The Culture of Preemptive Rounds (Neuro-ID)

By Jason Yeh
November 9, 2021
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Episode Summary

Jack Alton was a startup vet before he was recruited to join Neuro-ID as its CEO in 2016. His requirements to join included headquartering the company in Montana and building a remote first culture. Back then those pursuits were not only rare but considered flaws. 5 years later, they would be come major reasons for Canapi Ventures to preempt Neuro-ID's Series B round.

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The Culture of Preemptive Rounds (Neuro-ID)

Jack Alton was a startup vet before he was recruited to join Neuro-ID as its CEO in 2016. His requirements to join included headquartering the company in Montana and building a remote first culture. Back then those pursuits were not only rare but considered flaws. 5 years later, they would be come major reasons for Canapi Ventures to preempt Neuro-ID's Series B round.

Episode Transcript

Jack Alton: [00:00:00] We had an employee, someone out here in July who was, it was kind of wild. It was the first time that I had met my investors in person. And they came away with so much conviction that they pulled me aside at the end and said, Listen, uh, I'm going to preempt TB.

Jason: This is funded show our founders who raised millions in venture capital share the gritty side of what it actually took to get that money in the bank. And Jason Yeh, not too long ago, I was trying to get my ideas from. And back in the day, I was a VC listening to founders, pitch me for money, culture. It's one of those buzzwords that gets thrown around a lot in the startup world.

But does it get you anything real? And what is culture anyways, free kombucha and animated gifs and slack. And why do people care about it? Is it just lip service that you have to pay to be considered a cool startup? Well, according to today's guest on top of attracting amazing talent and commercial success company, culture can also get you top-notch investors and an impressive round of financing.

Even a preempted one, Jack Alton, the CEO of Nero ID says he believes his company's culture is the reason why his investors asked to lead a series B just a few weeks after closing their series. The company, which analyzes how consumers interact with digital products to prevent fraud and improve. The customer experience is based out of a little town called Whitefish Montana.

Montana is having a moment right now, but Jack says he and Montana, well, they go way back.

Jack Alton: We joke around now. And we say that we were from Montana before it was cool. You know, I'm a fifth, fifth generation Montana. And, um, my family settled out here in the late 18 [00:02:00] hundreds. Um, much tougher than me. Uh, no sushi restaurants, no ski resorts, nothing like that. But yeah, group grew up out here. Uh, went to college here in Montana, followed my wife down to the university of Texas in Austin and was down there for quite a while.

Got a lot of experience in venture, back companies, their startups, turnarounds, and, uh, came back home about 13 years ago and, uh, neuro IDs, actually the third company that I've done since I got back home. So cool thing about software is it doesn't know where it lives, so you can kind of work and play wherever.

Jason: Tell me about this progress around, you know, getting to neuro idea that third company that you started had you raised money for your previous? 

Jack Alton: You know, I had always been in charge of revenue and go to market. So I was always in the room, kind of the person that was putting the rubber stamp on whatever the plan is that we were signing up further next respective round, but near ideas.

The first company that I've been the CEO. 

Jason: Do you remember starting your ID and whether or not you believed in the future you'd need to raise money for it? 

Jack Alton: Yeah. Yeah. So there's actually two founders that are leaders in this whole field of human computer interaction are tremendous individuals that I'm lucky enough to work with on a daily basis.

They've got over 30,000 Google scholar citations for their work, and it was actually a tech launch initiative out of the university of Arizona. So we benefit from a lot of the research, uh, and that early foundational patented work that our founders, Joe and Jeff did company was formed in late 2014, early 15.

I actually came in in 2017. Um, they had worked on starting to take the technology tomorrow. And a knew that it was kind of time to get a little more serious about raising some money, bringing in some experience. And, um, I had recently come off of, uh, [00:04:00] working at a fraud prevention company. So when I saw the technology, I saw the immediate application on that.

But really didn't see the application that is really starting to take off, which is on the, on the experience and the conversion side as 

Jason: well. So you joined near ID as a Montana based executive alongside co-founders that had started the science behind your idea, which is even more interesting, um, because.

Usually these deep science based companies are ones that, um, it's quite obvious that it will be backed by outside capital from the beginning because of how much good development needs to go into these things. And so I wonder if that was part of the conversation early on, even as you talk to the co-founders about joining them, you know, where there questions like Jack, how will you be able to run a company from Montana and how will you be able to attract capital from.

You know, Montana, not even, you know, not even Bozeman or something like that, but actually Whitefish Montana. Do you remember those 

Jack Alton: conversations? Yeah, they happened, uh, good questions and good conversations. You know, one of the agreements for me coming in to take over a CEO's. Formerly headquarter, the company here in Whitefish, Montana was important for me personally, to, to prove that you could do it from here, you know, before COVID, uh, that, that you could collect the talent that you needed, um, either in a distributed fashion or here.

To be able to, to grow the company. So, um, along the way we raised, I guess, three private rounds of capital, um, myself and others, uh, invested in the company. When I came in in 2017, I was able to benefit from a lot of people who had watched prior exits that I had been involved in that maybe didn't know anything about behavioral analytics or what were you going to do?

But they just said, Hey, We're going to invest in you and your team. We've seen what you guys have done in a serial fashion. [00:06:00] So that's literally how we funded the company in the beginning. Right? When I came in in 2017, the company essentially needed to be funded right away. So, uh, we did our first, uh, private round and close that up.

And I think in about 30 days, So it gave us that initial foundation of capital to go out, get our first customer, prove that inside these, this behavioral data, these taps types and swipes, um, that, that there was really valuable signal to see the genuine person and see those who are trying to commit.

Jason: Hearing that it sounds like Jackie, you have a background, some people that have sort of followed your career that knew that you would be a leader, that the next thing that Jack does, you hear this a lot? You know, the next thing that Jack does, I want to be a part of it. So that's great to hear that you decided on the project that you wanted to work on.

You were able to bring that early capital 2017 through 2020, which is what Crunchbase says. You raised kind of the. It's announced round is, is a number of years, you know, it's, uh, especially as today's venture market and venture back companies go tell me about capitalizing company between 2017 and 2020, because the way you described that initial.

Injection of capital doesn't feel like you raised $20 million out the gate. Like some of these? 

Jack Alton: No, no. I mean, uh, we were really conservative. We wanted to kind of bootstrap this thing from the beginning and prove it out and use the customer's revenue to fund the company. But I, I was kinda smiling to myself.

When you said 2017 to 2020. That may only sound like three years or three years plus, but it felt like 30 years in the prior companies that I worked at, I think I had underappreciated the value of that initial founding team that had come in and figured out how to cross that chasm from zero to one. That is a real [00:08:00] chasm.

I would typically come in after they burned through some capital. And then. Some reference customers and they had some basic product market fit and I kind of look around and yeah. Uh, what in the hell have you guys been up to for the last four years? And, and now I know taking something, taking something as abstract as behavior and productizing it, packaging it, proving it, making sure that the data science community understood the lift that it could create in models.

It was, it was quite a journey. And I certainly couldn't have done it without some of those early team members that, you know, came in without paying even close to market in exchange for equity in the company. And, um, now I think after our B around here, they're feeling really great about those early sacrifices that they made in that market traction that we have.

Jason: It's great that you, you went through the battle of essentially trying to find product market fit, right. Putting in a little bit of capital in there and then really just grinding it out until you figured it out. What I see in Crunchbase is that you announced around in December of 2020, which means that that fundraise would have been done kind of in the thick of things.

And it's almost hard to hear. It's always hard to sort of Yeh. Understand exactly what timelines are based on funding announcements. So I wonder if you could just kind of rewind to when you knew that you would go out and raise an a, like, when did that thought process start and how did you even think about executing a raise?

Was it pre or post March, 2020 is I guess kind of 

Jack Alton: the big question. Yeah. The race was actually pretty efficient. I think we were on the path for call it 60 to 75 days. We just needed to get connected with the investors that were aware of how disruptive the technology would be. So those are people that had already invested in other companies, portfolio companies that were tackling challenges in digital transformation or authentication or [00:10:00] fraud prevention.

As soon as we got connected with, um, some of those folks, then things really heated up very quickly. That was also coming at the same time where our product market fit was really coming together. We were figuring out how to take our, our sales cycle. You know, our first customer took us 400 days, so that wasn't, that wasn't as good sales cycle.

Um, I think our last customer took us 15 days. Wow. So we had to learn how to, uh, discipline. Our customer is behavioral data in order to compare, you know, drive compelling events to get them to move forward. So as soon as we got on the path that we didn't meet with quite a few firms, I think I talked over 45 firms and, you know, we, we saw that there was massive funding coming in post COVID for anything associated with helping people move to digital processes, helping see the genuine customer.

So we really tried to flip it very early on with all of them to understand money is a bit of a commodity. Now, what can you, as a firm bring to a young startup company located in Whitefish Montana, like how can you help us take this capital and really go execute on it? And, uh, we found, uh, the folks at fin VC in San Francisco, Logan, and team, there are fantastic.

Um, they really lean in on the BD side, on the market development side and operational side. And we really, um, feel like we, we hit it out of the park with our first three investors in our series. A 

Jason: it's awesome. I think, uh, you really glaze over a couple of things that I think are really important for us to chat about.

So the first being wanting to know, like either in the priests, in the seed round or this a, uh, how often did. Your geography come up, you know, is that something that, um, certain funds sort of had allergic [00:12:00] reactions to wanted you to move to one of the bigger cities? Or, you know, was it smooth sailing the whole way?

Jack Alton: That's a really a really good question because boy, did we see a shift in, uh, what it was like to be headquartered in Whitefish Montana? You know, there were people, even when we talked about our, a round that said, you know, as this company takes off, you're probably going to have to look at moving it to San Francisco or someplace like that.

And, um, had no intention of doing that. But what's been interesting is since. COVID we've developed these, these kinds of natural pods have formed as we, as we accelerate our hiring. So we have people in DC and San Francisco and in different major metropolitan areas. But the thing they love the most is coming here to our corporate headquarters in Whitefish, Montana.

We just doubled down our space and created kind of a, we work, uh, an entire floor here in the building. That allows them to have team meetings, maybe to have leadership meetings. So it's really gone from how the heck are you going to build a serious large SAS software company in the mountains of Montana to, you know, w we saw snowflake moved their headquarters to Bozeman.

What, six months ago? So, um, they must have heard about neuro idea, I 

Jason: guess. I think that's really what it was. I love this, this evolution because I meant in a prior life, when I was investing at Greycroft, did a great investment in Minneapolis. But the feeling in the back of our heads, we're always like in order to attract technical talent, in order to attract the best, go to market people, there's no way that this company will be able to continue to grow to that sort of status that we want it to be.

Headquartered in Minneapolis and Minneapolis relative to white fishes, you know, orders of magnitude larger. So it's just, it's incredible that you were already able to sort of push that momentum pre COVID, but you must've been Yeh. Yeah, cool. Before it was cool to [00:14:00] do those things and have some of the muscles already developed around what it meant to create a great culture remotely.

So w would you describe yourself as a remote first company? For sure. 

Jack Alton: Yeah, absolutely. I mean, what we've seen specific to that is culture is king for us. It's the way a small company like us, you know, over 50 on our way to a hundred employees. Now, it's how we can do battle with companies 10, 20 times our size and win hands down as you, your customers can feel that culture, your employees can feel it.

And as far as recruiting talent on, you know, your topic of Minneapolis, Um, what we've seen is this really cool thing where we've gone after the leaders. So we've hired VPs of engineering, VPs of solution, chief data scientists, and what we've done is allowed them to do what they've always wanted to do, which is go back and find the A-players that you work.

It doesn't matter where they live. It doesn't matter what they're doing now. Like our purpose is super huge here. So it fits the bill there. The culture is amazing and we're letting these leaders build their teams wherever they want. Um, and essentially reassemble those A-players to come, come all to work on something that's really exciting.

And, and they are thrilled that it's based in Whitefish. Cause they get to come, you know, come in once a month and hang out and ski in the winter. Surf in the summer. So we're definitely playing that to our advantage for sure.

Jason: When we come back, the fundraising version of ask, not what your country can do for you, but what you can do for your country. Kind of, I swear, it'll make sense in just a moment.

I spend most of my days, one-on-one with entrepreneurs, helping them understand strategies that make a difference in fundraising. Some [00:16:00] things vary from founder to founder because not everyone's story is the same, one thing I'm super consistent about no matter who the founder is, making sure they send their decks and materials using a document sharing.

And for that, I always recommend DocSend DocSend lets you know, what's happening with your deck after you send it along with real-time analytics and notifications, did the VCs actually open it? What slides did they spend the most time on? And if you think it got shared with the wrong people or maybe you made a mistake and sent it too quickly, DocSend lets you control access and Nick updates.

Even after sending sign up for a free two week trial at that's D O C S E N Okay. Back to the show.

And fundraising founders face a difficult chicken or egg situation. It takes confidence to attract investor interest, but that confidence is usually driven by investor interest. One thing I noticed about Jack is how naturally he broke that cycle, instead of wondering what he could do to win over an index.

He asked what an investor could do for him. I wanted to know where does that confidence come from and how did he cultivate it?

Jack Alton: Part of it is, is having a sales background. Right. But, but the other part is out of necessity. Right? We're humble enough to know that we don't have all the answers and that we could really benefit. We were kind of working on this behind the scenes with private capital racking up some, some really big brands, the squares, the intuits, the affirms.

So we knew we could do it, but we needed help scaling the business. We needed help taking best practices and the playbooks of other successful A's as they went to be and went to see. And again, we felt like when [00:18:00] we met, they fin VC canopy and TTV. All of them were very passionate about how disruptive they thought the company was.

And I think during the diligence process, as they introduced us to their portfolio companies, they saw that virtually every one of them was moving forward and saying that they want to adopt our technology. So I think it was a quick fit, but we really benefited from asking them how they were going to help us aside from the capital.

And, and they've really, they've really delivered. 

Jason: We were, we were able to have some conversations before and hear a little bit about an unannounced B yeah. From what I can tell it, wasn't a formal fundraising instead of kind of rehashing what I heard. I'd love to hear it from your side of it. You know, what, what did, what happened and kind of, how did it all come together?

Jack Alton: That's a great question. You know, our, our three investors in our. I, as I mentioned, they introduced us to their portfolio companies. Many of them are already customers now and, or in the process of integrating our technology. And I think there's no probably higher level of conviction than when they get exposed to the culture of our company.

And then they see their portfolio company. Universally reacting that whether it is to enhance conversion or to reduce fraud, that there was this fundamental need to instrument their digital properties with our technology so that they could stop guessing and start really reconnecting with their digital customer.

So they were watching customer after customer of their own portfolio company. Come on board. They were watching us make key hires with that, that, um, a money I went after the leaders of departments. Cause I knew they could bring their teams and they, it kind of all culminated. Um, we had an employee summit out here in July and brought all the employees in and it was, it was, it was kind of wild.

It was the first time that I had met my investors in. We did a [00:20:00] whole a over the phone. Um, so it was, it was really kind of surreal to, to be at the lodge here in Whitefish and see our investors fly in and walk in one at a time. But they got to spend two days with the team, walked through our plan for the next six months.

And they came away with so much conviction that they pulled me aside at the end and a Walker at, at canopy. Who's just a great friend and a tremendous investor. Listen, uh, I'm going to preempt your B. I've seen everything that I see, uh, you know, I should've led da and, uh, we're going to get that ownership position we want in the company.

So they worked day and night inside of a week to produce a term sheet that we got approved by the board. And, uh, we, we were able to, to fund that, that internal round. So all three investors came in on, on a very efficient be around that allowed us to, to keep our head down and keep doing the business. And now give us a slug of capital that we are so excited about because we've never been able to operate the business with both clear market opportunity, product market fit, and a bunch of dry powder in the bank.

So we're excited. 

Jason: I'm glad that that's the story, because I think it paints a really interesting picture. I think it illustrates something that is universal when it comes to early stage fundraising, whether it we're talking about pre-seed or series B, but I kind of want to ask you, have you, have you thought about what Walker saw.

And I don't want you to give me like an overly manicured answer, something that would fit well into models or anything. But what do you think Walker's saw? Like what do you think the main driver for him to say, Jack, I want to preempt your. If you've had some thoughts around that, I'd 

Jack Alton: love to hear that you had, I mean, I, I have to give the credit to the, to the team, right?

When you can see, you can feel culture when it's real. And when you see it [00:22:00] to the tune of 50 people, and it's not a sign on the wall, it's not a mantra. It's not a vest that you make for them. It's like they all laughed. It was clear that they all left. Jobs that were probably paying him more money to come be pioneers and something really exciting together and disruptive.

And I think when you, when you're around that, and then that's paired with. Dynamics in the business that they're starting to see where the time to cash is just crunching down and the funnel is expanding. I think it's pretty easy for them to get the conviction and say, Hey, this is something we should, we 

Jason: should be a part of.

It's great. It's kind of exactly. What I expected. And, and the thing that I was going to point out was you just raised a series B, which two people to founders that are raising a pre-seed off of a napkin, or even a seed off of a demo sounds very late stage. But as you've been around companies that have gone through full cycles, even I've been around companies that have gone from early stage to IPO, what you realize is that even at the series B and beyond.

The future is not written in stone, right? Like we, we cannot look at your numbers Jack and say, great numbers here. Let's extrapolate this to infinity. You know, we just can't say that. And we can't say that, you know exactly what the whole product set is that when the market, we just can't say that. As investors, what they need to understand is that they're backing the right team.

Right. And at the pre-seed it's, it's reading you and what you saw and what people were like. We've seen what Jack can do, and we want to back whatever he's doing next at the series B, they're doing the same thing. It's just at a little bit larger scale. Like everyone. Um, you know, puts on that and your idea hat and shows up to work as an extension of, of you and the team.

And to be able to experience that in such an impactful [00:24:00] way, I think makes all the sense in the world and probably doesn't hurt to, to bring people out in the middle of the summer to a beautiful place like Whitefish Montana, right? Yeah, 

Jack Alton: absolutely. That, that, uh, that offer did come after a day of fly fishing on the Flathead river.

So I get to give, got to give the scenery and the fish a little. 

Jason: Amazing. Amazing. Um, what would you tell a founder based on what you know today and how you've been able to get this done, whether at pre-seed or series a, um, you know, the things that you've focused on that have helped make capitalizing your ID as successful as it's been, that's been, are there any like pieces of advice you'd either give to a younger Jack or another founder that was coming up.

Jack Alton: Yeah, absolutely. I mean, one thing that, um, that I would have invested in sooner is product. You know, I come from a big background of enterprise sales and the game's changing and it's changing in a meaningful way. You can see it in the day. But I knew that I could translate some of my past relationships into new customers.

So we grabbed those, but, you know, the customer really led us. I talked about every time we would show them their behavioral data, they would just jump up and they would love to interact with it. They wanted to see it. Um, we, you know, kept selling on the enterprise side and I think if I did anything, I would say for, for founders, Figure out how to develop a feedback loop, um, by using fraud product, as fast as possible, find friends or friends of friends, that'll give you honest feedback, not what you want to hear.

And it would definitely be, you know, lean in to really detail oriented product people that can give you data-driven feedback, um, and move away from your hunches and, and just go strictly by what the customer and the market need. 

Jason: And then, you know, given you're one of these founders that has started a [00:26:00] company outside the normal, even second or third tier tech hubs in the world, you know, we're not even talking about Miami and Whitefish.

It feels like you've probably run into other founders that are. You're doing things like this. Are there any founders or companies that come to mind who are outside the normal geographies that you found to be compelling and feel like they should get a shot at getting funded next? 

Jack Alton: Yeah. You know, when I, when I talked to, uh, when I talked to the 45 VCs, I actually heard big tier one VCs that have.

Company thesis and edicts that were focused on, uh, investing outside the bay. This is prior to COVID. Um, this was, um, because of it, it had actually flipped from how can you find the talent to the. Is not very loyal and really tough to keep in place. And so they found these other places, Madison, Wisconsin, Boise, Idaho, you know, um, second tier third tier cities that had people that would jump on the proposition of, of working for an exciting startup.

So yeah, I've, I've been hit up. There's been a lot of, um, COVID refugees that have moved into Montana. Um, and so my LinkedIn has definitely been blowing up with former founders, people that are in the process of starting things up right now. So I think, um, you know, we've got a Montana high-tech business council, and I can't remember the stat.

I just was at a meeting last week and it's just exponentially increasing. We've got a couple of venture funds, one out of Bozeman, one out of a Whitefish here now that are, are, uh, raising sizable, uh, rounds. So. I think the capital's going to be here and the people have already moved here and in distributed is, is not, uh, you know, you see all these companies that are announcing permanent work out of the office policies.

And I think the genie's out of the bottle and certainly on the engineering side, I don't know if engineers ever wanted to be. In an office in the [00:28:00] first place. I know they didn't want to be in an office next to the sales team because they saw that firsthand 

Jason: amazing last question that you might not have a specific answer to this, but, uh, what's your go-to closing move to recruit someone and get someone to come to narrow ID based out of Whitefish, Montana.

Like, is there, is there some sort of carrot that really is in your back 

Jack Alton: pocket at all? We sell, we sell hard on our culture. We kind of ferret that out with our candidates very early on, on understanding. Hey, what's a win for you. What's important. You've done a lot of stuff in your career or are you just starting your career?

You know, what do you see as important? And we try to try to map to that. One of the other things we've used is our data, this behavioral data, we show them videos of customers reacting. The first time they see their behavioral data. And when you, when you look at the best engineers, you know, they want to work on stuff that creates an impact.

And our ability to show the impact of the work they do through the lens of the customer is so powerful. So we cheat a little bit and use our own customers and prospects as a way to show them the impact of what we're working on over here.

Jason: That was my conversation with Jack alternate, the CEO of neuro ID, which is all about using data to help prevent fraud online and create better digital experiences. He made getting a preemptive offer sound like a piece of cake. Right. But I wanted to know, was it as easy as taking your investor? For a day of fishing on the Flathead river.

After the break I asked one of Jack's lead investors, Walker, forehand canopy, what actually made him jump the gun on a serious.

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we talked specifically about one of your trips to Whitefish. You went for a board meeting from what I heard. Uh, and it was kind of after that a few days in Whitefish, spending time at the office, spending time with the team and the board meeting that you pulled them aside to. Essentially say that you wanted to preempt around.

Um, and you, you mentioned just a little bit about this idea of having already had an investment in the company. You already knew a lot about the company. Can you talk a little bit more about that trip if you remember that trip and what you saw while you were there, if you had it in your mind before you even got there, that you definitely were going to make this offer.

Um, do you remember those. Yeah, no, it's a, I do. And I think there's, there's [00:32:00] a couple of layers to that. I mean, I think the first going back to what I was saying earlier is I think that the metrics that we were observing. And the, in the business, in terms of their growth, in terms of, um, a lot of the, the key SAS metrics, you know, we're, we're really, really strong and improving.

And I think we were able to, to, to understand that the pipeline for new business was maturing and growing and converting. Um, at a rate that was really impressive. I think, you know, heading into that trip, um, they had one 13 of the last 13 sort of competitive, uh, uh, you know, situations where they were in the mix with the potential customer.

And it was just clear that. Things that we're accelerating quickly in terms of their momentum in the market. Um, upsells from some of their biggest customers. Um, and you know, that was driven home by a lot of the meetings that we had early on in that trip. So I think it checked all of those boxes. Um, I think the Yeh.

The conviction to really preempt and lead in was also a function of just really wanting to work with Jack in a more S in Jack and team, um, in a more, uh, just you being all in with them. I just love the company. I love the culture. I love, you know, their whole mindset and the way that they do. Um, I have a lot of fun when I'm with them.

When Jack calls, I want to answer, you know, it's just the basic stuff, which is like, it checked all of the other boxes, but it's, it's really a company I want to spend my time with. And, um, I always also tell Jack that being in Whitefish is also a big plus, cause it's a, it's a wonderful place and it's a. I think part of their culture.

Um, and it's sort of outside of the coast, it's a very gritty, um, sort of humble, hardworking culture. And I just, it all resonated with me and, um, and I just want to be in business with them. Um, so it was really as much those things as you know, all of the financial [00:34:00] stuff, which was, I think also really attractive.

That was Walker forehand partner at canopy and near IDs lead investor in their series B next up my producer, Olivia wanted some context on the whole preempting thing. How often does it happen? And what, if any, are the downsides.

Olivia: So my first question is a pretty basic one, but the fact that Jack was preempted, is that as rare as it seems, 

Jason: let me take a step back and kind of describe what the normal cadence of fundraising is for any company. So a company will go out and raise around, like their first round of capital might be their pre-seed and their second round of capital might be their seed than a then B, then C.

And then each time they're raising money to execute against a set of milestones. So they're, they're saying like I'm going to raise $2 million and it will last me about 18 months and I want to achieve X, Y, and Z goals. And generally speaking, the fundraising cadence follows this of like raise X million dollars.

And then execute for call it 12 to 24 months on average, and then go out and raise again. And so each round gives you a certain amount of time between funding, um, funding events, or fundraising events to go as far as you can, to push your company. As far as possible with as high a metrics as possible. So that in the next round you can raise at a higher valuation.

So let's say I'm doing a million dollars a year right now. I raised money and I raised $5 million and I want to use as much of that [00:36:00] $5 million as possible to get really, really far so that by the time I go raise again, I'm making. $10 million. And so when I go raise with $10 million as my revenue, my valuation will be much, much higher.

Preempting is done when firms believe. They see where the company is going. And they know that if they were to let them go much further, all the way to their normal fundraising process, that they would create a competitive dynamic. They would say they wouldn't go, Hey, we're only going to raise from you canopy.

If Jack were to run a full process, 12 months from now, he would go contact 50 to a hundred different firms and it would be really competitive and they would drive the price up and canopy might not win. They might, even if they have the highest priced, there are a lot of reasons why they might not win one of those processes.

Olivia: I have a question about that. Okay. But like, so is it 

Jason: rare? It is rare. So the punchline is that it's rare because in order to preempt, affirm has to say. We are going to give you credit. We're going to assume that you keep growing. Like, we're going to assume that we talked to you 12 months before you wanted a raise, but Walker referenced this.

Like you have to come in with a really high price because you have to say, okay, we don't want you to get to the future where you are a $10 million company and you're raising, you know, you're generating $10 million of revenue. And so now we have to just give you a really, really high valuation that your numbers don't actually reflect.

And so it's, it's rare because you have to have like a lot of conviction in a company. And, um, jump ahead of the game, jump ahead of the line and give someone evaluation that their numbers don't. 

Olivia: You kind of just answered my question in a way, but [00:38:00] as I was listening to the interview, I kept thinking, I totally understand where canopy and the other investors who wanted to preempt are coming from because they are trying to get in.

Like, the incentive is very strong, too. Get in early, there could be a big payoff for them, but I don't quite understand what the incentive is for Jack. Like it kind of sounds like just convenient maybe. And honestly, maybe that is a great question is not to be under valued like fundraising. I know we've talked to founders who say.

It's kind of a distraction sometimes, and it takes them away from building the company. So maybe convenience is a real offering, but yeah, I don't quite understand why would a founder be into this? Why might they say yes, 

Jason: your instincts are spot on both in like, it's kind of weird. Why would he. And then what you jumped to, which was like, huh, maybe is it just convenience?

And the short answer is it's kind of just convenience. It's more, it's probably a combination of a few things, but the fact of the matter is there's always risks. There's always risk in companies and Jack and neuro ID are doing really well or we're doing really well when the pre uh, series B got preempted, but there's always risk in startups.

So six months down the line, something crazy could happen, who knows, right? Like something crazy could happen. And so there's always a situation whether it's preempting or just when you decide to start your fundraise is. Yeah, it's going well now, but there's always this fear factor in the back of your mind that something crazy could happen.

And I've seen, I've seen, you know, regulation come through, I've seen Google changed their algorithms. I've seen a [00:40:00] lot of different things that can really crush a business COVID. So for example, you know, if, if you were running a transportation business or a, or a hospitality business or a restaurant business and.

In call it January of 2020, somebody comes to you and says, we'd like to preempt your round. We're going to give you all this money and you go, Hmm, I know we're going to do better. You know, I think in the next 12 months we're going to kill it. And then three months later COVID hits. Like, those are the sort of black Swan events that people are always afraid of.

So the short answer, all that to be said, If you've got a great valuation and you really like the investor that is giving you an offer, there is the not wanting to do the fundraising process in 12 months because it's a huge distraction. And also this idea of like, well, we also don't know. So if they're going to give us a fair valuation, you know, there's a good reason for us to take it.

Olivia: Yeah. I think that makes a lot of sense because. My sense is that the startup world is really unpredictable. There's a lot of chaos. And so, um, I guess more than convenience, I guess convenience is kind of like a judgemental word. There's also security and dependability in my mind. Maybe the way to think about the incentive on from the founder's side is that.

I think for some founders, I'm really making this up, but in my mind, um, if you were to ask them, oh, what does the next 12 months look like for you? They could maybe account for like the next two months or something, but it might be like, I don't know that. They'd probably play it. Cool. But like, it might be really, they might draw a blank.

So having some structure where, you know, like this much money is going to [00:42:00] drop on this time table and I can meet, like, I'll have the funds to hire this many people and grow. I don't know. I guess it helps you plan in what is otherwise an unpredicted. World. 

Jason: Yeah, no, I think, I think you're right. I think in the startup world too, it's it's about staying alive.

It's about staying alive until you can reach escape velocity. It's about staying alive until you can reach the next set of milestones and. Part of why we, we love talking about this is that fundraising and capital is the lifeblood of these, of these companies. And so yeah, if you have the opportunity of extending your lifeline for much longer, right now, it's very hard at any stage.

And for any company to turn that down. 

Olivia: The last thing that I wanted to talk about was culture, because I've got to be on it. I don't buy the culture conversation. Like I have worked for companies where culture is really important. They're like our culture is really great where I don't know really big on a healthy culture.

And like, I don't know. I was trying to think about it, like why don't, why don't I. I buy that that is like the magic of the company. And I think it's because maybe it's not necessarily like the magic of the company. Maybe that's not the right way to think of it. Like, in my mind, I think a more honest way to look at it would just be like, it's the icing on the cake because.

I think you have to be inside. Yeah. I think you have to be in such a privileged position to be like, oh, I'm just going to invest in this company because of culture. Because when I was thinking about it, when I've [00:44:00] accepted jobs, where culture is big. To me translated to like, we get free sweet green on Wednesdays and have Costco cheese string in our fridge.

Like it was because the fundamentals AK the financials were there. Like I accepted the offer because whoa. It paid. Like it was the best offer I was receiving financially. And so I still am not sold about, because like, let's be honest, like Netflix, sorry, don't Sue me. But reporting says past reporting has said that their culture blows.

I don't know the specifics, but I think it's real competitive. Like people. Alleged to be burn out frequently. So I guess my question for you is, um, I guess it's kind of like maybe college applications where it's like, you can't get into this school unless you have this GPA or this sat score or whatever the heck who knows if kids still take that.

They have way more applicants who like, if you look at how many kids applied to like UCLA or whatever, like, I think you can't just get in based on the numbers, there has to be something special or compelling about you. Um, there has to be a story. And so to me, I'm like, maybe that's the role of culture.

Maybe that's like, what makes you competitive? What do you make of that assessment? 

Jason: So I'm really glad you brought this up. I think it's a very worthwhile conversation. And I'll also say that until fairly recently, you know, in the last three to five years, I had the exact [00:46:00] same feeling that you did even as I was a VC, even as I was the VC, you know, junior VC kind of listening to see more senior investors repeat a lot.

Startup tropes and cliches around team is everything and culture, culture, culture, and build a great culture. And in the back of my head, I'm like build a great product or like sell a million dollars worth of product or all these other more tangible. Numbers based and reactions to why I started would be successful.

Yeah. The team is everything, but what I've learned in startups and in life, to be honest is when you hear the, if you have anything that sounds cliche and corny, it got corny or cliche because you heard it a ton. And the only reason you would have heard something over and over again is that if there is real truth to what is being said, so what I'll tell you is.

Once I started getting into running companies and seeing success and failure from the inside of companies, all this stuff around culture and team actually started making way more sense to me. I think at the end of the day, when you're running a company and you have a product and you're, you're selling into customers.

All that stuff is driven by people. All that stuff is driven by people and people's ability to continue to create and sell for the company. And I think when you start thinking about from much bigger companies and you are at the very end, you know, at the lowest point and entering a. The impact of culture feels, I think very diluted by the time it gets to you, it does feel like g-string and Sweetgreens on Wednesdays.

But when you're looking at companies from the earliest days, all the way up to like a [00:48:00] hundred employees, you're really trying to build. What attracts company, what attracts employees? What motivates them? Like what is the, what is the machine that you're creating that gets people to get excited? And when I would, what I would think about for the larger companies is this might be wrong, but culture might be much more important for the senior management to buy into because.

If they believe in a certain culture, then they start managing the layers below them in a certain way. And maybe it gets to, uh, you know, a younger higher, and that person doesn't quite get like the huge vision and culture of the company. But at least their managers buying into and their manager feels in and the best, best case scenario, the manager feels the culture and wants to do her best in order to really manage their employees.

Well, so. I'll put a sort of pin on this by saying, and a lot of lessons around startups, especially, I think it's a really hard for anyone who doesn't see it or doesn't believe it to just hear someone, tell them, Hey, by the way, culture is important. But what you'll see is both with investors and experienced startup executives, that they will have gone through multiple cycles of multiple companies.

And they will have seen companies with terrible. Do badly. And they'll see, they'll have seen companies that started doing well. Didn't think about culture and Saul culture, bad culture, eat it from the inside and fail. And they'll have seen really, really good culture and what it can do to motivate teams, attract employees.

And they've seen how powerful that is. And because of that, they'll become executives like Jack, that is like, you know, we're going to build. Product. We're going to build a great sales organization. We're going to do well for customers, but the way we're going to do that really, really well is by focusing on what culture and what it feels like to be an employee of near [00:50:00] ID.

And on the flip side, you'll have a Walker forehand at canopy who has seen a lot of companies and they'll know how powerful, a really great leader that runs a really great culture can be in driving great financial success. Even if. The sort of most junior people at the company might not be as impressed by the overall sense of culture.

Um, it, it does have a huge impact on the outcome of, of companies investments. 

Olivia: Um, what do you think our culture is? 

Jason: That's I love that. Well, I think Olivia, you and I are building the culture right now. Um, and that's another thing I was actually gonna say is that culture. Is a living breathing thing and it can't just get set and then always stay static because the culture of a company that is, that is executing and trying to grow really fast, needs to evolve as the company shifts gears.

And for us, we're like a little baby, you know, we're a little baby culture right now. I think we're really good at, um, being open and honest and. Focused on great quality, um, and supporting each other. And I think that is the initial seeds of the funded culture, but I hope you and I keep growing something that attracts a lot of people to work with.

Olivia: think part of our culture should be that, uh, 1:11 PM Eastern standard time on Sundays. Um, we, you should get, um, $30 of Uber eats credit 

Jason: cookies from


Like we said, Montana is having. And if you were wondering when the best time to visit is here's your answer, sorry for ruining this secret. 

Jack Alton: Jack adjacent, where we're in the fall. We actually moved our summer summit because it is so crazy here. Now in the summer we moved [00:52:00] our all employee summit and, um, an investor board meeting to the fall.

So if it's September and you're here, the leaves are turning glacier. National park has a fraction of, uh, of the traffic now. So you can get up to going to the sun. You can see. Fuse and animals. And then, uh, once you get here, uh, I'll set you up with the best places to grab beer and food. And in fact, I'll just take you

Jason: thanks a ton for listening. There are so many insights that each founder recover on funded has around startups, fundraising, and life, and we don't have time to cover it all. So if you'd like to get a free insights pack based on Jack AlTiN from your ID and learn about all the best spots in Whitefish, Montana.

Go to funded ID. If you're looking for more insights, strategies, and support around fundraising, here are a few things you should do. Definitely subscribe to our weekly slash newsletter. And find me on social I'm at J Ja that's J a Y Y E H on almost every platform.

I respond to newsletter replies and DMS. So hit me up. This episode was produced by Olivia Rheingold. Hi, thanks also to Jonno Lee from adamant ventures. Hello friends, and thanks to Jack for inviting us to Montana to experience the amazing culture he's built at narrow ID in the beautiful town of Whitefish.

There's a spare guest room in that amazing new office. Right. See you at the next annual summit, Jack as always one last. Thanks to our fantastic sponsor. DocSend the most trusted document sharing platform.

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