Even if you have zero interest in raising money, you’ll want to hear this interview for the same reason chess masters like to watch each other play. If you listen to this interview, you’ll hear how a methodical thinker systematically knocks obstacles out his way and creates opportunities.
Gagan Biyani had a lot working against him. He was a nobody in the startup scene who didn’t know any investors and couldn’t program. It didn’t stop him. He raised his profile by writing for one of the best known tech blogs. He connected with investors by making sure he ran into the best of them at events. And he hooked up with two sharp developers who became his co-founders. Listen to the interview for details.
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Here’s the program.
Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. And what I do here is interviews with entrepreneurs about how they built their businesses. In fact, not just entrepreneurs, but anyone in business I want to learn how they built their businesses, bring their best ideas to you, and hopefully have you go out there, build incredible companies and come back and do an interview with me.
So I did a few ads for the Founder Institute recently where I said over and over in the ads that being in the Institute helped Udemy raise $1 million. Well, in the audience was Gagan Biyani. He heard me say that and emailed me to say he’s the founder of Udemy and was willing to do an interview about how he raised so much money to launch his business. So Udemy is a website that enables anyone to teach and learn online. And I’m really grateful to you Gagan for being here and doing an interview with me.
Gagan: Well, thanks for having me Andrew. I’m a huge fan of Mixergy, have watched many, many of the videos, and am happy to be on the other side of the coin now.
Andrew: That’s great. You know what, it’s so cool. I said that in the early days. I said, “Go out there, use what you’re learning in the interviews, and come back and do an interview.” And I thought, “What if that never happens? What if I never have anyone on here doing an interview and this stuff has just proven to be useless?” So thankfully, I use that to push myself to ask the right questions and make the interviews more and more useful and thankfully you and other people like you have been out in the audience listening. Thanks.
Gagan: Yeah. You’ve done a fantastic job and I’m happy to be here.
Andrew: I appreciate it. So $1 million. Actually, was it over $1 million?
Gagan: It was exactly $1 million.
Andrew: How many investors did you have in total to get to that?
Gagan: We had 11 investors. Investors like Keith Rabois who was an investor in YouTube and LinkedIn and Yelp. Investors like: Mark Sugarman, who’s the founder of MHS Capital, runs his own small VC firm; Jeremy Stoppelman, who’s the founder and CEO of Yelp; and Paul Martino, who was an angel investor in Zynga and founder of Aggregate Knowledge and Tribe Network.
Andrew: Wow. And the smallest investment was how much, and how much the highest investment?
Gagan: The smallest investment was 25k and that was the minimum. And the highest investment was about five times that. Actually, ten times that.
Andrew: Ten times that. So about a quarter of a million dollars came from one person and 25,000 from another.
Andrew: That gives us a sense of it. Had you ever raised money before?
Gagan: No, that was my first time.
Andrew: What were you doing before this?
Gagan: Well, before I started Udemy, I was a strategy consultant at Accenture Consulting and worked there for about a year and a half. So I joined Accenture when the recession hit and so essentially most of the projects, we’re a project based business, most of the projects were non-existent. So I moved to Washington, D.C. to work with the government. And about six months into working there, I realized this is not happening. This is not what I want to do with my life. And so I started obsessively reading TechCrunch and watching interviews on sites like yours and realizing, “Hey, I’m going to do something different,” and eventually made it happen. Moved back to Silicon Valley, which is where I was born and raised, and started Udemy.
Andrew: I actually read too that you were a MobileCrunch writer.
Gagan: Yeah. It’s actually pretty funny. When I decided that I was not going to be able to work in the government, a 9 to 5 job . . . actually I was working 40 hours a week or less. It was absurd. It was driving me crazy. I realized that I wanted to join the tech industry and my friend is like . . . this is literally a year and a half ago. To put that in perspective, it was literally February of 2009. Not a long time ago. My friend is like, “Hey, a bunch of my buddies who are in the tech industry read this blog called TechCrunch. You might want to check it out.” I was like, “Cool. Awesome.” And it took me a couple of weeks before I actually logged on. And from the moment that I first originally looked at TechCrunch, I literally read it every day for the next three to six months. Did not miss an article. And eventually, there was a job posting for an opening at MobileCrunch. So I applied and was fortunate enough to get the position as a writer. So literally three months after I heard of TechCrunch, I started writing for them.
And then at the same time, I also applied for the Founder Institute, which is this startup incubator that you’ve talked about. Fantastic incubator run by Adeo Ressi. Fortunately, it’s one of those incubators where you don’t have to quit your job. It’s a little bit earlier stage, so I didn’t have a great idea or anything. I was just interested in starting a startup and had a little bit of a team and joined the Institute. And those two things were the beginning of my ‘Valley career’ if you will.
Andrew: And by the way, I’m glad that you say that you like TechCrunch. It’s so common in this industry to rag on TechCrunch but I never hear anyone say, “Hey, I read it all the time. It’s actually useful. It’s great sharp writing. I like it.”
Gagan: I love it. Don’t forget, I’m a little biased but honestly I loved it even before. And I think that Mike is one of the best journalists in the world. I read “The Economist” or read “Time” or “The Wall Street Journal,” and I think that there are few journalists who have the quality of reporting and just writing of Mike Arrington. And that’s true up and down. I mean, TechCrunch staff is top notch. I think people who bash them just don’t understand what they’re all about really at the end of the day.
Andrew: I think also when you’re on top, you’ve got to just be bashed. Nobody’s going to say that they like vanilla ice cream even though we all eat vanilla ice cream. Not that they’re vanilla, but it’s like the popular one. It’s more common to knock the guys who are on top than it is to say, “Hey, you know what? They’re on top for a reason. Because people like me support them.”
So I want to stay just a little bit on TechCrunch because I’m fascinated by the industry, and this is at the heart of the industry. And then we’ll move on to how you raised money. By the way, I knew that you were a journalist. I could tell that you were a journalist because of the notes you sent me in preparation for this interview. You didn’t just say, “Hey, Andrew, I’m willing to teach your audience how I raised my money.” You also sent me a list of notes on how you did it so that I can guide this interview and that we could get the most out of the hour that we’re going to spend together. Instead of me hunting around for the information, you said, “I’m a teacher. I’ll teach you. Here’s what I’m going to show.” So let’s just spend a couple minutes on it. You were writing about the mobile industry. What was research like there? Can you take me through the process of putting a post together on MobileCrunch?
Gagan: Sure, yeah. When I first started, I was an intern. And actually, technically to this day, I’m still kind of an intern in some ways because I’m not a full-time writer obviously. And basically when I first started, nobody really gave me any direction on what I was going to do. You know, it’s a startup. Just figure it out for yourself or you don’t end up writing anything. I realized, “Hey, I’ve got an iPhone. That’s probably the only thing I know about mobile. That’s it.” So I started emailing a bunch of people who were in the top ten of the App Store. And this was back in summer of ’09. So it was only half a year into the App Store really having a solid existence, and so people were actually still responding to my emails. And I would say, “Hey, I write for TechCrunch’s MobileCrunch. Can I test out your app?”
So really the first three months of reporting that I did was really nothing. All I did was review applications the entire time. But then, I started going to some tech events in D.C. and I started to realize, “Wait a second. Why am I just reviewing applications? I could be doing a lot more.” And I started finding much more interesting stories. So one of my first stories that actually was a major hit was one of the app developers that I talked to emailed me. So basically I was building relationships with all these app developers, right? Which was great, because they’re all indie app developers, and they were sending me tips and sending me different things.
And finally one of them emailed me with what was absolute journalistic gold. He was like, “Hey, I know this PR firm that a couple of weeks ago they emailed me and said Hey . . .’ Sorry, not a developer. I won’t reveal the source. It was a totally unrelated thing. But anyways, emailed me and said, ‘Hey, I know this PR firm has been soliciting to its clients that they’ll write reviews on iTunes on behalf of their clients.” So basically they would pretend to be regular reviewers or users of iPhones and go on their clients’ applications and write really positive reviews when they launched them. I was like, “Wow. This is crazy.” And I started digging into it and I went on iTunes. He had given me names of a couple of their clients and he had given me the name of their PR firm. So I did some heavy research. I went to every single press release that that PR firm had written about and had their name at the bottom and did heavy Google searching for that. Found the list of all of their apps that they had launched on the App Store and there was 15 to 20 of them. Had that list next to me and then went on iTunes.
And I went on iTunes and started looking at the reviews, especially the 5-star reviews for these apps. And then I started clicking on the users who had rated those applications, because iTunes provides a social feature where, when you review an application someone can click on your name and see all the other apps you reviewed. Well, that was a really bad thing for this PR firm, because I started to notice that 9 out of 10 of the applications that were being reviewed by these people were all part of this PR firm. And no matter how good you are at PR, that’s a pretty outlandish coincidence. So eventually I traced back all of the different reviewers who were in iTunes. There were about 10 to 15 reviewers who I associated with this PR firm and wrote a huge post about it.
And that was basically the start of my true journalistic career. People took me more seriously after that. My editor would let me write some of my own posts. And that article a year later, just a couple weeks ago I found out that “The New York Times” wrote that that same PR firm was indicted by the FTC. And “The New York Times” cited my article, which was really amazing. I’m like, I was so thrilled. I’m like a kid in a candy store having read this article. But ‘The New York Times” actually in the article cited my post as being the potential reason for why the FTC singled out that PR firm as opposed to any other PR firm. And I thought that was really cool, and so I got hooked really fast.
Andrew: I remember that post. It’s one of those posts that had impact and I guess it’s made a difference.
Gagan: Yeah. It was great. It was cool because I had never really done anything like that before and it was really fun.
Andrew: All right. So then how did it help you launch a business? How did it prepare you?
Gagan: I mean, at the end of the day it was just a way into the industry. I grew up here in Fremont, California, which is in Silicon Valley. But I didn’t really know anybody. Just because you go to high school here doesn’t mean you have a network here. So one of the things that it did is it gave me a little bit of credibility. When I went to conferences, people would actually continue the conversation. You know how there are plenty of people at conferences that they won’t talk to you if they don’t think you’re important in some ways. So you have to do that. And on top of that, when I was pitching investors or anything else, I have no background whatsoever. I’m not a programmer. I don’t have a great pedigree at some great startup. I worked at Accenture, and everybody just thinks Accenture just does implementation consulting for big companies. And I went to Berkeley, which is fine, but not nearly as good as going to Stanford for example. Writing for TechCrunch was the one way of getting past that hurdle of, “Well, what have you done? Tell me about your background.” And actually it was being able to say something that was better than, “Oh, yeah. I worked at a bunch of large companies that nobody cares about.”
Andrew: Okay. All right. I see. So now you’re working there. You have this idea that you want to start a company, and you actually had a company idea that you went to the Founder Institute with before Udemy. Can you describe what that was?
Gagan: Yeah. We were going to build online video SAT courses and sell them to students who were interested in learning SAT.
Andrew: That sounds like a good idea. I know that you pivoted, but why did you? What was going on with that idea?
Gagan: The night before I joined the Founder Institute, I had already sent in all my paperwork and I was about to sign the documents. I had two co-founders, a development co-founder and a business co-founder, which was already a disaster because why would you start a company with two business co-founders and a development co-founder? It should be the other way around. But my technical co-founder dropped out. He’s like, “Hey, I don’t want to do this. I don’t want to dedicate my summer to this.” And so we were two business guys, and so we spent a month and a half to two months trying to make this business happen. Trying to find a developer and build a business plan and potentially try to raise money or something. And we realized after really understanding what it was like to start a startup that that was never going to happen. I mean, you can’t have . . . you could, I mean with two business guys, you can definitely do it. We just weren’t the right team to do it. So my other co-founder ended up sort of dropping out, not working as hard, and so we ended up actually fizzling out that company.
Adeo, the Founder Institute is supposed to be for serious companies. At the end of three months, you’ve got to launch a company. And Adeo didn’t know about any of this, because we wouldn’t tell him that we were failing, basically. And so I basically faked it for like two or three weeks after we had failed. Like the company was gone. There was no chance for it to exist. And I went and met with as many companies as possible who were existing in the Founder Institute to see if maybe I could latch onto someone else’s project. I had no idea what I was doing. Eventually, I met these two guys, these Turkish guys who had broken English but brilliant, brilliant guys. Brilliant. Had the most amazing product in all of the Institute in my opinion, and they just weren’t quite the right people to pitch it. Even though I later realized that they were actually extremely brilliant in terms of the business side of the business. But at that time, I didn’t know that. So I was like, “Hey. Maybe here’s an opportunity.” And so I basically convinced them and they convinced me that maybe we should try working together. So I went back to Adeo and said, “Hey, I’m going to work with Udemy now.”
Andrew: That’s when you revealed to him that the first company fizzled.
Gagan: Yeah, exactly.
Andrew: Let’s pause right here, because I’ve got to break down everything that we’ve talked about up until now. What I’m first of all curious about why go to the Founder Institute at all? Why not just launch this business on your own, and then when it’s up and running go out for funding?
Gagan: Ultimately, being a successful founder is a binary game. Either you make it or you don’t. Either you run a company with $30 million of revenue like you did or you don’t and you end up sitting on your couch watching TV all day and wishing that you started that great company and were able to succeed.
Andrew: I don’t know that I agree with that, but I want to hear you out. Sorry.
Gagan: Okay, sure. That’s the way I look at it, at least for now. So my thought process is I’ll do whatever I can to help myself succeed, even if it requires sacrificing a little bit of what I currently have. You give away 3.5% of equity to the Founder Institute and it takes a lot of time. It’s a bit of a distraction on some level, because you’re not just building your business. You’re listening to talks and doing all this. But the value that you get out of increasing your network, out of learning more about entrepreneurship and learning not to make the same mistakes that you would if you didn’t get those talks, and then finally of having a support network, both emotionally and when you have PR you have 100 more people to reach with your story and stuff, all of those benefits are things that you don’t get if you just try to start a company by yourself. Starting a company by yourself, lots of people have done it super successfully. But when you have the potential for a support network and people like Adeo backing you up, I think it’s a no-brainer. Anybody starting a company should join some sort of incubator and have an extended network to help them out.
Andrew: Okay. Then I understand that now. Why not go to Y Combinator or TechStars or one of these other companies that give you money? Because Founder Institute I think takes a tuition.
Gagan: The tuition at the Founder Institute’s like a couple hundred dollars. It doesn’t really mean anything. But yeah, of course, I think it’s really about stage first of all. We didn’t have enough technical co-founders to join a Y Combinator or TechStars. And furthermore, I think we were just too early to be part of those programs. But then honestly, one thing I just didn’t really realize when I joined the Founder Institute was how powerful it was to have such a vast network of mentors and founders involved.
So the Founder Institute’s a lot larger than those other programs. There was about 70 plus founders in our program, and there were about 25 to 30 mentors. Mentors who were like Jason Nazar who started Docstoc, or Aaron Patzer who started Mint.com, or Jay Jamison who started Moonshoot, which has raised over $8 million in venture funding. And Adeo Ressi who’s like, in my opinion, one of the best mentors anybody could possibly have when they’re trying to start their company. You get a lot more mentorship than you do in the TechStars or Y Combinator route where you have a couple of mentors who are really ingrained in the program and then everybody else is there to find deal flow essentially. Which I think is great if you’re ready to raise angel money right after your incubator’s over. But we weren’t. We needed help building the business. We needed help with a lot of other things, and I think the Founder Institute was a great option for that.
Andrew: It does seem like the Founder Institute is for entrepreneurs like you who are very early stage, who don’t have a company or a big project in your background, who don’t have one that’s getting ready to go off the ground, who are just trying to learn about the next stage in entrepreneurship. It’s not that you’re completely naive. It’s not like you’re out of the industry at all completely. You’re just looking to get to the next stage, to the first step in a long, long process.
Gagan: Yeah, exactly. I think that’s totally true.
Andrew: So what do they teach you?
Gagan: The Founder Institute, there’s 14 sessions on all sorts of topics. They talk about things like hiring and firing. They talk about things like raising capital. They talk about how to build a great team, startup culture, product design and implementation, ideation. So essentially, it’s a 14-week class, at the end of the day, on entrepreneurship where each week three great mentors, and I mentioned a couple of them, also Peter Pham formerly of BillShrink and Phil Kaplan, who started Blippy and AdBrite and a couple other great companies, they come in and they spend an hour talking to you about something that they learned in each one of these topics.
So, each one of the 14 weeks, there is a session every Tuesday night. And in that session, these three mentors come in and they talk to you about the topic. And I think that that was one of the most valuable things that I ever had because I learned a lot from entrepreneurs who had made mistakes already and were teaching me what mistakes they’d made and what mistakes they didn’t make and why they were successful. And at the end of the day, one of the most valuable things about being an entrepreneur in today’s day is actually being able to learn from sites like Mixergy or TechCrunch about what things other entrepreneurs did to be successful and what creative things to jog the mind of other things that you could potentially do and use in your own business to be successful as well.
Andrew: Is there something that really stuck with you that’s maybe helped you already in these classes that you can tell us? I want to get a sense of what you’re learning.
Gagan: There’s lots of different things. From a hiring and firing perspective, the most important takeaway on a high level was hire slowly and fire quickly. And I’ve started to really notice that the best companies do a great job of firing people. Actually, that’s probably the best thing that they do. They cut the dead weight whenever it’s a problem. So one thing we’ve noticed in our company is, we just raised money. Our investors really want us to start hiring, but we’re being fairly patient with it because we know that if we hire someone that person’s going to be a full-time employee with us forever. They could change the face of this company, and they’re going to be one of the first four or five people. So we’re very patient. That’s something that the Founder Institute mentors taught us that I wouldn’t have thought of before. I would just think hire the first guy that you think is appropriate for you and stuff like that.
And then there’s more philosophical things that you learn from the Founder Institute. One quote that I’ll never forget is, “100% of zero nothing is nothing, and 5% of $500 million is still a fuck load of money.” Excuse my language there. That was a quote from one of the entrepreneurs who taught at the Founder Institute, and I’ll never forget it. To me it means that when we went out to raise money, we were only going to give up a certain percentage of the company. We ended up tripling the amount raised, so we tripled the amount that we ended up giving up. Roughly. The math doesn’t quite work out like that. So what we realized is it’s way better to have the great investors on our side than it is to be worried about devaluation or the amount of money raised. And that’s classic first time entrepreneur mistakes that we didn’t end up making because we had the Founder Institute teach us those.
Andrew: What about this. And this isn’t a commercial for Founder Institute though obviously I like them. That’s why I invited them to be a sponsor. I don’t accept people who I don’t like. And frankly, I don’t even do interviews with people who I don’t like. So my bias is right here up front. But one of the things that I noticed about Y Combinator is that there’s a clear vision to the way that they guide entrepreneurs to build their businesses, and that vision largely comes from Paul Graham who has a sense of product, a sense of communication of what the product does. Does the same thing happen at the Founder Institute where the teachers are so diverse, where there isn’t one person who’s guiding all the entrepreneurs?
Gagan: Yeah. I think that’s one thing that’s really interesting about the Founder Institute, which is that it allows for a lot larger diversity both in style and in type of company. So sector focus and things like that. So if you’re a clean tech entrepreneur or doing hardware, it’s very, very tough to go to Y Combinator or TechStar, from what I know. Those programs are great. I have friends in all those programs and they’ve all said great things. So at the end of the day, the lesson is you should just pick whatever you think is appropriate for you. But Adeo doesn’t care what type of business you are. He’s run eight companies. They’ve all be in completely different parts of the world and different sectors. And because there’s so many mentors we were running a business that most people at Y Combinator or TechStars I think would think is a waste of time. Going into the education market at this time period, especially a year ago, was like a fool’s journey.
Andrew: Why? Why is that?
Gagan: It’s an unsexy market at the end of the day. It’s not mobile. It’s not e-commerce. It’s a market that to date no consumer Internet company has done a great job of tackling.
Andrew: Why do you think that is?
Gagan: Ultimately, it’s about timing and it’s about quality of product and entrepreneurship. So in terms of timing, learning online requires fairly in-depth engagement with the experience. You have to watch an hour long video on Mixergy in order to really get the value of the video, and not that many people were doing that two or three years ago. I think things have really changed. And so we think that people are much more willing to use the Web to learn than they were say even three years ago. So I think timing is a huge thing. But then the second thing that’s true is that ultimately most education entrepreneurs in the past have been just that. They’ve been education entrepreneurs. So they don’t have consumer Internet or social media experience. They don’t understand what virality is. They don’t build great Web 2.0 products. And so when you look at companies like Blackboard or Moodle or whatever, they have products that look like they were built in the 1950s. Like before computers were even invented that’s what I would think a product would look like.
So the point is what we’ve done at Udemy and we think is going to be successful is we’ve built a team that’s consumer Internet focussed. We’re like what blogging was to publishing much more than we are what Blackboard is to education. And the reason is because we believe that this is a consumer Internet game. We want to get millions and millions of people using Udemy. Not just hundreds of thousands of people. We’re not selling into K through 12 or institutions. Ultimately we’re doing all these things that are not traditional. The traditional education investment builds a great sales force, sells the product in the schools or higher ed, or provides online degrees. And we’re saying those are two things we don’t want to do. And so a lot of investors thought we’re crazy. They still do. Fortunately some of them are willing to make the leap into our vision.
Andrew: All right. So I promised the audience that we’d get to teaching how you raised money so that other people can follow in your footsteps. Why don’t we start with the first point that you sent me. You said, “Get great advisors.” Who are your advisors?
Gagan: We have three main advisors right now. Adeo Ressi who is the founder of the Founder Institute. He started eight companies and is basically the best go-to general business advice, hiring/firing, raising money, etc. advisor that one could have. He started TheFunded.com, which is a website that rates VCs and so basically he knows about every VC. They don’t necessarily love him, but he knows about every one of them in the market and knows tons of entrepreneurs. The second advisor was Bubba Murarka who’s at Business Development at Facebook. And Bubba’s more like the hands on, provides us with very tactical advice on specific problems that we have. And he’s got experience closing business development deals, which is really helpful for us because we do expect that to be a part of our business. And then finally he’s the connector. He’s a very social guy. People love him. They love talking to him and so he knows a lot of people. So when we need an intro into a company like Adobe or Microsoft, Bubba has people who he knows in those industries. Whereas Adeo’s much more on the entrepreneur and investor side, Bubba is much more in the industry because he’s at Business Development at Facebook. So he knows people in technology.
And then the third guy is Darian Shirazi, who’s CEO of Fwix. And I think everybody should do this. What we did is we went out and met with a bunch of our friends who are also entrepreneurs. One of them happened to be a great entrepreneur, Darian, who’s running a cool company. And we now have an advisor in Darian who we can ping on AIM on a daily basis if we have a random question, which is really important because there are so many little things — like who should I use for accounting or who should I use for HR — that you just don’t know what to do with. And Darian is basically our go-to guy when we have questions about things like that. And he also introduced us to three of our 11 investors. So he’s pretty effective.
Andrew: Are Bubba and Darian investors in addition to being advisors?
Gagan: No. None of our investors are advisors.
Andrew: So what’s in it for them? How do you get guys who are good, who are well connected, and who are willing to be pinged on AIM in the middle of their work? How do you get those guys to advise you?
Gagan: First of all, they have to like you, so you have to get to know them on a personal level. Darian, I did debate with in high school. So he knew me from back in the day, and I reached back out. Hadn’t talked to him for four or five years.
Andrew: So he was your age?
Gagan: He’s younger than me I think actually.
Andrew: So you’ve got an advisor who’s younger than you, who’s got enough experience to give you meaningful advice?
Gagan: Oh, yeah. Totally. Age shouldn’t matter at all. I’m 23. My co-founders are both older than me.
Andrew: What’s Darian’s background?
Gagan: Darian was an early employee/intern at Facebook. Worked there for a couple . . . I don’t know how long. A year or two, while in school. He was in school sort of on and off while he was at Facebook. And then after Facebook, he went to start another company that he’s now moved on from. And then he started Fwix, which has raised a significant amount of angel capital, venture capital and is also a very successful little startup that’s focused on local real-time news essentially.
Andrew: All right. So you get these guys to be your advisors. They like you, they know you. Do you offer them anything in return? Do you give them shares in the business?
Gagan: Yeah, exactly. We give them equity. Advisor equity, to be more tactical because I know you’re going to want that . . . early on, you’re probably giving away anywhere between 0.5% to 2% for advisors. So when you’re first starting out and you don’t have any investment . . . Bubba was our advisor from December. The first time he agreed to be our advisor was before anybody believed in us. So he got a lot more than other people. Nowadays if I were to bring on an advisor I’d be thinking more like 0.2% to 0.5%. But honestly, this is not something I know a whole lot about. I’m just starting this process.
Andrew: That’s okay. One more thing that I want to know about advisors. Beyond the financial incentive, what do they get out of being associated with you? How do you convince them to join up with you and give you advice and support?
Gagan: It’s the same thing as selling investors or early employees at the end of the day. You sell them on the vision of the company and if they think they can be a part of that vision and grow the company, if the company ends up being really big, then that’ll be a great line item on their resume/something that they’re really excited about. I mean most of the people are just really excited about startups and just love the entrepreneurship mindset. So that’s part of it too.
Andrew: All right. The next point you sent over was “join powerful networks.” What’s an example of a powerful network that you’re part of?
Gagan: I think there’s a couple of them. The first one was the Founder Institute, which we already talked about plenty of. The second one was we got ourselves involved in TechCrunch. One of the things that I did when I started to do startups is I started meeting lots of people. So when I say “join powerful networks,” I mean that both in a formal sense, like the Founder Institute or TechCrunch, but also in a more informal sense. Like I would go to events and get coffee with random entrepreneurs who had started companies. I would make sure that some of the people I met with were people in my stage who were starting companies that I thought were cool but maybe they hadn’t done anything yet. One of the worst things you can do is only focus on networks that are reliant upon people who are famous, because those people are also going to be less available to you and they’re harder to convince to help you. Right? Why not get a couple people who are in the same group as you? So at the Founder Institute, not only was I talked with the mentors but I forged very close relationships with fellow entrepreneurs as well.
Andrew: Give me an example of how a fellow entrepreneur helped.
Gagan: Sure, yeah. Pretty much every single time that I have a major request, like hiring or PR or raising capital, I will email out to the Founder Institute and say, “Hey, can someone help me?” In the case of raising money, about half of the investors who invested in us came through direct introductions from some entrepreneur who I met with. So Darian is a great example. Darian was not an advisor when he introduced me to my investors. He became an advisor after the fact because we wanted to thank him for what he had done. So Darian was one of those people who was part of my network who introduced me to Keith Rabois. And while I was raising the money, even after Keith had said yes, Darian went and talked to Paul Martino and Mark Sugarman to convince them that I was worth their money as well, which was super valuable.
Andrew: You know what? I do see that lot in organizations like Y Combinator and TechStars and Founder Institute. The entrepreneurs help each other. They’ve got this little fraternity. I talked to one entrepreneur, who’s the founder of DodoCase. He was living in an apartment with other Y Combinator founders. So I see that. I see the power of that kind of network. Let’s move on to the next point, which is tee up the fundraising process. What do you mean by that?
Gagan: We went out to raise money in February of 2010. So this year. And we kind of failed. So we got invited to Open Angel Forum and pitched at least at 15 to 20 pitch meetings with people like First Round Capital and other great firms like that. And we didn’t end up doing well. What we realized was that one of the problems was that none of these people knew us until we got to the pitch meeting. So we’d show up at the pitch meeting, we were some random guy who came in through an introduction. It was really hard to convince them that we were worth their time.
So what I did for the next six months after that, after we had failed and closed down the fundraising process, was I did what I called “tee up the fundraising.” I spent the entire time meeting as many people as possible. So I’d go to tons of Silicon Valley events. At night when I was dead tired from working all day, I would get myself up and get in the car and drive over to San Francisco or drive over to Palo Alto and attend an event and give out my business card and get business cards. And that was super important because I got to know a lot of these investors. Like Dave McClure definitely saw me 15 times before he invested in my company. He met me at conferences, he met me at dinners. I attended his events. I was friends with all of his friends. He knew who I was before I even asked him for money, which was great because it socialized me. Even if he didn’t like me, even if he didn’t know anything about me but he just knew I existed, that makes me a much more familiar face. So when I go to raise money, he’s like, “Oh, I kind of know this guy.” He’s more familiar. Do you know what I mean?
Andrew: That’s a great one. All right. What do you think of Open Angel Forum?
Gagan: Great program. Fantastic.
Andrew: This is the group that Jason Calacanis put together, right?
Gagan: Yeah, exactly. The Open Angel Forum is basically a dinner where you get to pitch the best angel investors in the country all at once. And Jason Calacanis, who’s a great entrepreneur advocate, started this up a year or two ago. I think it was a year ago. We were one of the first entrepreneurs up. And basically, it’s awesome because it’s a super intimate environment. You go there and you are basically are having dinner with a bunch of investors and then you go up and pitch and then you eat food afterwards and you get drunk afterwards and it’s with investors like Chris Sacca and Cyan Bannister. Marc Shuster was there. Investors who we really came to respect. And though we didn’t end up getting investment from those people, I think that their impression of me was significantly raised by the fact that we were able to pitch at the Open Angel Forum and that helped build momentum for our round, because whenever an investor asked a friend if they knew about us, they’d say, “Oh yeah,. Udemy. I’ve heard of them.” They may not say good or bad things, but at least they had heard of us which is an accomplishment in and of itself.
Andrew: And to get in there, who screened you?
Gagan: Jason and Tyler. Tyler Crowley who’s now become a friend of mine, and he’s like Jason’s right-hand man, or was back when they started the Open Angel Forum and Jason Calacanis screened you. So you apply online. I sent in my application, and then I went to Jason at two or three events and said, “Hey, make sure you look at my application.” And he eventually kindly enough did look at the application. I pitched him via a Skype and . . .
Andrew: Is Jason spending time with prospects via Skype?
Gagan: Yeah, he does. Totally was on the phone. Him and Tyler both screen every . . . at least when I applied.
Andrew: What do you think they were looking for?
Gagan: I think for things like this, they’re filtering through 500 to 1,000 applications and they just need to see something special that lets you float above the rest. In our case, we have this live education platform that demos really well. So during the demo when I showed it to Jason, he’s like, “Oh that’s really cool. You should lead with that.” I could tell that one of the major reasons why he invited me was because I was in the Founder Institute and he was a mentor there so I had socialized myself with him, but then also because he really liked part of our product. For other people, it’s like, “I have a pedigree from Google or Twitter or we have 500,000 users.” It depends on who you are. But you have to have something that goes flash in the investor’s or the screener’s mind.
Andrew: What happened to Tyler?
Gagan: Tyler is still working with Jason. I just don’t know if he’s still on the Open Angel Forum or if he’s working on other things. But Tyler’s great and that’s one of those things where Tim Ferris talked about this on Mixergy. And that’s actually where I learned this tactic, which is make friends with the friends of the influencers instead of just the influencers themselves. So I made friends with people with Tyler or Cyan, who’s married to Scott Bannister who’s the famous investor. And I made friends with the friends of people like Jeff Clavier before I ever ended up meeting them. That was really valuable, and that was something I learned on Mixergy.
Andrew: Thanks. I got to tell you, I think of that too when I see Tyler and Jason Calacanis all the time. Everyone wants to go and talk to Jason Calacanis at a party because he’s the celebrity. But really, the guy who helps make the decisions is Tyler. The guy who will put in a good word for you, the guy who will be nice to you is going to be Tyler and the guy who you’ll end up being long-term friends with and who you can call on is Tyler.
Gagan: Exactly. And not enough people talk to Tyler. He’s a great guy, real smart. And smart people surround themselves with smart people, so Jason would not be working be Tyler for so long if he wasn’t smart. So why do people discount the fact that he’s helping Jason? The fact that he’s helping Jason is more a plus rather than a negative. But a lot of people see him as the helper rather than the main celebrity, which is just stupid. I really like Tyler a lot. He’s great.
Andrew: Let’s go to the next point. Leverage conferences and the press. You talked a little bit about that before, but do you have another example of how you did that?
Gagan: So we talked about going to events and actually meeting people at the events. But another thing you can do is pitch at events. So it’s like a speaking opportunity in front of hundreds of other startup folks. So I went to all sorts of events. Events like SV New Tech which is here in Silicon Valley. And one of the biggest events we went to was the Founder Showcase and Vator Splash. Vator Splash is held by Vator TV in San Francisco, and investors like Dave McClure was there so he heard about our topic. Jeff Clavier, Howard Hartenbaum of August Capital. So we went, applied to Vator Splash, worked really hard to get up to 100 votes. You have to get 100 votes in order to get in. Then got in and pitched in front of a group of 200, 300 startup investors, advisors, and startup entrepreneurs. And we won Vator Splash and winning Vator Splash is like . . . when you’re at an event and you just won an award there, you’re like a freaking celebrity just for that one little piece of hour after-party that exists.
So after Vator Splash, you go and you meet everybody there and you say hey and you give them your business card and you get a ton of pick up and it creates buzz around your company. Sure I’ve given my idea away to like 100 people now. They all know what we’re doing. They know all the answers to all my questions. Who cares, right? Instead the value that I got out of that was when I went out to pitch, all these investors had known that I had won an event at a conference. I’d won the top prize at a conference and so that added to my social proof, which I thought was super valuable. And also now a member of the press really likes me. So Bambi now has written about us four or five times and written about our fundraising which is really valuable.
Andrew: Bambi Francisco from Vator. I’ve watched her for over a decade now. I remember before there was broadband watching her on those little boxes where she was doing her interviews.
Gagan: And she also has a great set of interviews on Vator TV. I think things like conferences and the fact that we won Vator Splash and we also won an education related conference at Arizona State University was extremely instrumental in building momentum as we went into the fundraising process.
Andrew: Next point, watch and learn from the best. You talked a little about how you did that here. Tim Ferris still stuck with you, what you saw here on Mixergy.
Gagan: Exactly. A lot of people who are building their businesses think that they should be entirely focused on their customers and on building product. And that’s definitely valuable. There should be at least one guy on your team who spends half an hour to an hour a day whether it’s while . . . well, I usually do it while I’m eating lunch. I can’t work while I’m eating lunch. It’s very difficult for me. My keyboard gets all sticky, etc. So I eat lunch and I watch videos. I use Mixergy. I use Vator TV. I use TechCrunch TV now. I use VentureHacks.tv. I just watch videos. There’s a bunch of videos on Udemy as well now that I have started watching. And I have people who email me saying they love those videos. So there’s entrepreneurship videos on Udemy. Small plug there.
But no matter where you go you should watch and learn from other entrepreneurs who’ve done it, because you learn a lot and those are things you can end up using. One of the things my co-founder, Eren Bali, uses whenever we’re trying to think of a new, clever tactic of how to get new users or raise money or whatever, we always ask, “Has someone done this before?” And because Eren and I have watched so many of these videos on Mixergy and other sites, we usually know stories of another entrepreneur who’s done it. So then we say, “How did YouTube get their early traction?” And we use that when trying to figure out what we should do with our early traction. And I think that’s super valuable.
Andrew: I see that. You know what, it’s funny. People expect to just be fed step-by-step solutions to things but that’s not always how it works. Sometimes you just need to let the stories just bubble in the background, and then when it’s time to apply them, they’ll just naturally come out and they’ll be accessible to you.
Gagan: Exactly. That’s totally true.
Andrew: All right. Be prepared for any question. How do you do that? Salespeople are really good at that. So how’d you do that?
Gagan: So far, everything we’ve talked about is pre-fundraising. It’s like getting ready for the fundraising process, getting advisors, joining networks, etc. Now I want to sort of dive into talking about your company in front of investors. One of the first things to do before you actually go out and pitch, obviously prepare your pitch deck. I’m not the best at that, so I’m not going to give advice on that. But one thing we did a great job was we had answers to every single question. Investors asked, “Is this a big enough market?” We had an answer. If investors asked, “How are you going to get early customers,” we had an answer. If investors asked, “What are you going to do with the money,” we had an answer.
And the way we did that . . . well, first of all is all these videos that we watched, we learned all the questions that people ask about other people’s businesses. So we watched Vator TV where they would criticize other people’s businesses and we realized, “Hey, those questions are going to come up with us.” And honestly investors will ask you the stupidest questions you ever heard. Like it is ridiculous. We actually got questions from people saying, “How big is your market?” In fact, there are people who did not invest in us because they thought our market was too small. And I’m just like, “You’re crazy. You’re crazy.” I totally think there are question marks about our business. Right? Like we don’t know if we’re going to get early traction, we don’t know if users are going to like our product. That’s huge question marks. Is the market big enough? Not a question mark. We thought that was obvious. So when someone first asked me that, I almost wanted to laugh in their face.
But eventually I realized investors always have questions, and they may be thinking about things in different ways. You may have screwed up on the pitch. A lot of times it’s my fault that they’re asking these questions. So in that case, I just did a bad job of explaining how big the market was really. And so you need to be prepared for everything when you go into that pitch meeting so that when they have questions for you, you have an answer. Sometimes the answer is, “I don’t know.” Sometimes the answer is, “I don’t know, but da-da-da.” Like, I don’t know how we’re going to get to virality co-efficient greater than one, but my co-founders have done this before. They’re great at it. They went from zero to 10 million users in less than two years, so we’re going to figure it out.
Andrew: I understand now how you methodically made yourself better at these pitch sessions. What I’m wondering as I listen to you here with your laptop bouncing up and down on your lap and with this interview that you didn’t have that much time to prepare for, and you’re not an interview expert. I’m wondering, how’d you get so good at explaining your ideas? At explaining them the way that you’re doing right here?
Gagan: I told every single person I ever met about my idea. So when I’m at dinner with friends, people would ask me, “What are you doing?” I’m like, “I’m starting this startup.” And a lot of people would be like, “Oh, is it secret? Can you tell me about it? Can you talk about it?” I’d be like, “Hell yeah, I can talk about it.” And I’d tell them what I’m thinking, and I’d gauge their facial reactions. And depending on their facial reactions, I’d know that certain parts of my pitch were just not working. There’s still parts of our pitch that we haven’t been able to perfect, but at least we know that it wasn’t working because we pitched so many people.
We had practiced on the street talking to people about our idea. And honestly, if you can’t figure it out, if you can’t find enough people to do this to just go ride BART. BART is public transport in the Bay area. There’s public transport everywhere. Go ride BART or go to a coffee shop and just go introduce yourself to people. Talk to the guy who is sitting next to you on the plane. Go to events and give out your card and say, hey, this is what I do. And ask them what they do first and they’ll tell you. And then flip it around. They’ll always ask you back, “What do you do?” And then that’s a perfect time to pitch your business.
Andrew: That’s great. Next point that you sent over was the ultimate pitch — traction, social proof, and team.
Gagan: Sure. So earlier, we talked about having a “wow” factor, something that gets the investor to say, “All right, this is why I’m investing in this company.”
Andrew: Before you continue with that point, what was your “wow” factor?
Gagan: I think it was product and social proof. So for us, the demo of our product really did a lot in investors’ minds at least to show these guys know how to product. And then our team has past experience at SpeedDate.com. They were early employees and grew that company from zero to 10 million users and so we had that. But honestly, one of the biggest problems with us was that we didn’t really have a “wow” factor. Like it was really difficult for us to convince investors that we were that special because our product . . . products are a dime a dozen people usually think. And then our team was good but not great, at least on paper. Now I think our team is amazing, but we just haven’t proven it yet. And so that was one of the biggest problems that we had. So we had none of those things when we first went out to pitch, and that’s why we failed.
We didn’t have traction because we hadn’t launched the business. We didn’t have social proof because we were early in our business and just hadn’t built that yet. And we didn’t have a team that wowed anybody to the point where they were willing to give us money. So we had to solve one of those three problems or at least have a baseline in each of those problems.
In terms of traction, in the first three months of our launch, we had 1,000 instructors build over 2,000 courses and upload over 10,000 assets. And we said that in every meeting and that at least got past that question. So people would ask about traction, we had an answer. Then people would ask about social proof. They don’t ask about social proof, but you know they want it and we had Keith Rabois as our lead investor. So he was our social proof. And then people asked about team and in terms of team we said, “Hey, I’ve got a background. You’ve gotten to know me.” So people just assumed that I was smart even though really I haven’t done anything yet. And then my co-founders had experience in building product and running engineering teams at startups. So we were able to answer that question.
But ultimately, I think the real message is for any entrepreneur who’s out pitching their business you have to have one of those three — traction, social proof, team or just a kick ass product in order to really raise money I think.
Andrew: How’d you get so many teachers on Udemy?
Gagan: Great question. We got a group of interns and myself, and we basically emailed every person on the Internet who was teaching anything. And we haven’t even touched that but that was the goal. So we had people like you, who we emailed multiple times actually, not just you, just people like you, like entrepreneurs who are trying to teach other people about what they know. So we emailed people like that. We searched on Google for anybody who was saying, “teach poker” or “teach music” or “teach music Skype.”. So people were actually using video to teach music. And we would then find their email addresses and email them. And we sent hundreds and hundreds of messages, probably in the thousands of messages to people and a certain percentage of them ended up using the product and loving it. And that’s where our user base came from.
Andrew: My face changed as you said, “We emailed you.” You didn’t email me, right?
Gagan: I think we did.
Andrew: You did? And what happened? What did I say?
Gagan: I think you said that this was a cool product, and when you guys have a little bit more, let me know if you to want to talk more about it. I think that’s basically what it was. Ultimately, we emailed lots of people. And it’s important to realize that when you email so many people who are so spammed with email to begin with, you’re only going to get 1% to 5% to respond if you’re lucky. So that was always the thought. So if we didn’t find someone who was super interested right away, we just moved on to the people who were interested. Now actually, our strategy’s changing. So we’re starting to focus more on famous instructors, like yourself or Tim Ferris, for example, or Gary Vaynerchuk to actually leverage our platform. And we’ll definitely start doing that in the future a little bit more. So hopefully, you’ll see some more celebrities teaching on our site going forward.
Andrew: That makes me rethink my email screening process. If for some reason I didn’t know that you were there, I wonder who else have I missed because I’ve been blowing through emails so quickly.
Gagan: No big deal.
Andrew: How many interns did you have?
Gagan: We had, at any time, between five and ten.
Andrew: Five and ten people. Were they all in the office with you?
Gagan: During the summer, they were. By the way, our office is a house. So, yeah, they were in the house with us. During the summer, we had about five in the house full time.
Andrew: How’d you get five interns? This is where I get so tactical that people want to just shoot themselves. But what the hell, I need to know everything.
Gagan: No problem. I think it’s great by the way, tactical is important.
Andrew: Thank you.
Gagan: Craigslist. So we put a posting on Craigslist. We have this posting that a bunch of entrepreneurs have copied since I wrote it, and it worked pretty well. We basically said, “We don’t have any money. We don’t have anything. But we’re running a really cool startup and you’ll get great work experience and we’ll pay it forward when . . .” We weren’t paying them, so we said that very frankly upfront. We said, “Hey, this is going to be unpaid, but you’re going to get great work experience. You’re going to love it.” We have interns who after they finished the program, literally one of them in our exit interview said, “This is the best summer I’ve had since I started school.” And he was a senior, so I was really, really thrilled to hear that.
Andrew: Next point. While pitching, don’t rock the boat. Tell me about that.
Gagan: One of the things while you’re pitching is that you’re still running your business, right? So you may be pitching for three weeks or five weeks or up to two or three months. And one of the things to realize is that you actually you shouldn’t talk to your investors at all about what you’re doing in the business right now. Don’t say a word. And don’t make any major, major . . . it’s what I call “de-risking the investment.” When you’re talking to investors, one of the things you need to realize is they don’t want to take risk. They’re actually very risk averse. So you need to de-risk the investment as much as possible.
So while we were pitching, for example, there was a rock star advisor who we wanted to bring on, and we actually didn’t bring him on. In fact, even Darian did not become an advisor. Officially, we did not announce that he was an advisor until after we raised our round. And we were thinking about hiring first employees, but we didn’t make any hires. And this is so counter-intuitive. Normally when you’re pitching investors, you meet them one week and the next week they’re like, “Hey. How’s it going?” You want to give them an update on the business. Don’t give them an update on the business. Don’t tell them anything about the business. Give them an update on the round. Say, “The round’s really coming together. We just got this new guy on board. We’re really excited. We were on Angel List the other day, etc.” But if you bring up anything that is about team or about advisors or anything else, you’re adding risk to the investment because the person who’s investing, for all you know they may not like that person. They may not like the fact that you brought on a first engineer. They may grill you about that first engineer, and then you’ll spend the first ten minutes of your conversation talking about something you don’t want to.
You want to control what the investors know and what you’re talking about with them. Maybe you’re thinking about changing strategy. Don’t tell them about it. Don’t tell them about anything. If they already like your deal, they’re having a second meeting with you, you just want everything to be smooth sailing. You want them to think nothing’s wrong, everything’s going wonderful. Doesn’t matter that that business deal you were working on didn’t work out. Don’t even talk about it. Just focus on the pitch and what you’ve already told them. So what you’ve already framed in your pitch deck, this is the key points to the business. This is what I think is going to sell well. Just focus on that. Don’t bring up anything new and don’t make any drastic business moves during that time.
Andrew: Angel List actually before we move onto the next point. How did you use Angel List? And tell me more about your experience with them.
Gagan: That’s actually what the next point is all about.
Andrew: Okay. Next point, I’ll read it out. It’s build momentum for your deal.
Gagan: Building momentum for your deal is huge, and what you notice is I’m talking so far about building momentum for the deal before we actually started fundraising. So we went to events, won them, and met lots of people. That was all part of building the momentum. But that’s a slow process. It’s like this, right? But somehow you want to start going like this when you start raising the money. So in order to do this, what we did is we first went and we got a lead investor. So we went and got Darian Shirazi, who introduced me to Keith Rabois who is a fantastic, fantastic investor in YouTube, LinkedIn, etc. And he said, “Yes. All right. I’m going to do this investment.” And then we also got another investor, Russ Fraidan who’s also great, and then we went to Angel List. And this is how we build momentum.
We didn’t go to Angel List until after we had a little bit of momentum. Because if you go to Angel List early and you get sent out to 300 angle investors right away, your momentum will go like this and then it’ll tank. It’ll just go straight down. Because what happens if you don’t end up finding a lead from Angel List, right? Everybody knows you’ve already been on Angel List and they’ll ask you, “Hey what happened? Did it work out?” And you’ll basically lose all your momentum. So instead you want to continue to pick up steam by starting small. So we started small. We pitched a bunch of people, we got a bunch of no’s and then finally we got a yes. And then went to Angel List and then the momentum kept going. Then we went to Angel List and we said, “Hey Naval, can you help us out? We’d love to be on your Angel List.” And remember we had already met Naval prior to applying for Angel List. We had already made the connection, he knew who we were. We had socialized the concept with him and then he put us on Angel List and emailed us out to 300 angel investors who were interested in funding early stage startups. It’s absurd that they’ve gone to 300 angel investors. I can’t even believe this exists.
But we were lucky enough to be on it and they emailed us out. And within two hours, we had investors emailing us asking to meet with us, which is insane. And within two days, we had over 25 people ask to meet with us and we had over 30 meetings between those investors and the investors who those investors introduced us to over the next two weeks. And so every time we met with a new investor, we would say, “Hey we’re really excited to talk to you. Just as an update, we just added another investor to the round. We have now 100k soft circled for the deal. We now have 200k soft circled for the deal.” Every time an investor would ignore my email, I would email them back a week later and say, “It was great talking to you that one time. Would love to connect again. We’re raising our round. And by the way, we just added Russ Fraidan as an investor.”
So we built momentum and we told our prospective investors about this momentum. So the deal was hot and we made the deal hot. And within three weeks, we closed the round. The reason we were able to close within three weeks was because every investor who was interested in our round had to be quick. We actually had investors who were too slow, and they ended up not getting in the deal because they knew, they were getting constant updates. Every weekend we would basically email out another investor and say, “Hey, we’ve got 400k now, we’ve got 500k, etc.” And it was all true obviously, and that was because Angel List happened to allow us to have 25 to 30 meetings in a two-week period. When you have 25 to 30 meetings in a two week period and you have Keith Rabois and Russ Fraidan investing, it’s a pretty good story and you just sort of keep building momentum from there.
Andrew: Angel List is a mailing list essentially of now 300 angel investors. To get in front of those angel investors, what did you have to do? What was that screening process like?
Gagan: You go on Angel List, I think it’s Angel.co is the domain and you apply. And one thing while you apply, it’s very important to have some sort of social proof in there. So our social proof was Keith is an investor. And so we wrote up the application, we sent it in and within 24 hours or something they got back to us and said, “Hey, you’re in. We love it.” And then they helped me with my pitch, which was super valuable. I’d already pitched this concept for like months on end, and yet these guys were still able to double the quality of my pitch in a couple hours working with me. So they actually work with you, spend their time, improve your pitch, and then they email your pitch out to all these investors. And then those investors reply to their email and say, “Hey, I’d like an intro to Udemy.” It’s a very humbling thing for an investor to ask for an intro to a company. So it kind of sets up your meeting really well that they asked for an intro to you which is a side effect that I really like, because I’m all about these psychological dynamics that are going on in the investor’s mind. And the more power you have, because as an entrepreneur you don’t really have power. You’re coming in hat in hand, you’re asking them for money. But Angel List gives you a little bit of power, because it makes your deal a little bit hotter and all the angels know now that if you go on an Angel List they need to have a meeting with you within a week. Some angels met with me the next day because they knew that they had to get into the deal early.
Andrew: And by pitch, you mean the in-person pitch? They’re working with you on what happens when an investor follows up and you get in their office or sit down over coffee.
Gagan: Unless someone’s out of town, you should never accept a phone call as a pitch after you’re on Angel List. It’s a waste of time. I personally really don’t like phone call pitch meetings. I’d much rather have in person ones. That’s partially because I’m fairly experienced . . . not experienced, it’s just something I’m okay at is gauging facial reactions. So I have to see someone’s face when I’m pitching them because I can flip my pitch really quickly.
Andrew: You know what? I noticed that as we were talking earlier. You said, “We emailed people like you about . . .” And my face changed. Not a lot but just a little bit, and I noticed right away you caught that and that’s why I responded to it. You caught it and you adjusted what you said. And you said, “Well, maybe not you specifically but like you.” I said, “Wow. This guy’s good.” Earlier when I was asking how’d you get so good at expressing yourself, I didn’t mean necessarily for this business and for this pitch, but in general. You sound like a methodical guy. You’re explaining tough concepts methodically here. Tell me methodically how you got to be such a good speaker.
Gagan: The simple answer is I did speech and debate in high school.
Andrew: I see.
Gagn: I was an awful speaker. Actually still don’t really think of myself as a great speaker. But when I was in high school in 9th grade, I joined speech and debate. I loved arguing, I loved talking about topics. It was very philosophical. Speech and debate was by far more useful than anything I ever learned in high school or college. And I would recommend anybody here who has kids or is that young to do speech and debate. It’s an actual program. You don’t just show up at a club meeting and start talking about shit. There’s competitions all over the country. Tons of entrepreneurs are former speech and debaters. In fact, that’s one of the powerful networks that I have in my back pocket. And so that’s where I learned all this. I had great coaches, and they taught me how to speak in front of large audiences. And so I’ve done lots of public speaking. I’ve probably spoken in front of . . . when I was 16 I ran a small business which was basically a speech and debate camp. I taught other people how to do speech and debate. And we held it here in Fremont, California, and we had over 300 people show up to it. And that was also really valuable. Since I’d already started a business, I had a little bit or experience running a team, doing the accounting, the financials, and then also speaking in front of 300 kids at once about speech and debate.
Andrew: Teaching too helps reinforce ideas. I’ve noticed that teachers are better students.
Gagan: Yeah. I completely agree. Teaching is great. Talking . . . your local high school or your local university will let you come back and speak in certain classes or whatever if you really planned out. Like go speak at clubs. Just practice. I think ultimately what you’re getting at is you should just practice a lot. If you practice a lot, in real situations by the way. I’m horrible at practicing in front of my friends. If I’m just in a room with Adeo for example, and pitching . . . my pitches to Adeo were so bad that I wouldn’t have been able to raise a dollar from that pitch. But when I pitch in person for real, I was a lot better. So I think real life practice is really valuable.
Andrew: Final point on your list. Close early and close often.
Gagan: This is a pretty tactical thing that I thought was really clever. And this was from Adeo, 100%. And one of the values of having someone like Adeo is they’re going to teach you things like this. As soon as we had investors who said they were in the deal, we forced them to either sign the documents or we actually closed the round. What a close is essentially when you’re raising a round, people say that they’re in but they don’t actually give you any money. It’s weird actually how this whole thing works. So they say they’re in like, “Hey, I’m in for 50k at these terms.” And then it’s like you just leave, and you go talk to other investors. And until you have 300k, which is what we wanted to raise, you don’t close the round. But as soon we got to 300k, the day we got to 300k, we emailed all of our investors and said, “Hey, we’re closing next week. Get ready for your checks. Tell me if you need any lead time.” Then we closed the round early. So we had a first close on a Wednesday. So all the investors who we thought were super interested in our deal who we had already met with more than twice, right? The rule of thumb is you meet with an investor twice, they should be able to make a decision, in my opinion. Some investors are a little longer. Mark Sugarman’s much more thorough than for example, than Ben Ling, who just really liked the idea to begin with. It depends on the person.
So we just set a close date and we said, “On Wednesday,” I’m making this up, “on August 22nd, you need to make a final decision by then and wire the money.” And so even people who . . . we knew we were going to have a second close. Like we had one close and then we were going to have a second close and then we ended up having three close dates. Anybody who we thought was ready to make a decision, we said, “You have a week, make a decision. That’s it.” And we forced them to make decisions, and people who didn’t make decisions didn’t get in the round. And everybody makes a decision. If you give people a deadline and say, “Hey, we’ve already got our money. We’re happy,” everybody just changes. And so that’s what happened. They change and people made decisions quicker than they normally would have. I know that we sped up the process for a lot of our investors. And some people didn’t end up investing. We had at least five to ten investors, by the time we were done, who we sped the process up too fast for their timelines. And they said, “We can’t do it in this timeline, sorry.” And they said no even though they really liked the deal. And that’s okay because you have to at least get that money in the bank. So we got the 500k in the bank, then we had a second close and then we had a third close and we closed out the rest of the round at $1 million. And that’s how we did it, and I would highly recommend using a similar tactic.
Andrew: All right. Great place to leave it. Thanks for doing this interview. This is kind of an abrupt end, so let’s give people a way to follow up. You mentioned a bunch of different programs that you’ve listened to. On your website, you also said that there’s a section where people can listen to programs on entrepreneurship. Some sub-domain of you site that I was on earlier today. What was that?
Gagan: It’s Udemy Academic. It’s Academic.Udemy.com. And there’s tons of entrepreneurship videos from universities primarily, like Stanford. There’s Singularity University and other things like that as well. It’s a great resource. We use it all the time. I watch talks from . . . these are famous, famous entrepreneurs, like Marissa Mayer who was early at Google or Mitch Kapor who runs a venture fund right now or Tim Draper who runs a venture fund as well. Great entrepreneurs, Ron Conway, are on Udemy Academic. Also Mixergy. Great resource. You guys are already here so. And Vator.tv is also great. VentureHacks.tv is pretty good as well, although it doesn’t have as much stuff as all the other sites. And nowadays, TechCrunch TV is getting better at providing entrepreneurship advice. At first I didn’t think so. I think recently they’ve done a great job with that. So those are some great resources.
Andrew: There you go. I hope you’ll come back and do another interview. As I said, you’re great. I love when I can find people who don’t just have knowledge about their space based on their own personal experience, but also can articulate it methodically. And Tim Ferris was someone who just amazed me that he was able to do it. I’m convinced and people listen to that interview they can tell me whether they think I’m right or not, I’m convinced he was packing as he did that interview. He had no clue what I was going to interview him about. I’m convinced at some point, or just about 60% into the interview, he broke off from me and then ended up in a cab to finish the interview. And with all that, he was still methodical enough that he was able to leave you with ideas that you can use and actually remember. And I think you did the same thing for other people. And I know that, in the future, I’ll do interviews with people who’ll say, “Oh, yeah, I heard that guy from Udemy and what he said stuck with me.” So thanks for doing that.
Gagan: I really hope this is helpful, and thank you to all of you, because if you guys didn’t watch Andrew all the time and I didn’t watch Andrew, then he wouldn’t keep doing this. And the fact that he’s doing this is one of the best resources on the Web for learning about entrepreneurship. So thank you very much, Andrew.
Andrew: Thank you. Thank you all for watching. I’ll see you in the email. Please send me feedback on this. I’m looking forward to hearing what people think. Bye.
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