311. Founding DocSend, Creating a Winning PLG Motion, and Data From 1000’s of Pitch Decks (Russ Heddleston)

Russ Heddleston of Dropbox joins Nick to discuss founding DocSend, Creating a Winning PLG Motion, and Data From 1000’s of Pitch Decks. In this episode we cover:

  • Can you tell us a bit about your background and your path to founding DocSend?
  • How did you think about the PLG strategy for DocSend?
  • Why did you release the Seed Fundraising Report?
  • What are the typical numbers like for a seed round? How much are they raising? How many investors are people meeting with?
  • What makes for a successful pitch deck?
  • How to find a good co-founder?
  • Learnings from DocSend and a word of advice to founders.

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Transcribed with AI:

Russ Heddleston joins us today from Seattle. Russ is the co-founder of DocSend. In March of this year, DocSend was acquired by Dropbox. Prior to this, Russ worked in a number of product roles and sold his first company to Facebook. Russ, welcome to the show.

Thanks, Nick. It’s great to be here.

Can you tell us a bit about your background and your path to founding DocSend?

Yeah, sure. So I’m from South Dakota, not too far away from Chicago where you are Nick and went out to Stanford and did undergrad and grad in computer science and just wanted to get into the tech scene even back then when I got there. It was exciting. And so it was fortunate to work at a bunch of interesting companies early on Trulia, when they were really tiny and ended up running the engineering team at a company called GrayStripe mobile ad network decided to go back to business school, so was out at Harvard for an MBA. I interned at Dropbox in 2010. When they were 15 people, Dropbox, I tracked down Drew and just said I do good things for him for the summer, which was a great summer, I decided to start my own startup called pursued kind of in the HR space. And we had two co-founders, we raised a seed round of funding, launched our product and got quite a few customers and decided that it was just kind of the wrong thing to build. So we were going to pivot to something else and decided to sell the company to Facebook instead of the talent acquisition. And so I ran product for the pages team for a couple of years and got to see Facebook go public, at a really interesting time to be there. And then decided to go and try the startup journey again with my co-founders at DocSend, Dave and Tony. And we all studied undergrad at Stanford together and computer science, we all worked at this other company at GrayStripe together. So we started in 2013, had an interesting journey of eight years and of only raising 15 million built a really awesome product and decided to join forces with Dropbox in March.

So DocSend is super popular in the venture in the startup space, you know, what are some of the other verticals that you guys sell into?

Yeah, there are a whole bunch of them. So we talked about DocSend as a horizontal technology that we market vertically. And so we’ll do really, really specific things in each marketing vertical. So for instance, we have a DocSend fundraising network where founders can submit their decks, get feedback on it, and if it passes, our quality bar will send it off to a list of vetted lead investors really popular doing super well. We also sell into big sales teams, we have a lot of, you know, huge companies that all their external documents are powered by DocSend, or CISOs are another one chief information security officers are great. And most venture capital firms use Docs and lots of private equity. Capital Markets in general is great for us. It’s commercial real estate, I think anything where there are important sensitive documents being sent around DocSend is a great fit. We’re also in the data room vertical. So we have great data room products. And we have a full e signature product and DocSend. So the mission for DocSend is to combine common workflows for sending documents externally into one intuitive solution. And you might think, oh, that that seemed like someone should have already been doing that. And the answer is like that, really no one’s really tackling it that way. So we just continue to see where people are using the product and try to unlock them to try to document that and then see, hey, can we get more users in that particular use case? So it’s been a really fun, iterative process.

One other question on DocSend. So we recently had Jonathan Lehr on the show, he talked a lot about the rise of product led growth for business focused startups. Can you talk about sort of your early PLG strategy at DocSend? You mentioned you do a lot of content marketing? How did that strategy come together in the early days? And what did you find really worked?

Yeah, we tried a lot of stuff. Because, you know, we’ve been around for eight years. So we raised a $2 million seed round, then we, you know, kind of launched our product at TechCrunch Disrupt. The basic just had document analytics, but it was growing linearly, which was fine. It was a free product. At the time, we weren’t sure if it’d be b2c, b2b, what I was going to be ended up selling some kind of mid sized sales enablement deals, and so decided to just try to go at market selling and sales enablement, which was working fine, we raised another 8 million. But then what we realized was that we’d been building for the end user all along, as opposed to the economic buyer, which is a really important distinction. I get a lot of founders who ask like, Oh, are you, you kind of SMB or b2b or consumer or enterprise? And I’m always like, well, it’s more like, Who are you building for? And so, you know, our focus building on the end user in 2018, we decided to redo our marketing around, hey, you know what, we’re not just sales enablement. We’re not just fundraising, we’re actually a whole bunch of different stuff. And it’s in situations where people want control, and analytics are part of that security as part of that. And so that’s how we think about product growth, which is that a given user can come to our website, figure out who do I most look like? We describe them in a very clear direct language, not like talk to sales, but like, here’s specifically what our product will do for you. They get into the product, we verticalized our onboarding, so we’re talking to them specifically and We measure time to while and people kind of get in, they understand the differentiation. And what’s scary about that, for anyone who’s enterprise, like, if you go to our website, we’ve documented exactly what we do and how and why people like it. So you could copy it, you know, and enterprises, you’re like, well talk to sales, we want to be more secretive. And by putting everything, our Support Center, putting everything on our website, we just removed a lot of the friction. So 95% of our net new arr is still self-serve, not because we don’t want to talk to people, we have very responsive support teams and sales teams, it’s just that building for the end user and trying to make it easy. And that also includes smoothing out the product, and all the places where like, hey, support got a bunch of tickets on this new feature that came out and how it’s a little unintuitive. It’s like, okay, instead of building a new feature, let’s go back and make that old feature more easily understandable. And so it’s more about smoothing out and finding points of friction, and then following the user base, as opposed saying, like, Hey, let’s go way over here to this different field and kind of build something. It’s like, what are people running into walls doing with our product. And so we, for instance, saw this problem where people were trying to send one link to multiple documents, not a crazy thing. And people were going through these nuts, hacks to like, be able to do this or like, we should probably build that. And that’s a data room product, that’s a dealer product, it’s the abilities in one link to a collection of assets. And we didn’t do that, because it was like, oh, man, it’s so crazy. Just my work, we just saw that need in our user base. And so I think product led growth is a lot about making sure your product delivers value and is an intuitive, easy to understand way so the end user can get in and get that wow moment. And you know, we try to make our product simple enough so that anybody can get up to speed. But then we make it powerful enough that depending on how your needs evolve, there’s a lot of depth to the product that you can go explore. So there’s room for mastery, but it doesn’t make an initial user feel dumb, because it’s so complicated.

Well, happy customer here is somebody who recently completed a fundraise for a fund, I got to witness the onboarding and flow in real time. And it was a lot of fun, great product from my standpoint. So Russ, I do want to jump into the seed fundraising report. It’s this great report that you guys publish on all aspects of fundraising, you have unique proprietary data on pitch decks and views and who raises what. So to start off here, why did you decide to release this seed fundraising report?

What I was trying to solve for when we created this report was a lot of the advice was from the investor’s point of view, like, Hey, I’ve been doing this for 20 years as a seed investor, here’s what I want to see. But that was very anecdotal. And a lot of the founders I talked to are also very anecdotal, this worked for me do this, this didn’t work for me Don’t do that. And so we’re trying to answer what we are beginning to answer with the seed fundraising report is, you know, acRuss a very large set of data points, what is true? Like, what are the trends? How are they evolving? If you’re a first time founder, we want this to save you a ton of time and a ton of stress around? Like, what does a successful raise look like? What is the pitch deck that they’re using? What is the process that they’re following? How many conversations do they have to have? How scrutinized is this deck? What are the pieces of information and other people’s successful decks? And that’s been a lot of fun to put out and do your report on. So you know, when we look through this at a high level example of the seed round, it’s, you know, maybe a little under 3 million is the average amount being raised. People often ask, well, how much should I ask for? And the answer is, usually it depends. But hey, little under 3,000,000, 2,700,000, it’s higher in the US, it’s lower internationally, that’s up year over year, pretty significantly. And then we look at how much investor demand is there, like how many people are clicking on decks? How many founders are out there sending out their decks? What is the average read time in a deck? Could that fluctuate pretty significantly over time? And then, you know, like, what is in those decks? Like, what’s the right ordering of the decks, and then we’re investor spending more or less time inside of those decks. So you as a founder, when you’re thinking about, you know, Hey, what should I spend time on my back, like making this page or that page look better or more readable? So for example, with your seed round, we’re seeing about 19.5 pages per deck. All right, about 99 investors contacted that’s good. It’s not 500. It’s 39 meetings, and the average read time, a little over three minutes. With all pitch decks, though, it’s actually down to two and a half minutes, which is something really interesting we’ve seen during the pandemic.

So investors are spending less time reviewing pitch decks.

Yeah, I think it’s a great time. But if you remember back to the beginning of the pandemic, there was a moment when everyone’s like, Oh, no, I can’t meet in person anymore. Everyone’s quarantine, will anyone keep investing? Is this all gonna fall apart? And you know, that was in March. And then it took a couple of months. But by the end of April, beginning of June, everyone figured out that, hey, this is not a financial crisis. And so capital markets are still flowing. And as it turns out, especially at an early stage, investors didn’t need to meet with founders, there were enough investors who were willing to write checks without ever meeting in person, and investors weren’t going to conferences. So you actually saw this huge increase in efficiency, a given investor can look at a lot more pitch decks than they were looking at previously. because they weren’t spending much time on in person meetings. And then we also saw the average view time go down significantly, it’s been trending downwards last year and a half. And one interesting component of that is there are a lot more 20 and 32nd views where the investor bounces. So you know, Nick, in olden times, you might have gotten a very thoughtful introduction from another founder back then you probably feel obligated to actually read through the whole deck and really consider it. Now people are looking at a higher number of decks, and they’ve got a higher threshold for actually reading through the whole thing. So the markets are still working, the average time spent going down isn’t an indication that, you know, pitch decks are dying, or that they aren’t useful. It’s just that people are looking at more of them. And they’re being more discerning. So there’s more pressure on the founder, that if your key slide is number six, and someone that slide five is bored and decided to bounce, like, that’s bad, that’s bad ordering. And so you really had to be buttoned up around your narrative, and make it compelling.

You know, to that point, I’ve been doing this since 2013. And I have noticed that the collective quality of decks has improved over time. I think people are leveraging, you know, online resources and getting better at kind of structuring the narrative, there’s still a long way that many founders could come. But I looked at some of the decks for our standout successes, top performing companies that are scaling back in 2014 2015. And those first decks are not so good.

Yeah, ours in 2013, I intentionally made it pretty ugly. And I did this while I was at Facebook, as well as a product manager in sales to design work, but I didn’t want okay, Lucky design to be confused with something that was production ready. So I tend to make things kind of ugly, unless I want to make them look really, really nice. So we used lobster font in the deck. But our deck was very easy to understand what we were trying to do and we weren’t raising based on like the glitz Enos of the deck. So for me there are two components of an angel investing for quite a while as well. One is the clarity of the narrative, which is independent of the quality of the design. And so I think that the quality of the design has gone up steadily over time, given online resources, people’s focus on that, as well as just entrepreneurship is such a huge boom, right now, there’s just never been more growth in tech, there’s never been more money falling back into VCs, there’s just never been more people starting companies. And so people will make their decks look better, I still have found that the quality of narrative and clarity of thought are something that’s like a different track altogether. And actually, you’ll see that the decks that raised the most money in the least time often have lower view times. And sometimes especially at PreSeed. More time spent is not good, because they don’t understand the business model. It’s so complicated, you spent more time reading it, which is not a compliment. So it’s interesting that higher retirement can mean more engagement, which could be good. But it can also mean confusion, depending on what pages people are stuck on, which can be bad and can give you as the author a signal that like hey, maybe this is something that people aren’t getting as easily as they should.

Yeah, I was gonna ask you that. Did you guys use any tools or anything to try and attempt to assess narrative flow? Or did you look at, for instance, total amount of content, total volume of words and presentations and how that affected fundraising,

we do look at that stuff. Now for docs on the cross the dataset that we’ve got, and the docs and fundraising network, or the decks that are submitted there, we’ll do an analysis, because for sure, there’s like a bell curve. And you don’t want to be writing the business plan proposal of the 1990s, or whatever, that’s much more word heavy. So there is a nice middle zone to be in. Other tactics that I used for Docs and I urge other founders to use are just around starting with a narrative. So sometimes people get so fixated on the document itself, that they are not willing to go back and kind of rethink it from the ground up. So you can just write it with the headlines in there. And if you can explain it to your parents, or your friend’s parents, or someone not in tech, and they can be like, Oh, this makes sense, even if they don’t get crypto but like, what does it be used for? There’s some really technical areas that’s not as possible with but a lot of pitch decks like you don’t want your differentiation to get in the way of someone understanding why your business is going to add value in the first place. I also urge people to go get feedback from a Series A investor, like if someone comes to you, Nick and I, hey, I want feedback on my seed deck, you’re looking at them, like I might invest in you or not, you’re not looking at them, like I might give you feedback. Whereas a Series A or Series B investor, there’s just no way that they can invest in them. And so their incentive to actually give some feedback in the hopes that the founder raises gets to the scale they’re interested in, and then they have a competitive advantage winning that deal. So like, just be aware of if people are actually going to be able to give you feedback, if that’s what you’re looking for. And then just be aware of your strengths and weaknesses. And sometimes people spend too much time on, like, what are their weaknesses? And as an example, for docks, and I knew that one of our weaknesses was going to be like, why doesn’t Google or Microsoft or Dropbox, build this? And as opposed to having some elaborate data modes or network of answers, our answer is like, Hey, I went and talked to those companies and they’re just not going to build it. So I was like, Okay, well, that’s impressive. You got in touch with them. So,

but they’re gonna buy it. Well, good. Any thoughts on The structure of successful decks versus the less successful, Were there certain sections that were present or absent or different features of various sections that led to winning successful fundraisers?

Yeah, like, it’s crazy to me that not all decks have the team slide in there. And so I always have a team site, it’s near 100. But it’s not quite there. A surprising number of companies have financials in there at pre seed or seed, which you want to keep it pretty simple, but you’re usually not raising money for, you know, seed round, because the financials are, you’re like standout success, like sometimes I’ve seen it be that way. So if like, you actually are making money, and it’s exciting, like, you should definitely highlight that, if this is much more of a longer term technology that maybe has other leading indicators, like cohorts, and kind of retention rates, or even just user quotes. But a lot of companies will have financials in there, when that doesn’t necessarily make sense, though, why? Now, slides are also pretty important. You can also interpret y now as just being aware of the current environment that you’re launching your company in. So it’s not necessarily that, you know, I can take account everything that’s going on in the economy, it’s just sometimes a founder will think it’s obvious why this is an opportunity now and why they’re the person to go after it. But it’s not necessarily obvious to your potential investors. Another common one that people spend a lot of time on is going to be like the business model. That’s an area where as an entrepreneur at the seed stage, you can really trip yourself up by saying, like, Oh, we’re going to do b2b, and we’re going to b2c, and we’re going to be enterprise, and we’re gonna have a channel. And that’s usually a worrying sign. This would be an example where an investor is spending more time reading that and you might be like, oh, cool, they love my business model, because they spent two minutes on it, and the investors thinking like, they can’t possibly focus on all of these things, it doesn’t make any sense. They’re like beat people, you know, they might be like, 3x, that in a year. So very clear, like this is how we’re going to make money. And are we going to do that now or later, or when you can always change it later. But at least picking one and sticking to it, I think is more of an indicator that you’re likely to succeed than having a portfolio of business model bets. And then the problem sometimes, a founder will assume that the investor understands their problems because they are a domain expert. I think it’s always best for a founder to assume very little knowledge on the part of the investor. I don’t know how you feel about that. But some investors are obviously domain experts in certain areas, but especially for earlier stage fundraising, they want more generalists than they are specialists. And so the safe thing to do in your pitch deck is make it for the generalist audience. And if an expert happens to read it, hopefully there’s enough in there of interest that they’re going to sit down with you and you can show the depth of your knowledge in that particular domain. But yeah, essentially, it’s just a recap problem, very highly read the product, very highly red team and business model are the top four that we see. Like where investors focus their time.

Yeah, it almost seems like there might be an inverse correlation between the amount of time spent on a slide and the likelihood that that was a successful slide. If you’re getting your ideas succinctly. And clearly, then maybe it shouldn’t take so long.

Yeah, so a good example of that in unsuccessful pitch decks, there’s a lot more time spent on the solution than on the problem. So and in successful ones, there’s more time spent reading the problem slide and less time reading the solution slide. So it’s like, okay, I get the problem. Oh, this is an obvious solution. This makes a ton of sense. And especially for the ordering and narratives. I always say that creating a good narrative. And a good pitch deck is kind of like a pop song, or a great movie. It’s like, I can listen to a song like that’s an awesome song. And they’re like, Okay, Russ, now go create your own awesome. So honestly, like, that’s really hard. It’s all feedback. Sometimes. I’m like, Man, this makes a ton of sense. Why on earth has this been done before? But creating it from scratch? Very difficult.

What about team makeup? Right? Did you look at profiles of founding teams, and who had success versus who had less success, we

have looked at that we actually have a whole separate area on just makeups of teams. And so if a team has all male or female, the way we ask about diversity is like, does anyone on the team self identify as minority, which is a very blanket way of doing that, but so is anyone on there. And so you do see some encouraging trends around all that stuff. The takeaway I had was that diverse teams, both by gender and self identifying as a minority actually performed the best for the amount of capital raised, which was very encouraging. There are other less encouraging trends in there around all female teams. And our purpose of like reporting on itself is hopefully that we can get better at these things over time. But it’s this is the entire startup ecosystem that we’re tracking.

Russ, did you attempt to look at the competency of the founding teams, all technical teams versus no technical on the team, anything like that?

We haven’t controlled for that. And that’s a great idea. But by and large, the successful teams have the technical founder if they’re in a technical area, we don’t do as much tracking across CPG or some other areas where you know, technical, this might not necessarily be the thing. But yeah, typically at the pre seed and seed stage, there’s a technical founder involved in the companies that are able to successfully raise.

Awesome. I think we’ve heard on this podcast many times over the past seven years that you need sort of this builder or seller makeup. Some people talk about the hacker, the hipster in the suit. There’s all these ideas about what makes for a founding team and a balance of different skills. But in some cases, I think people might be over optimizing for that.

It’s like a founding team is just such an important relationship.Founders all the time ask me like, oh, how do I find a good co founder, like co founder dating is tricky. Because you’re signing up for a really long relationship here. My co-founder’s day, Tony and I, we were all single when we started DocSend then we subsequently all got married. But we were trying to figure out at what point we will have spent more time with our significant other than just together sitting in a room every day. And we’re like, it’s gonna take a very, very long time. So the number of hours instead of each other is just immense. And so just keep that in mind when you’re, when you’re picking your founder, it’s a really important relationship, and you do have to be able to work through a lot of conflict. So I really optimized for not picking someone like yourself, like that diversity of thought and perspective can be really helpful, but someone that you trust and get along well enough with that you can work through the disagreements, you’re inevitably going to have in the prospect like building out a company from scratch, that is just never been there before. You have to reel something out of existence, which is a lot to ask of people

100% You know, every time I see on Twitter, something about like a founder, dating organization or event, you know, find your co founder exercise, I always, you know, shutter a little bit because it’s just seems like such a major decision that requires a little bit of time and relationship capital and to make that decision at a speed dating event. Doesn’t seem like the most thoughtful way to do it.

It’s risky to say the least, right? I often get the question around. Yeah, should I go start a company now? And I’ve always told people like, it doesn’t hurt to go work at another big tech company or other startup. And if you’re not technical yourself, hey, the friendly engineers, engineers are super friendly people, meet a bunch of them at whatever company you go work at, keep in touch for later. That way, like, you’ll have worked together before you’ll have some history together in the grand scheme of things. We all have very long careers. So waiting a few years to start something is not that long.

You’ve had some experiences at some major tech companies, Facebook, and of course Dropbox, and even building DocSend. Geographically, did you see any trends? I mean, we’re all hearing about remote work, and it’s changing where people build. Did you have any data on what founder locations are trending up and receiving more funding? 

Yeah, for sure. We’ve definitely been witnessing the trend of you don’t have to be in San Francisco or Silicon Valley to raise money. And that was something that was happening before anyway. And we’ve definitely seen that accelerate. So both international and just other areas, you know, so the Midwest is up 5% 2021. The rest of the world is up 31% kind of year over year. So we are seeing it be possible to raise money remotely not having to have like a geographic center in like a major urban area. So what I’ve been saying for years on this is that it’s not a geography gap. It’s a knowledge gap. And as you see, there’s a lot of information of transfer that happens in Silicon Valley, like being at startups hearing about it. And so that’s also one of the reasons that we publish all this research is to help that knowledge transfer to people in other areas. There’s no reason that a bunch of coders and salespeople need to be sitting in Silicon Valley to make a major company and you’re starting to see some really big wins come out of companies that were started elsewhere, and with other ways of building a company.

Russ, how about seasonality? Is there seasonality to fundraising? And what are the best and worst times to launch a fundraise?

So this is an interesting one where it’s like in the olden world, there was a way of doing things. And in the current world, I was changed. So what was interesting in the before the pandemic world was the prevailing wisdom was, oh my gosh, don’t even bother over the summer. And all dusters go on vacation in August, and the holidays are just right out. It turns out the holidays are like pretty out the August dip wasn’t as bad. And all we saw was there’s a big push at the end of the year and basically September October November, like October November being kind of like the major ones where people want to get their fundraise in before the holidays happen. And then, interestingly enough, in January and February, investors come back and are really excited to go make investments do a deal. And founders are like slower to get their act together and start a fundraise in January, but we actually saw like the most engagement per Lincoln per deck and like January and February, when does most fundraising happen? It’s different than when is my deck going to be like most likely to be read in January and February. And then when the pandemic happened, what we saw was a lot of seasonality fly out the window and we did observe this phenomenon where there appears to be if there’s a spike in fundraising activity in one time of the year, it kind of gets pulled away. For a different time of the year, so we took this to mean that you know, fund sizes being what they are, they try to deploy capital a certain rate kind of annually. And so there are some investors who say like, Well, I told my LPs, I was gonna invest over a three year period, I just invested all this quarter that can’t happen, depending on what your relationship is with your LPs, but we kind of saw it smoothed out over the course of last year. And for example, we saw everyone working over Fourth of July, or like working over Thanksgiving, and normally Thanksgiving, like no one’s looking at pitch decks. But because no one was really with their family. People are looking at lots of pitch decks and things over the holidays. So one of the big questions we have over this holiday season will be like, well, people just work through it, or are they actually going to go take some time for family and friends and vacation? And so my guess is that we’re going to get closer to the old trends of things as people get back to travel and what’s normal. So my guess is that we’ll see that kind of similar pattern of kind of seasonality. I should also say that the other big spike is in like March, kind of before the summer hits, kind of pre COVID time. So the biggest volume being in like March and October, those two areas.

Awesome. And you mentioned this earlier, I want to make sure I got it right. Is it 99 total contacts, so startup founders reach out to 99 investors and then take, is it 39 meetings before they close their funding round?

Yeah, 99 investors contacted So by and large, the process of founder uses like ping all the people they know who are founders, they Google for seed investors. There are great resources out there like listed seed investors. They try to build a Google Sheet, didn’t figure out what the email addresses of these people are, how do they get a warm intro, and it’s very time consuming for the CEO or founder to do this. Hence why we have the doc 10 fundraising network is hopefully like a free hack to make it a little faster. And then 39 average meetings, and those can be repeated meetings as well. You might meet with an analyst met with a partner, you might meet with a kind of investment committee, but 30 meetings, how do

you know how many meetings are taking, this is all self reported.

So the founders that use doc sender are generally quite friendly and willing to help. And the research that we’ve published is save people a lot of time and stress. And so we do get a pretty high rate of people going back and opting in. This is all opt in research, where people fill out a long survey. And then we crunch that we do this on an ongoing basis. We’ve got a team that looks at that. But it’s it’s a pretty lengthy questionnaire. So it’s not a small ask to have a founder post raise to go back and give us all this information, obviously, like the time per page, and like in the deck is all automated and how we track that. But we get the page categories only when founders opt in, and then we go tag them, and then are able to crunch all those numbers completely anonymously, of course.

Okay, Russ, I want to talk just a bit about investor selection, you revealed some interesting data on this to the operator cohort that I went through for emerging VC fund managers. When startup founders were asked why they chose their VC partner, what were the results

brand was near the bottom ran was was not really in the picture. And the top two were, they got along best with the investor. And that investor had domain experience in what their company does as like the top two, which is like super healthy. And this is why they picked a particular lead investor when they had multiple options for a lead investor. And that was not what I was expecting. I was like really fearful that auto founders were picking based on brand name or something. But by and large, it’s pretty clear message to investors, which is that founders are more and more picking an investor who is going to stick with them through good times and bad and not necessarily like oh, this is a very shiny investor, you know, therefore, I’ll go with them because of the name brand. And that seems to be like something is working the feedback loop here of like founders kind of having the right idea, because you can get divorced, but you can’t break up with your investors. So you’re picking a seed investor, I also get this question like, Hey, should I give them a board seat? Like? Absolutely, you definitely want to create a board because corporate governance is an important thing. If you’re going to sell your company or raise a ton of money later IPO down the road. Like the more years you have of quarterly board meetings and minutes, the more of a trusted entity you are for just having followed baseline corporate governance. And you as the founder definitely want to get the expertise and time and insight of whoever you’re picking is your lead investor, that’s much more important to make your company successful than coming at it from a perspective of like, Oh, I’m giving up control, I don’t want to have them be meddling in my company. So I’m not going to create a board I’m gonna try to limit the amount of power they have by only doing safes or something like that, which invariably, you’re gonna have to create a board and you want to create a successful company. So you really want to pick an investor who understands what you’re trying to build. And you get along well with so you can have tough conversations with them over time and really get their pattern matching, you know, abilities, which you don’t have you make as an investor. I’ve seen way more companies than you know, any entrepreneur has and attorneys you’ve been able to follow. So that feedback loop with that advice to that entrepreneur is just totally invaluable. The two

factors that didn’t come up right now that I remember, I think valuation was another one it was in the middle. There was another one right at the top was either number one or number two, which is the first offer I got. So

that was also at the top. Yeah. It varies by round, though. So I think that’s true for preseason seed Series A, it’s not as much the first mover advantage and win more money gets on the line, typically a founder that points the reading process, and you know, valuation matters less to go off and going with the investor who you get along best with and who’s pretty close on valuation precede and see, yeah, if someone comes in with what’s basically a market offer, and they do it really quickly, I wouldn’t call it a trap. But I found is I’ve worked with where they instead of winding all our meetings in a two week period and seeing what comes out of it, they start pitching kind of ones and twos here, and then they get an early term sheet. And early term sheet is not as good as what they thought it would be. They’re like, Oh, it’s okay, a term sheet and I buy that if I pitched another 15 investors, then maybe I get a much better term sheet. And it’s like, well, but then this is a burden hand and do you really want to go through this for another couple months, and then maybe they might leave, maybe you’re not going to get another one. And so invariably, then they psychology plays out such that the auctioneer is going to go with that first term sheet they got. And it’s usually the case that whoever they talk to first is a trusted party. And that’s why they’re talking to them first. So I do generally tend to argue for like putting all your meetings if you’re doing precede your seed stage in like a relatively short window, even though it’s quite scary. It just so you don’t end up in that situation. But there’s for sure, like a big advantage for the first mover kind of an earlier stage fundraising.

Yeah, it’s tricky. We just had the situation with a founder that got a pre emptive term sheet for a seed round. And it was at an incredibly healthy price, good round dynamics. Good dilution wasn’t a huge brand name firm, but it was quality firm. And he had hesitation. He’s like, I haven’t run a process yet. You know, I haven’t spoken with X, Y, and Z. You know, I don’t know if I want to accept this. But it was very attractive burden hand so tough call.

Yeah. But I mean, I think that is also a healthy dynamic for investors are talking to a company, you need to move quickly stick areas, you know, well, and know that, you know, you’re really being there for the entrepreneur, off the bat. Be efficient about your diligence, get to yes or no, like that’s rewarded in terms of winning deals.

Yep. Russ, you were recently interviewed by friend of the firm, Jess Lee, she shared several of your key takeaways from your experience, founding docs. And can you share some of your top sort of two to three insights and advice for founders?

Oh, man, I feel like I lived through like multiple startups for Docs, and simply because of what I mentioned earlier around freemium at first, and then we went to gated enterprise, and then we went to product lead from there. So you’ve been through

multiple generations of tech, I feel like you know, just in the past decade or so we’ve gone through various iterations.

Yeah, business models, building technology and a whole bunch of stuff. I mean, some of the some of the obvious ones I’d say is like your your co founders invest in good relationships there that that matters a lot. I mean, it’s real basic stuff, like if you’ve got a significant other be on the same page with them about them supporting you, or is not easy at times. So for some people it is but most companies like hit a hiccup or two along the way, even if it’s just internal with a miss hire or something like that. I would say another lesson just around company culture would be to do your diligence on hire, but I see a lot of companies be more hesitant to fire then I think it should be and one of my realizations was if you do make a miss hire and what Google publishes, I think is around 30% of their hires are like misfire. So let’s say one in three, you as a founder with a small team, you’re definitely going to miss hires, it’s not good for the hire, or good for you, or good for the teammates to keep them around. So it’s not that you have to be like ruthless or anything, but team building is hard, you get things wrong. And as a founder, and as a leader in your company, like make sure you correct for those things. It’s best for everyone to get ahead of that sort of stuff. And it helps your company scale down the road. Because oftentimes, the biggest problem, if you get a big series b check is like, do you have the leadership team in place to scale and if you’ve got someone you’ve promoted, who you think can get the job done, and now you’re going to get 10 more reports, and they’re failing, I don’t wanna say anything, you lose a lot of time by resetting teams, we also hire to senior and that’s a problem. So that’s another thing I would say. I mean, other lessons, like, always stay close to your customer, make sure you’re listening to feedback on the ground, it can be tempting to get dragged into other areas focus on on other things. And I’d also say like, be really open minded about like, how well is your business actually doing? I had one founder tell me I was like, What’s they got into a tough spot with their company? And I was like, what’s, what’s the mistake he made? He’s like, raising the series B is like having that much money made me think that I was on the right track. And all the problems I now in retrospect, realize were there, I thought weren’t problems because we’re getting all this validation from the market. So as a founder, you’ve got to be both optimistic and a little critical of you know, how well are things actually going and you know, what are the numbers? What is the market data, like telling me about what our options really are? Because no one else in your company is going to say anything. If you’re the founder, they might be thinking that But you’re the top like, need to be on top of that sort of stuff. So I could go on and on and on. But I will say that I do think company building is fun. It’s really fun to build a product that you think should exist in the world and maybe make it happen.

Russ, how do you continue to evolve toxins? You know, within the context of Dropbox? And what is your shared feature look like?

Yeah, great question. I mean, so Dropbox historically is, you know, file sync and share, they had a really awesome viral model, they got to huge scale. And, you know, I think one of the questions for Dropbox is like, well, how complicated you make something. And I also interned at Microsoft, I was an undergrad, and one of the things I remember from there is, if a user can’t find a feature, it doesn’t exist. So for the way that DocSend goes about our product, it makes it very obvious the differentiations we have and where and how you can use DocSend. There’s definitely some overlapping Venn diagram around some of the docs and like feature sets, adding value into the core Dropbox experience. And we definitely want to take advantage of those, like, we’ve got a ton of learnings. But as Dropbox evolves to be multi product, you know, using a core file sync and share value proposition, but then what are the other things you want to get done with your documents. And so you know, a lot of people are using Dropbox for sending around a link to their pitch deck. And that’s totally fine. For a lot of people, maybe there’s some lightweight docs, and they can make Dropbox more compelling. Maybe they want all the specificity of Doc send. And so there’s kind of a continuum there. And the same with HelloSign. HelloSign has been a really awesome company to work alongside, they’ve done really well being part of Dropbox. And there’s a lot of synergy to leverage. So and I do think a lot of it has to do with building for the end user, as opposed to the economic buyer. So when you think about Dropbox, competing with Microsoft, you know, Dropbox historically easy to use, individual user can set up small team can get set up with it. And so really catering to that end user experience, I think is absolutely something the market needs. Because if you’re a small business, and you don’t want to have to go through a big paywall or talk to someone in sales, you just want to figure it out on your own. There should be a suite of products for you that help you get your job done.

Russ, if we could feature anyone on the show, who do you think we should interview? And what topic? What would you like to hear them speak about? 

Good question. Um, maybe a native the CEO at John desk, just a very smart guy. He’s been working on a problem for a really long time. I say him because I sent him a note to catch it earlier today. So I’m like, I want to catch up with him. And it’s one of those things where the founders in general, like I love following people’s stories keeping up. So it would definitely be a very interesting one entrepreneur journey.

Russ, what do you know, you need to get better at?

I mean, that’s a long list. I’d say it’s like matrix organizations like larger company stuff is just like I’ve been at Facebook. I was early truly I was at Microsoft for a summer. But I think I have a lot of lessons to learn about being at scale, and how to run things at scale. And so I think the next chapter for me is going to be learning from Dropbox and how they approach managing such a just such a larger business. And that’s going to be really interesting journey for me with a lot of little sub components in there. How can I get better at a whole bunch of stuff?

And finally here, Russ, what’s the best way for listeners to connect with you?

You can follow me on twitter or just Russ@Dropbox.com there’s also my email.

Perfect. Well, Russ, thanks so much for the time, we will link the seed fundraising report into the show notes. I encourage you all to check it out. And really good takeaways and insights on the way investors are looking at startups and the way that startups are positioning their fundraise. Russ, thanks so much for the time today. Appreciate it.

Transcribed by https://otter.ai