving forward. Everyone kept themselves disciplined. We’re extremely process oriented here in terms of our development practice, so people kept relying on that process, connecting with me daily and we got through it.
Andrew: AndrewSG in the audience is asking, “Do you still ride a Vespa or did you finally upgrade to a Hummer?”
Farbood: Yeah. I have walls surrounding me while I’m traveling on wheels now. Don’t worry.
Andrew: [laughs]
Farbood: No longer exposed to the elements.
Andrew: At any point, did you say, “I don’t want to work on this. I’ve got take care of myself. I don’t even know if I ever want to go back to this. What am I doing here?”
Farbood: Oh, that thought never crossed my mind. If anything, having my work to dig into kept me from wallowing too much in my own problems. It’s like I had something bigger than myself to work on. I have unbelievable support from my friends and family, so I didn’t sweat that part of it too much. In fact, having Grockit helped me get through it. It gave me something to do other than just thinking about being sick and injured.
Andrew: Do you have an example of that? Maybe one time where you were feeling bad but somehow work took your mind off of it?
Farbood: I don’t remember a ton from last year. It was a strange time for me. I can’t think of anything off the top of my head, but it was, I probably worked almost every day from the hospital except for the first day after the accident, stuff like that. I’d say probably the most interesting story to tell out of it is that after the quarter million dollars in hospital fees, and we have great health insurance here at Grockit, I have a salary so I get paid, even despite that, the companies tried to get $30,000, $40,000 out of me. We had to spend six months fighting with them. Health insurance is a crazy situation, when someone with good insurance and a good salary still has to fight just to not get screwed over. They literally couldn’t even generate bills that amounted to the tens of thousands of dollars they just wanted you to pay without any question. It was pretty horrible.
Andrew: Yeah. I’m always worried about that. I’m here in Buenos Aires. I haven’t been in the U.S. in nine months, I think. I still pay my U.S. health insurance, just so when I get back into the U.S., no one can say, “Well you can’t sign up because you had a pre-existing condition.” Or anything like that. I hate to think that when I need them, they’re going to do to me what ended up happening to you.
Farbood: Yeah. It’s unfortunate. We need to address those issues. If it’s this bad for me, I can’t imagine for somebody who doesn’t have a job, who doesn’t have health insurance. I don’t know what you’d do when the hospital sends you a quarter-million-dollar bill.
Andrew: Investors have pulled away for less than that. I’ve had friends who say, “We were on track. We made a little bit of adjustments. We went for another round and investors just weren’t there. This happened. That happened. We had to sell the business. We had to get out of business.” How’d you get your investors to stay with you? Young company, didn’t get much traction yet, how’d you get your investors to stay with you while you were in the hospital?
Farbood: I don’t think there’s any one thing. Like any smart investors, they’re looking at multiple factors in every situation, so if we review those factors, I think you ended up still with a thumbs up. What are those factors? Market size. The education market is trillions of dollars. Nobody’s worried that there’s not enough money there. Product-wise, we’re still doing stuff that nobody else is doing in terms of bringing collaborative, peer-to-peer learning to the educational model. There was still plenty of passion for that. We built a great product that doesn’t exist anywhere else.
Andrew: The leader, they say bank on the horse, not on the, what is it? On the rider, not the horse. I don’t know who they’re banking on, but I know that in this case, regardless of the analogy, it’s you. You don’t even have a co-founder that they can say, “At least the co-founder’s taking the reins.” How are you able to convince them and keep them comfortable with you?
Farbood: That’s a good question. In the end, they had some faith and belief that the vision we were creating here at Grockit was the right vision and that we would get through it. It definitely was a rough time. They were totally in support of me and once we got things back and running, we’re deep in some executive searches. We hired a chief marketing officer as soon as I came out of that. We’re just in the process right now of bringing on a couple of additional key executive hires. Very much the focus coming out of that was let’s get some great talent in and around Farb as quickly as possible, not thinking that something like this happen again, but just that it’s the right time for that.
The space is so exciting, I think. The opportunity for what we’re trying to do here, I think, is so exciting. There’s a huge appetite for it and people are willing to spend the time and energy and money. We’re trying to redesign education as you know it. We’ve spent a few million dollars in a couple years doing it. That’s not a lot for what we’re trying to go for. I think we’ve kept a really low burn over this time and our investors are like, “Listen. We spend a few million dollars trying to do something enormously massive here, so fine. That’s not a big problem. If anything, the time is an issue. We haven’t spent much money.”
Andrew: All right. Let’s go back in time to when you launched this and follow the story of how you built up the company with an emphasis along the way on how you raised money, because it really is an impressive amount of money to raise. Since your brother runs VentureHacks where a lot of us learn how to raise money and how to build a company, I figured I’d come to you and learn from you, too. Learn from your story. Why don’t you start off with what you did before this? What was your background?
Farbood: I was in the for-profit education space for about 10 years. I was at both the Princeton Review and Kaplan. To give you a quick history of my time there, I started off a teacher, then teacher-trainer, and then a trainer-trainer, and then a trainer-trainer-trainer. At that point, you’re helping establish curriculum. You’re helping establish the pedagogy. You’re really driving the academic portion of the company quite a bit. I moved up the ranks of Princeton Review, did some work at Kaplan in that space as well. I literally had thousands of students. I was honored with the Princeton Review’s National Teacher of the Year at one point. A lot of what I had done in my own classroom was employ a student to student educational design. If you want to get. . .
Andrew: Yeah. How did that work? I thought Princeton was based on having a teacher in front of the class teach the students. I didn’t realize that there was any peer-to-peer learning there.
Farbood: There weren’t in most classes besides mine.
Andrew: Ah. I see. Okay.
Farbood: The Princeton Review, like most educational models, is this one teacher to many students lecture-type model. There’s certainly a workshop element to it as well. I was teaching so much, sometimes six to nine hours a day, that I got an opportunity to try a lot of things and really develop a process that was better than me lecturing for two hours. It was a combination of teacher-led lecture, solo practice, and then group study practice as well.
This is the model that Grockit has followed. Whether you’re studying for the SAT or you’re studying for algebra, you study in one of three ways. You spend some time with experts, you spend some time on your own, and you spend some time with your peers. Grockit has these three same formats of studying. What we do is we apply technology and algorithms to optimize those three forms of studying.
I was a teacher at those companies for a while and I’ve seen what was happening with Facebook and Myspace and being like, “I have this social learning model in my classroom. There’s all this social stuff going on on the web.” It just seemed like the most natural thing to do. I describe it as obvious in a lot of situations. In my class, you have students that are working with each other and I’m facilitating that interaction and in Grockit, you have a similar situation.
Andrew: Farb, were you looking for a business to launch? I see your history and you are very entrepreneurial. Were you looking around there in the class, saying, “How do I do this online? How do I jump in with what I already have and what I already learn into how do I take that jump into the world of web 2.0,” which was heating up at the time?
Farbood: Yeah. To me, it’s really all about the students and I didn’t feel like the students were being served as well as they could. I felt like technology and the web were taking off at a fantastic pace and things were happening. The educational space was just not doing much to keep up. I figured we could get ahead and drive this out. I wanted to build my dream learning environment. Say, “Okay. Let’s forget educational design up until now, let’s forget what’s capable and just redesign learning with today’s students and today’s technology in mind.” I was absolutely looking to mix things up a little bit.
Andrew: Okay. I mentioned that you have an entrepreneurial history. I looked at your LinkedIn profile and I saw Vision Computers Solutions. I saw Nivix Computer Solutions.
Farbood: Yep.
Andrew: It looks like you are very entrepreneurial. Can you talk a little bit about your pre-Kaplan background?
Farbood: Sure. I started my first company with a good friend of mine that actually works here at Grockit. We started Vision Computer Solutions in Michigan, like in 1995. We were seniors in high school. It was like Geek Squad before Geek Squad. That company is still running in Michigan today. They do like $7 million a year in revenue.
After I graduated from the University of Michigan, I moved to Boston and started, we were trying to start a more serious version of Vision, sort of like a Geek Squad. This was right about the first bubble burst, so we were ramping towards discussions with investors and that all just disappeared like that. We had won an MIT Sloan Business School competition. Things were going well. I’ve been pretty entrepreneurial my whole life.
Andrew: How do you go from ’95 to ’98 with Vision, around 2000 launching this new business, to then working, is it, seven, eight years in the educational prep area? How do you go from being so entrepreneurial to spending so long in front of a classroom?
Farbood: I was still being entrepreneurial. I was a musician in the film industry for a while, so I had a band. We had some music in some major motion pictures, so I was being entrepreneurial on the creative side.
Andrew: Like what? What movies were you in?
Farbood: We had some music in The Hills Have Eyes, which came out a few years ago. I think one of the characters is listening to one of my songs in one of the scenes in the movie, if I can remember correctly. I was doing that and, like I said, I was pretty much teaching full time for Princeton Review and Kaplan. I did that in Boston. I did that in Austin. I did that in Los Angeles, all over southern California.
Andrew: Did you take that on because it had flexible hours?
Farbood: Yeah, absolutely. It pays really well, flexible hours, and I could be a full-time musician and a full-time employee.
Andrew: What made you go more full-time employee and less musician?
Farbood: I just thought the opportunity was there and no one was capturing it. It seemed to me like if I didn’t get out there and do what we’re doing here at Grockit, five years from now, we’d still be in the same space that we were in terms of educational technology. Certainly, there’s some other cool people doing things out in the space, but to me, it just seemed like the education industry was sitting on its hands. There’s plenty of multi-billion dollar organizations in the space and I don’t think they’re innovating in the way that we needed them to and I don’t think we needed them to anymore. There are plenty of great startups that are out there trying to do this.
Andrew: I was researching you and I think one of the first articles I saw about you was in Mashable and I said, “Oh, let’s see what it used to be like. Let’s see what Grockit was once.” They said, “It’s learning over WebEx.” There wasn’t even any hint that in the future there’d be no WebEx. It was just learning over WebEx and here’s what it was like. I said, “Wow. That’s how how they started?” Is that the first version?
Farbood: Yeah. The first version of Grockit was me teaching some GMAT classes over WebEx.
Andrew: From where?
Farbood: Literally from my bedroom. A situation not unlike this except for the cool Grockit shirt. That was my first stab at it when I left Kaplan. I’m like, “You know what? I can teach a great class. I can teach it online. It’s super convenient. It can be cheaper. It can be better. I’m a great instructor. I can bring myself to people all over the world.” Then there was, in using WebEx for about a half a year, that I just, all of these things that I wanted that would turn this almost-there solution to, like I said, my dream learning environment. That’s when we went out and. . .
We wanted to raise about 100k to start building this platform and we ended up raising two and a half million dollars and doing it that way instead, which I think for us was a good decision. It’s been a pretty serious technical challenge. There are no downloads in Grockit. There’s no real flash that we’re relying on. Getting just web browsers to do really real-time synchronous interaction is a massive problem. Google went and bought the AppJet folks that were doing EtherPad that are really, I like how they put it, they call it the “really realtime web.” The technical challenges haven’t been small in terms of pulling this off.
Andrew: Let’s pause for a second because I’m fascinated by the early days and I want to revel in them for a little bit. What did that first Grockit.com website look like when it was just you with WebEx?
Farbood: I think I was literally hacking things together in HTML. We had a version of this logo. I came up with this logo in the early days. I can even remember a couple of forums that I had posted some questions about some of the web pages I had created for Grockit, and I couldn’t get something to align correctly on the page, some image or some text, some pretty basic stuff, right? Someone’s reply was like, “Who made this page?” [laughs] They’re like, “90% of the coding here isn’t doing anything.” [laughs] I said to them, “Oh, it’s like junk DNA in genetics.” It’s like 90% of the code on my page isn’t doing anything, but if you remove it, for some reason, the whole thing falls apart. [laughs]
Andrew: [laughs] What were the features? What was the functionality like?
Farbood: The functionality, the website was about three pages. You hit it, there was content, a product matrix comparing Grockit courses to other people’s courses. You hit next, you saw a little video explanation of Grockit. You hit next, you saw a little explanation about the teachers. Then your last option was to pick a course date and enroll.
Andrew: Okay. So, you’re picking a course date and the students are all in one class, being taught by one person, using WebEx, that person gets a video like you and I have right now, gets essentially a black board, the students get to chat using text back to the teacher, the teacher asks questions, he interacts that way, and that’s the way you were teaching for six months?
Farbood: Yep.
Andrew: It was you and who else?
Farbood: It was just me.
Andrew: Just you?
Farbood: Just me.
Andrew: What kind of revenue were you pulling from something like this?
Farbood: Not a whole lot. Like 10 or 15k a month in the first few months, I think.
Andrew: How are you getting students into that classroom?
Farbood: It was just word of mouth and a little bit of Google AdWords.
Andrew: Okay. Wow. Did you do anything to juice up the word of mouth or was it just that you were a great teacher in the past and your students were good at getting the word out about you being online?
Farbood: Yeah. It was pretty much just that.
Andrew: Okay.
Farbood: This whole industry is a couple of things, one you have the brand of a couple of folks like Kaplan and the Princeton Review, but even beyond those, it comes down a lot to the individual instructor and does this Kaplan center, does this test prep center have a really good instructor? The word gets around in that community around who’s got the better instructors in this random city, the Princeton Review ones or the Kaplan ones or some other smaller test prep company. It’s a ton of word of mouth. Even with those brands, both Princeton Review and Kaplan, still go in to schools year after year afer year, the same school they sold last year, they have to keep going back in because word of mouth will take the students somewhere else if they don’t continue to market that way.
Andrew: Okay. Anthony Serra [SP] in the audience is saying, “Just 10,000 to 15,000?” Considering your set up, that’s a pretty good take home, right?
Farbood: Yeah. Absolutely. We look at Grockit as massively multiplayer online learning.
Andrew: Oh, no. Let’s pause right there. I want to get into that. Let me also say this to Anthony, my buddy John Bischke who started eduFire likes to say that he wants to, you know him he’s a good friend of ours, he likes to say that he wants teachers to be rock stars, to have that kind of fame, to have that kind of reach. You were, in your community, a rock star instructor. You weren’t just another guy at Kaplan. You weren’t just another guy at Princeton, where you spent most of your time. You were well-known and you were one of the best, right?
Farbood: Yeah. Sure.
Andrew: When there’s someone who’s that good, word does get around. The average person who’s teaching a class can’t just go and pull 10,000 to 15,000.
Farbood: I absolutely agree with that. Yeah. You have to have some cache and you have to be able to back up what you’re saying. If people don’t leave that first class, essentially being like, “Wow. That pesron knows 10X more than I do. They basically just knocked me over the head with some serious learning.” It just compels you to come back. You do this for 10 years and there’s obviously a difference between someone who’s doing it for 10 years and someone who’s been doing it for a week.
Part of, I think, the issues with this space is that some of the players want to convince you that there’s two classrooms going on at seven o’clock at night at this random test prep center and there’s one teacher in one room that’s been doing it for 10 years, the other teacher in the other room just got out of training of the other teacher the week before, it’s the first class they’ve ever taught in their life and they want to charge you the same thing for both of those instructors. That just seems like a situation where the players have the information and they’re controlling the information to their own advantage and they specifically don’t want you to know what’s going on for real. Who would want to spend 1,500 bucks on a person with 10 years experience and 1,500 bucks on a person with first day class experience?
Andrew: What was your SAT score?
Farbood: Oh, gosh. I don’t even remember. My SAT score wasn’t that great. My ACT score was a lot better. I took my ACT, I scored in the 99th percentile, then I just didn’t take my SAT too seriously. I think I was in the 95th percentile or something like that. I can rock most of those tests, SAT, ACT, GMAT. . .
Andrew: When you launched that first version, did you imagine that this would be bigger and you were just testing an idea that would help you find your bigger idea?
Farbood: I actually thought that I would grow out the WebEx style courses into a small test prep company. We could do 5, 10, 15 million a year and just grow it out that way. Then it was, while going through that whole WebEx process, where I just kept being like, “Gosh, if I could just do this right now in the class, it would be awesome.” Or, “If I could assign homework like this to my student for next class, this would be awesome.” Or all these things that I ended up wanting, it came together. I’m like, “I can redo this, but I need some cash to go out and compete with WebEx.”
Andrew: What was the epiphany? What was the idea that you said, “I need to go raise money for it”?
Farbood: I’ll give that credit to Rob Lord actually. He helped crystallize my thinking. Rob was actually one of our first advisors at Grockit. He was our first Angel. He did Winamp back in the day. He did Songbird more recently. He’s been on PBS specials about pioneers of the Internet.
I was crystallizing my thinking around Grockit and we were talking about the web and how people interact on the web and he’s like, “People tend to interact in one of three ways. They either interact on their own with the web. They interact with their friends on the web. Or they go and try to find people that know more than they do on the web.” When he said that, I said, “Wait a second. That’s how my class works. Kids work on their own on some assignments and practice. Kids work with their peers and people work with experts.” In fact, that’s how you learn anything, right? Like we said earlier, SAT, basketball, or algebra you learn in one of those three modes. When he described the web as being in those three modes as well, I was like, “Okay. Yeah. This is definitely the right thing.”
Andrew: Okay. I want to spend more time on him because I know that he then introduced you to Reid Hoffman, that he then opened up the rest of the doors for you. What I’m curious about is how did you get a guy like Rob Lord, who’s insanely busy and anyone in the audience right now would love to have him as an advisor, as an investor, as a guy that walks in the door for a second and checks out their company. How did you get him to be so supportive and essentially help you brainstorm your idea?
Farbood: Yeah. I had a social connection to him.
Andrew: What was the social connection?
Farbood: My brother knew him.
Andrew: How did you brother know him?
Farbood: My brother worked on engineering at Songbird for a little while.
Andrew: Okay. So your brother knows him, he introduces you, as I think you told Mark Suster as you and he were talking. All your brother can do is introduce you, maybe get you your email read, maybe get a five-minute conversation with Rob Lord. What did you do to maximize that time? What did you do to take that intro and make it into a relationship, where, as I say, he’s essentially brainstorming your business with you?
Farbood: Yeah. It took me a long time to get him there. I’m talking about six months of, not trying to sell him over and over again, but like I said, it started as a lightweight social friendship. Like I said, I was going out there maybe trying to raise 100k or something, so it wasn’t like, “Rob, I need your help to help me blow up this multi-million dollar Series A.” It was just friends, chatting a little bit. I’ll give Rob and my brother credit in that I put together a deck and I showed it to them and they’re like, “Oh, it’s good. When it’s great, we’ll take it to the next step.” Literally, it was months of me working on the deck until it got to the point they thought it was great.
Andrew: I’m sorry. I got to stop and do this. I grew up listening to Howard Stern. When Howard Stern was on the radio in New York and some lesbian came on and would said, “And then I slept with a woman.” Howard would go, “Whoa. Hold on a second. Take me through it step by step. How’d you go in the house? Did you take your shoes off first? Did you take your top off first?” Let’s take it slowly and go into it.
To my audience, to me, this is sexier than hearing one of those stories. I want to know every step of the way because it’s interesting and fascinating and also we can learn from it. Tell you what, though, if I get too detailed, too much in the trenches, you can kick my butt. You can say, “Andrew, let’s just move on already.” Until we get to that point, let’s take it really slowly. Your brother, who worked with Rob, says, “Hey, Rob. My brother’s working on an interesting project. He’s an incredible teacher. Talk to him.” Right? Is that what it was? Or do what with him? Invest in his company or talk to him first?
Farbood: No, definitely not invest in his company. In this space, it wasn’t there. My brother introed us once and then it was up to me. He did not continue to bug Rob. . .
Andrew: He just said, “Here’s an introduction. My brother is working in this space.” What do you do from there?
Farbood: You just ask advice. That’s really what it is. Beg for five minutes of advice here and there.
Andrew: Five minutes on the phone?
Farbood: Five minutes on the phone, just respond to an email. “Can I get you some coffee next week? Oh, next week doesn’t work? How about two weeks from now?” Basically beg for a few minutes here and there.
Andrew: Put yourself in his shoes for a second. You’re a guy who doesn’t have any web experience. You’re not an engineer. You got way too much code in your homepage and you’re using WebEx. What do you think it was about you that made him say, “You know, I will invest the time. Five minutes isn’t what coffee’s going to be. Coffee’s going to be a drive over there. It’s going to be a long ‘How do you do?’ It’s going to be a long conversation about my advice. It’s going to be a long me thinking is he going to use my advice or not”? What do you think it was about you that made him want to spend that extra time?
Farbood: I’m almost certain that it is my total and absolute dedication to Grockit that at a level, for me, was a significant point in my life, right when I was starting Grockit, where I was simply like, “This is my whole life. This is all that matters. I don’t need to socialize. I don’t need to have weekends off. I need to eat, live, and breathe this. My attitude is that it doesn’t matter if I raise $1 or $10 million, I’m going to still keep doing this. I’m not going to stop.” It really was a total life dedication.
This is one of those things where, again, my brother and Rob helped me get there. People are like, “Well, if I can raise the money, then I’m going to start the business.” It’s just like that attitude is no good from the beginning. The attitude is either “I’m doing this, come hell or highwater. $5 or $5 million.” That’s the attitude I think people respond to. It’s not something you make up. You literally have to live and and breathe it.
All of my friends and people that know me for the past couple of years, know that I don’t go visit anybody. I haven’t really gone home in a couple of years. I don’t do anything but Grockit. It is my life. It’s bordering on probably, long-term wise, unhealthy, to be like that. That’s what people want to get behind.
I’m a huge Russell Ackoff fan, he says that leadership is primarily an asthetic trait, which is creating a vision and living and breathing that vision and all of the sudden, people get into it. I talk to a lot of entrepreneurs and guys that are trying to start up companies and that’s really a lot of times I feel like is missing in they’re just like, “If I raise the money, then I’ll do it.” That has to be the other way around.
Andrew: I love that answer. You guys in the audience, you let me know what you think. To me, that sounds like one of the most inspiring answers I’ve had here in the 200, 300 interviews that I’ve done here on Mixergy.
Farbood: Oh, awesome.
Andrew: It helped, too, that you had a profit coming in from doing the early seminars or doing the early sessions on Grockit using WebEx, right?
Farbood: I don’t think that mattered.
Andrew: Oh. I thought maybe it would help. Actually, I’m glad that you’re saying that. I thought it would help that you at least had some money coming in so you could eat, so you didn’t have the pressure and the worries of going to bed at night saying, “Am I on the wrong track? Am I making a big mistake? How am I going to pay the rent on Monday?”
Farbood: Yeah. I don’t think it was that at all. I think it was two things. One, this guy is an expert in the space.
Andrew: Oh, no. I mean for you, that you were able to bring that attitude because you had at least a little money coming in.
Farbood: I guess looking back on it, you’re probably right. It didn’t feel like a lot of money was coming in. 10 or 15k in revenue, there were still expenses like books and WebEx and things like that, so it’s not like I was living high off the hog.
Andrew: WebEx costs a few hundred bucks. Books don’t cost that much if you’re not sending them out to students. That seems like a good amount of money, no?
Farbood: Yeah. It was definitely enough for me to live on. I was living, I was still worknig my butt off. I don’t think I wanted to spend the rest of my life working that hard for that amount of money. Growing it would have been difficult. I actually at one point had to sell a car that I had bought six months prior to get things going. I bought a brand new car and literally sold it five months later before when I was starting Grockit. It’s that attitude, I think, that’s important. It’s funny. I didn’t realize until afterward that there’s and old joke about founders selling their cars to start. . .
Andrew: Oh, there is? That’s comic?
Farbood: I guess so. When I started raising money and telling people that story, they laughed at me or almost like, “I don’t know if you should tell that story because it’s like the typical crazy founder story.”
Andrew: Ah. I see.
Farbood: The guy that sells his car to start a company.
Andrew: All right. I got people in my audience right now buying a car just so five months from now they can sell it and match up with your story. Okay. So you’re talking to him, he’s giving you feedback. You gave us a sense of the kind of feedback he gave you and how he was guiding you in your business. You said you took a deck to him and he said come back to us when the deck looks better. The deck meaning the PowerPoints, set of slides, where you were describing what the business was. That was so important that he needed to send you back and your brother did, too, to go and improve it?
Farbood: Yeah. Guys like that are not. . . Once you’re in a situation like this where you’re able to recommend and appoint other investors towards opportunities, it gets to a point where your own reputation is on the line. It’s only so many times that my brother and Rob Lord can go to other folks with crappy investments and crappy entrepreneurs before folks are just like, “Yeah. I don’t want to respond to your emails anymore.” Just getting them to the point where they’re willing to put their name on it, it’s got to be great.
Andrew: Okay.
Farbood: Now they’re associating themselves. . .
Andrew: What’d you do to get your slides to look so good and to get the ideas behind them to be strong?
Farbood: In the end, it’s just how you bring the story out through the slides. Right? With Rob Lord, there was a pretty important point where when I crystallized what we were trying to do, it’s so easy to explain that, prior to that none of this language was even there, but when I crystallized the language around this massively multiplayer online learning, which you know MMOG is massively multiplayer online gaming, when I presented it and crystallized it through that, it all made a lot more sense to him.
I think what he’s evaluating is like, “Okay. Well, I’ve been talking to this guy for three months now. I get the business. Before I send him off to meet with other great folks, I need to know that in the 15 minute deck version that they’re going to get, they’re also going to get that this is a great opportunity, this is a great entrepreneur that gets it, knows how to crystallize and explain things.” When he got to the point where that all happened for him, he’s like, “Yeah. I could see how I could put you in front of somebody for 15 minutes and you could convince them this is it.”
Andrew: I hear that a lot. I always think these things are superficial add-ons that you add on when you have time, but what I’m seeing in my interviews is when you capture that one phrase, everybody gets it. In your case, you were able to move on to the next stage in this relationship. Did he first invest before introducing you to other people?
Farbood: I can’t remember what the exact timing of it was. I asked him to be an advisor pretty early on, which means you just give people shares for talking to you. That was great to have him on board as an advisor.
Andrew: Did he accept that? He took shares in the business or options in the business in exchange for giving you advice?
Farbood: Yeah. None of the paperwork was done until we actually did our round. My piece of advice for entrepreneurs in general is to get people to do work for you as an advisor first before you give them paperwork and give them shares and talk about that stuff. If any advisor’s trying to do that stuff before they do a ton of work for you for free, it’s not the right situation.
Andrew: How’d you know how much to give him as an advisor?
Farbood: I just asked my brother and him what was appropriate. I gave Rob a lot as an advisor, quite frankly.
Andrew: What’s a lot? Is it over 1%? Is it over 20%? Is he the majority owner?
Farbood: [laughs] It’s less than 20% of the business.
Andrew: Less than 20. Is it over 1% that you gave him at the time?
Farbood: I’d rather not discuss too much of the details there.
Andrew: Okay.
Farbood: It was a healthy amount. A quarter point. . .
Andrew: What’s standard? Let’s give that to the audience. What’s the standard?
Farbood: Sure. Early stage, depending on what you feel the value add they’re doing, giving them a quarter point to a point is totally reasonable pre-Series A.
Andrew: Okay. All right. I think I did an interview with Dan Gould who went through all these numbers. I want to hear from you since you’ve gone through the process recently. Okay.
Farbood: Dan’s awesome.
Andrew: You had him as an advisor. He then invests in the business or does he take you on to the next investor?
Farbood: At one point, he was willing to commit a little chunk of change that was when we were still trying to raise 100 grand or so. It was not an insignificant amount. I didn’t ask him for that until he told me that the deck was great.
Andrew: Okay. Then who does he introduce you to next?
Farbood: I’m pretty sure he made an email intro to Reid Hoffman and it took me probably several weeks to try to get an audience with Reid. Reid has a voracious appetite for investing in startups. The Valley and I think the business world and life in general is all about social proof because people don’t have time for any other way of filtering.
Andrew: You mean once you got Rob, that was enough social proof to get in the door with Reid and once you get Reid in the door, everybody knows Reid and trusts his judgement and sees his track record and that’s enough social proof to then go on to the next door no matter what next door that is? Okay. Reid Hoffman, by the way, founder of LinkedIn, part of the PayPal mafia. A real guy PayPal mafia. A lot of people seem to think that they’re part of this whole PayPal club just because they have a PayPal account.
Farbood: [laughs]
Andrew: He also invested in Flickr, I think, and Digg, I think.
Farbood: Oh, there’s a long list.
Andrew: There’s a long list. I could be wrong about those two but that list is full of those brand names that people actually know. Okay. That got you in the door with him. How did you win Reid over?
Farbood: I think it’s the same way. At that point, it’s the same formula that got you there is going to keep you moving forward, which is hyperexperienced founder, passionate, like a crazy person. I think Reid said, “You’re the ideal entrepreneur. You jump off a cliff and make the plane on the way down.”
Like I was saying earlier, that’s what gets folks excited is seeing someone who they’re like, “This person does not have failure in their bones.” Guys like Reid and Rob know that it’s just going to be one failure after another. That’s how it all starts and it goes like that for a while until you have success. PayPal was five different things before it was PayPal.
Andrew: Do you ever get depressed along the way, saying to yourself, “I thought it was going to be this. I failed. I failed. I failed. I got all these people who are watching me. Andrew on the sidelines is counting my traffic, counting my members, and I still. . .”? Do you ever do that?
Farbood: No. It doesn’t matter. I think we’re doing the right thing. I think in some ways we’re doing it the right way and in some ways we’re doing it the wwrong way. We’re learning about the ways we’re doing it incorrectly so that we can do it correctly. I’m a totally staunch and blind believer in the idea that it’s better to do the right thing the wrong way than the wrong thing the right way. I think what we’re doing is right and I think we’re moving in the direction and getting the results that we are looking for. I think it’s the right thing to do so I ignore all that stuff.
Andrew: Do you have sleepless nights now that you’ve raised so much money?
Farbood: No. I sleep like a baby.
Andrew: None. Is it because of the money in the bank or is it because of the brand behind you, the brands of the people who’ve invested in you? What’s keeping you asleep when it’s time to go to bed?
Farbood: I pass out with my laptop on my face.
Andrew: You’re still working to the point of exhaustion and you can’t find time for worry you’re saying?
Farbood: Yeah. I have to often just stop myself and go to bed, if I don’t, like I said, fall asleep with my laptop on my face.
Andrew: Mark Pincus also was an early investor. Mark Pincus, this is before Zynga. Has Mark Pincus bought a top hat and monacle yet? He’s now a billionaire. Do you see him like an average guy in the beginning but now he’s walking around with a butler everywhere?
Farbood: I think he’s still the same Mark Pincus. I still see him at the gym. I don’t think he works any harder or any less hard than he did before he was Mark Pincus Billionaire. I think, and this is another really important point for any entrepreneurs and anyone who wants to do anything, you have to be the thing you want to be in the future today. You can’t be like, “Oh, well when I do this, then I’ll become like that. When I’m rich, I’ll act this way and I’ll do all these things.” You have to be that thing today.
Mark Pincus was working his butt off when he didn’t have billions of dollars. He was working like he was a billionaire that had to keep working or he would lose his billions of dollars. That’s how he’s still working today. I think that’s an area that goes back to that, “Well if I raise the money, then I’ll become a serious entrepreneur.” It’s got to be the other way around. Pincus has had several companies before he did Zynga and none of them made him billionaires.
Andrew: Okay. You said that you were going to raise $100,000. How much did you end up raising?
Farbood: In the first round, we raised about two and half million. $2.2 from benchmark or so, and then a few hundred thousand from Angels.
Andrew: What did you do right that you can pass on as a lesson to my audience? You’re like a master teacher, you got the ability to take in information. With all the information, all the things that you did, what are some key points that we can pass on to my audience?
Farbood: Don’t take your deck to market until it is great. It’s that simple. A great deck is rare. You see a lot of guys that are like, “I’m just trying to raise some money because I don’t have any moeny and I need it quickly. I need to start raising money in the next couple of weeks.” It took me with folks like my brother and Rob Lord three, almost four months of working on my deck to get it to great. Yeah, I was just struggling that whole time, trying to work to keep Grockit running while trying to raise money, flying back and forth between San Francisco and LA. You still have to do it. I’ve seen too many folks go out there with great ideas, great companies, good decks, and not get it done. It’s just work until the deck is great.
Andrew: How did you get yours great? What can you teach us about that?
Farbood: I actually use a pretty stayed and trued order of things. You can always change it, but Team is up at the top. An early-stage company an investor is entirely investing in who you are and so again, you’re trying to, at the very beginning of your presentation, convince them that you’re worth listening to for the next 30 minutes. You need to do that by explaining why you are the person to do this or why your team is the team to do this.
I was talking to a guy last week that came by to get some advice on his deck and his team slide was like the tenth thing. I understand that you get your business and you think that the real thing is the actual market and the money you can make, but from someone who doesn’t know anything about your business or what your idea is, or maybe doesn’t even get your market at all, the only opportunity you have at the beginning is to convince them that you know what you’re talking about, so pay attention. Right?
Andrew: Okay.
Farbood: It’s like, “Hey. I was the National Teacher of the Year. I’ve been doing this for 10 years. I know the test prep space. Pay attention to what I’m about to tell you.” Then people listen. They’re like, “Okay. This guy’s worth listening to. Maybe he’s going to tell me a bunch of junk but it seems like if anyone’s worth listening to, it’s this person.” We start off with Team.
Then we go to Market. It’s like, “Okay. I’m convinced that this person is the guy to do it, but how big is the opportunity?” It’s like, “Great. You are the greatest person at this, but it turns out you’re the only person in the world that does that and no one cares, so there’s no market. Great person, no market.” Great person is the first check, huge market opportunity second check. Then we move into problem. Right? What is the problem with this huge market that I totally get?
Andrew: Mm-hmm.
Farbood: Now they’re convinced that the problem is actually the problem because you already convinced them you know everything about this space. Now there’s a problem in a huge market with someone who knows what they’re talking about. Then there’s a solution. It’s like, “Oh, okay. If someone knows what they’re talking about in a huge market that has a problem and they’re coming to me with a solution, I’m still interested.”
You go through solution, now they’re getting it a little bit. You want to talk about your product. At this point, they’re really piqued and if you can show them a half a dozen badass screen shots, then they’re like, “Wow. Guy gets it, huge market, problem, he has a solution, and he’s showing me pictures of the solution. This sounds like something that needs some money.” Now you knocked them over the head with some beautiful screen shots. They may not be real. Maybe you got a designer to make some screen shots, these are not actual web pages we’re looking at folks. You tell them that. These are just screen shots. This is what it’s going to be.
Then you look at technology. If it’s a technological play, of course, you’re like, “Oh, we’ll handle the technology. This is what it is. This is who I have as my CTO or VPE.” Then you talk about your financing and you can go through any appendices. To me, that’s the order of telling the story and unfolding it in a way that you can do it in a relatively time-condensed fashion and the story just keeps building and building and buildling.
Andrew: Got you. Okay. What about the way that it takes, is there a different way to interact with these Angels who you’ve talked to? Is there a different way to network towards them?
Farbood: I think that, and this is another general rule of thumb that I didn’t come up with, if you want money from someone you ask for their advice. If you want advice from someone, you ask for their money. Is that right?
Andrew: Yep.
Farbood: Yeah. If you ask someone for money, they’re probably going to say no. If you ask them why, well, you got their advice. Right? If you ask someone for advice, hopefully they’ll give it to you and you’ll improve, and then they’ll give you their money. [laughs] It might sound like a duplicitous way of doing things, but not at all. If you can get five minutes of Rob Lord’s advice, that’s worth a lot. You don’t need his money. You can do a lot with five minutes of his advice.
Andrew: They’re loving it in the audience. Let’s see. Mike B. says, “That’s pretty meaty.” He was saying that about what you’ve said here in the interview. I see Dan Blank has got notes on this interview. I wish that I would actually just be able to pull out his notes and easily put them into the post for the people who are listening to the recorded version of this. It’s a lot of money, isn’t it?
Farbood: Yeah. We have a lot of it left, so.
Andrew: [laughs] Everything was great. I’m trying to come up with some challenging question to bring out a strong answer. Can you talk a little bit more about the issues that you’re tackling and why you needed to raise so much?
Farbood: We are only trying to redesign the educational system as you know it. It took us, whatever, 10,000 or 20,000 years of semi-human civilization to get to this point. I’m guessing billions upon billions of dollars. Education was industrialized about 100, 150 or so years ago. Prior to that, throughout entire human history, we did not know industrialized education, which is the factory model of teachers stamping students that come down the line.
This model is fundamentally flawed in its design. There’s nothing wrong with teachers. Teachers are the most passionate, hard-working, underpaid group of people in the country. There’s nothing wrong with students. Students are voracious learners. Humans are, they have tons of motivation. There’s nothing wrong with any of these players. The instructional design is flawed and we spent about 100 years trying to re-engineer it. We haven’t been able to.
It requires a system redesign and that’s what we’re looking at doing here, is just redesign the system. It requires a lot of money. We have plenty of our money still in the bank. We have a massive problem to try and solve and just the technical challenge, like I said, has not been simple. It’s not a static, grails web page. It’s not asynchronous. This is live, synchronous, real-time interaction. In a matter of 24 hours, the whole globe is covered with people that use Grockit. Getting all the people to be able to interact with each other in really realtime has been a serious technical challenge. We built WebEx plus, an adaptive solo learning algorithm plus these whole group-study sessions. It’s been a lot of technical work.
Andrew: Let’s spend a little bit of time talking about the product here. I interviewed one of your users, Anond S. [SP]
Farbood: Oh, nice.
Andrew: First of all, he asked me to ask you for two things.
Farbood: Sure.
Andrew: One, a pause button when he’s using the program on his own. I guess sometimes he wants to go to the kitchen or go to the bathroom and he needs to pause it.
Farbood: Okay.
Andrew: That timer’s pretty daunting. The second thing is, he said if I could ask you for a discount code. I did a search, there are discount codes all over the Internet for Grockit.
Farbood: [laughs]
Andrew: He should do that himself.
Farbood: That’s advice.
Andrew: He was a good guy. He said that he likes the interaction around the questions. I took a test in preparation for this interview and I got a question wrong. He said that he likes the interaction where you can ask other students about what they did on that question and how they reasoned it through. How do you encourage people to have those conversations or are they just having that conversation? This is such an important part of the product, I’m wondering how do you make it work out well?
Farbood: Sure. One opportunity is we give people the chance to earn Grockit points, which is when you say something helpful, if someone stars your message as helpful, you win Grockit points.
Andrew: Ah. To the left of my message, there was always a star. If he would have starred my message, I would have gotten a point and that encourages me, I see, to add more value. Okay. That’s one of the ways that you use game mechanics. What else do you do?
Farbood: People are inherently social. Like you said earlier, to some extent, it just happens. We just try to get out of the way and give people a clean chance to interact with each other. We give them some Grockit points. If you start getting really good, you’ll probably get a Grockit person reach out to you and be like, “Hey. You’re really good at this. Would you like to become a peer tutor?” This is something we’re just starting to move into, which is taking and formalizing this peer-to-peer learning model, taking folks that have proven that they’re really good at what they’re doing and then proving that they’re helpful to others and actually giving them some street cred. We give them a little sash on their avatar that says “peer tutor.” We give them permissions in the system that regular users don’t have. We give them an opportunity to get highlighted as an instructor. That’s a process that we’re trying to formalize further.
Andrew: Okay. Are there other badges? Did I see that, too?
Farbood: Yeah. There are probably about a dozen or so badges you can earn now. We’re constantly rolling out new ones.
Andrew: What’s been the best source of traffic for you? Not traffic, but users.
Farbood: Facebook.
Andrew: How?
Farbood: Facebook users are the most voracious Grockit users. They come back the most, they use everything the most, they like people the most. They do almost everything the most.
Andrew: When I register, I think the second screen said “add your friends” or “learning is more fun with friends” and there was a way for me to invite my Facebook friends over. That’s what spreads the game virally?
Farbood: Yeah. Absolutely. Friends don’t let friends study alone.
Andrew: I think that’s what it was. How do I, just by inviting my friends, who are invited to tons of things, how do I bring them into Grockit? What’s the system do to help me bring them in?
Farbood: When you’re actually practicing, you can click on a button and bring them into your live practice session to help you.
Andrew: When I practice, you feed a message into my wall and the other users get to see that. Okay.
Farbood: Yep. Absolutely. Then, also, you can challenge people. If you earn a badge, you can push that to Facebook and be like, “I just earned the Hot Streak badge. See if you can beat me.”
Andrew: Okay.
Farbood: It’s a little bit of both trying to get help from your friends and challenging them as well.
Andrew: I also saw that when I registered, I was asked how I found out about the site. There was a lot of talk radio options. Did you find out about us on Dr. Laura, on Bill Handle, on this guy, that guy? How effective is that as a way of bringing in new people?
Farbood: That was a bit of an experiment for us marketing wise and it actually worked pretty well. We have taken a of couple key learnings from that. We’re actually probably going to go at that again, having incorporated those learnings. What we did find is that we are able to get people to purchase a Grockit premium account without them even really trying the application out if they’re marketed to effectively through the right channels.
Andrew: Do you tie it back in. . . I guess you do because you’re asking me if I signed up through Dr. Laura, Bill Handle, so you can kind of figure out whether it’s effective for you. What’s the most popular game mechanic?
Farbood: I think people like rising up the leader boards.
Andrew: Okay.
Farbood: We’ve had several people get onto the top of the leaderboard. They’ll take a screen shot of that and they’ll create a blog post on their own blog and be like, “Hey. I’m at the top of the Grockit leaderboard.”
Andrew: Ah. Got you. Okay. All right. How about this for advice? How do I get your brother to do an interview? I asked him about a year ago. He’s been incredibly helpful. He helped me figure out how to get my transcript. He’s helping everybody else. How do I get him to do an interview?
Farbood: When do you want it?
Andrew: Oh, I like this. You see. It all works like this in Silicon Valley. You got to ask the right person. I’ll take him any time. I’ll take him right now. No, I need to research. You see how much research I do. Can I follow up with you via email for an intro?
Farbood: Yeah. I’m pretty sure we can harass him into doing it. He probably wants to get some Angel list action out there now that he has something to promote a bit.
Andrew: All right. That’s a good point. Thank you. Everyone, check out Grockit.com. Thank you for doing the interview.
Farbood: Andrew, I really enjoyed myself. Thanks a lot. I’ll do it any time.
Andrew: I appreciate it. Thanks a lot. Thank you all for watching. Bye.
Farbood: Cheers.
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