Ep 53 – Beyond the Tech: Fundraising Secrets for STEM Founders

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About Jen Baird

Jen Baird is an experienced serial startup CEO, board director and strategic advisor known for her insight, passion, integrity, and supportive leadership with over 35 years of experience.

As a venture and angel-backed CEO, she raised over $75 million (seed-Series C) and led strategy, product development and commercialization, compensation strategy, and scaleup for breakthrough innovations. Her outcomes include startups that achieved global sales and 10x revenue exits (5-6x investor returns), fast FDA De Novo and 510(k) clearances, and successful HITRUST/HIPAA-compliant clinical deployments in addition to the difficult decision to wind down and return investor capital.

To support others, she also shares her expertise as a speaker, panelist, and guest lecturer on startup best practices and on her blog at www.StartupCEOreflections.com. She is engaged in the entrepreneurial ecosystem as a mentor, occasional angel investor, and VC limited partner.

Jen is passionate about improving healthcare, and is an active member of the Women Business Leaders of the U.S. Healthcare Industry (WBL.org).

Episode Highlights

  1. The big mistake to avoid as founder of a high-potential STEM startup.
  2. Why solopreneurs struggle to raise money
  3. The critical mistake to avoid when building your startup team.
  4. Why technical founders must choose their focus or find the right partner.
  5. How to pinpoint and validate your startup’s market need.
  6. The essential traits of effective leadership in startups.
  7. What every founder must prepare for in the long-term journey of building a high-impact business.
  8. The one financial mistake that can ruin your chances with investors.
  9. How to balance market norms and your actual needs to hit critical milestones.
  10. Why understanding VC economics is crucial to targeting the right investors.
  11. The secret to becoming a high-potential founder

Links and resources

Interview Transcript

Jen’s Entrepreneurial Journey

Shubha K. Chakravarthy: Good afternoon, Jen. We are so excited to have you here with us today. I can’t wait to jump in. Welcome to Invisible Ink!

Jen Baird: I’m happy to be here.

Shubha K. Chakravarthy: You have got a tremendous breadth and depth of experiences across your entrepreneurship spectrum. What triggered this whole journey in the first place?

Jen Baird: My interest in entrepreneurship started way back when I was in college. I actually had an internship with a venture capital fund at that time and it really solidified the idea that actually being in a small company is doing something innovative. It was super exciting.

My undergraduate degree was in organizational psychology at Michigan and I got into this internship through some connections and ended up saying, “Gosh, I really love the business side of things.”

As a high school student I had this crazy idea that I wanted to be a CEO someday, which is a longer story. So, that was the beginning. However, at the time that I was in college and we didn’t have entrepreneurship programs and all the kinds of things that they have today.

I actually went and got my MBA. I spent three years working in commercial banking. Then I spent eight years in management consulting before I actually turned to entrepreneurship full time in 2001. I started on my journey, I think I’m up to seven start-ups that I’ve been intensively involved in that 20-year period, including now where I have multiples.

Shubha K. Chakravarthy: What is the one thing about entrepreneurship that keeps you going across all of these highs and lows?

Jen Baird: I think the big thing that keeps me going about entrepreneurship is being able to make such a direct impact. When you work for big companies, and I worked for Fortune 50 companies as a management consultant, as well as a large company in banking, you are such a tiny little cog in a really big wheel.

In an entrepreneurial company, you are an integral part of making something happen. I love that holistic view and the amount of impact that a single person can have on the outcome.

Shubha K. Chakravarthy: That is great and that kind of triggers another question. When I was looking at your background, I noticed that you are both a founder and a co-founder, but you also joined other start-ups after the founding had happened.

What is different about the two? What strikes you the most about the two?

Jen Baird: I definitely have a propensity to like founding. Part of that is because I am a little bit of a control freak. I actually really like making sure all the pieces are in place.

However, I have had multiple opportunities to come in at a later stage when somebody else has found it and the difference for me is the ability to control who is on the team. When I have come in later, I have been less happy about where the team is.

So, for me, I keep trending back towards the actual act of founding because that allows me to actually figure out what is the right team and who are the right people and get those people on.

That has been the biggest thing that is different between the two. But I have absolutely done both and actually currently, I’m coaching first time founders in a couple of instances and first time CEOs and that is really fun. Obviously it takes me one step removed from that to assemble my own team.

Shubha K. Chakravarthy: Which is interesting because obviously you don’t get the team composition right? Even if you are a founding, or I should say a founder versus kind of joining in late.

How have you addressed that team mismatch or any missteps in hiring team members, especially when you were a founder?

Jen Baird: The team is what it takes to get things done. My track records are not perfect. I don’t think anybody’s is but it is actually harder to change the team radically when you come in later than it is to build the team from the beginning.

But I have absolutely had to part ways with co-founders and other team members along the journey. I don’t usually have a lot of people turning over or leaving but sometimes people aren’t a good fit for where the company is growing.

A lot of times people don’t have a really great understanding of what it means to become part of an entrepreneurial start-up. It’s hard to picture what that is going to be and not everybody has the temperament for a true startup.

Startups are hard and they are different from big organizations and if you have grown up in a big organization that transition can be really difficult. So, I do look for people who have had previous startup experience when I’m trying to build teams because people are people.

With big companies, oftentimes you have so many resources and your role is much narrower. It can be hard to adjust to startups with everything you might have to do.

Many people don’t like it and they don’t like the risk or their families don’t like the risk. Although I would argue that actually there is a lot of risk in being part of a big company too. I think it is sometimes a false thing but being a founder is a whole new level of risk.

When you are a part of a big organization that has a revenue engine that is profitably making money every quarter, even if it is up and down a little bit, it is probably going to continue to pay your pay check.

Most startups don’t succeed. Most startups go out of business and most startups go out of business because they run out of money. That means that, as a founder, you are trying to do something that is very challenging and startup companies are fragile things.

Shubha K. Chakravarthy: That resonates because my career parallels almost one on one. I was in management consulting. Everything hits home.

Your point about the team triggered another thought, which is when I looked across the kind of the startups you had founded there is a pretty big proportion of STEM companies.

Yet your background or education is not in science or engineering. Walk me through that. How did that happen? How did you acquire the necessary skills? What was the skill that you brought in and how did you adjust to managing much more technically proficient founders or employees?

Jen Baird: Absolutely. To be clear, I was an Organizational Psychology undergrad and then I got a Master’s of Management from Kellogg in Finance and Strategy.

So, I’m a business person through and through because as far as I’m concerned, organizational psychology was a lot about leadership and so I’m all about people and the business side of things.

Yet, many times innovations are scientifically based or engineering based, and I think every startup that I’ve been involved in has had a scientific or technology base underneath it.

Now the reality is that I believe you actually need a team to build a startup and I’m bringing kind of the business side of things and I’m usually wrapping around a technical founder or founding team and helping translate the technology and innovation that they have into a business. That is an essential component.

One of the big challenges for many startups is they have a technical founder or a scientific founder who actually doesn’t have those other skills. That can be very difficult and actually one of the recipes for startup failure. The advice for a scientific founder is to find to somebody like me because you need that complimentary skill set to actually successfully build the business.

Shubha K. Chakravarthy: That resonates too. I work with quite a few technical founders and there is always that chasm between the technology that they are in love with and then there’s the business side.

Advice for Technical Founders: Bridge the Business Gap

Shubha K. Chakravarthy: If there is one thing from all of your experiences, one piece of advice that you would give to a technical founder to bridge that gap or to even become more familiar, what would that be?

Jen Baird: I think that the skills and the strengths that are required for somebody to be really innovative as a scientist or an engineer is a very different skill set than what is required to be successful as a business person or people person. Part of that is the level of precision and exactness required for that engineering and science.

First, if you are a technical founder, do you like the fuzzy people stuff where 80% answers are good enough? If you don’t, then absolutely find somebody for whom that is and team up with them. If you actually like that kind of stuff, and there are a few people out there like that, then you can take over that role, but I don’t think you can be both the technical scientific lead and the business lead at the same time. I really don’t.

I think if you are a technical person and you have both of those skills, you can choose which direction you want to be, but I don’t think you can be both because actually the level of work, the level of precision, the level of exactness required to make the technology or science work with the switch over to doing the fuzzy stuff like fundraising, not that fundraising is fuzzy, but fundraising is very people based and very sales based. The mind switch is too great.

I’ve worked with experimental physicists. I’ve worked with PhD engineers. I’ve worked with PhD scientists and all of the demands of those technical disciplines are so great that they don’t translate well and you can’t like go in the morning from “I’m going to spend an hour doing this and then I’m going to do some sales and then I’m going to switch back” because the level of concentration doesn’t permit that.

You really have to decide. What hat do you want to wear? Do you have the skills for that? Then find somebody else to do the complementary thing when you are talking about these technology-based, high-potential startups.

I don’t actually think it’s a good idea to try to do both because while that may work for a tiny little bit of time, it is not going to work long-term because of the skill sets and the time devoted is different.

Shubha K. Chakravarthy: Then this brings this conundrum of a solo founder question, right? There is this whole debate of one founder or two founders.

I’m not going to step into that, but assuming that you are a solo founder for whatever reason, and you come from a technical background, what I’m hearing you say is, “Hey, pick one or the other and then hire to the other one.” Does it always have to be a co-founder to the other one?

Jen Baird: No, it doesn’t have to be. I have founded companies and been the founder and then hired in the technical team. I wrote a blog post about the solopreneur idea.

I’m a blogger. I have a blog – startupceoreflections.com and I talked about solopreneurs in an earlier post. The fact that I don’t actually think solopreneurs have an easy time raising money is because it is risky for investors.

Investors who see lots of companies know how risky this is. They may tolerate a solopreneur for a period of time at the very earliest stages. But frankly, a business is made up of people that execute that business.

So, if you can’t figure out how to make a team then I don’t think you actually are going to build a business. You may build an amazing technology. You may have a great invention, but an invention or a technology is not a business and there is a need to be able to build a team. If you can’t build a team, then you aren’t building a business.

Can You Build a Big Business as a Solopreneur?

Jen Baird: I kind of think the whole idea of a solopreneur doesn’t really fit with building a high potential business. There are plenty of people who have small consulting businesses. Those kinds of things work as one person shops. So, it is not that you can’t ever do that.

But if you are going to build a high potential business to a lot of revenue, you are going to need people who are out there hunting and selling. You are going to need people who are making the technology and the science work. You are going to need people who are dealing with the regulatory problems and dealing with the legal problems and dealing with the accounting problems. All of those people have different skill sets and you are going to have to bring all those pieces together.

In fact, I was on LinkedIn interacting with somebody who was responding to my posts. They were like, “Look at this Silicon Valley guy who says AI is going to make it possible to be solopreneurs.”

I don’t buy it because AI doesn’t solve the accounting problems. If you are the guy that makes AI sing, you are probably not the accounting guy. You may be the person who can make magic happen. I’ve worked with some absolutely brilliant technologists but every one of them didn’t like that other business stuff.

So, you are going to have to find somebody who likes that business stuff. Let’s make no mistake about it, fundraising is sales at root and at heart. It is finance, but it is sales and if you don’t like selling – and many technologists and scientists don’t, then you are not going to do that well at fundraising even if you are profoundly passionate about your vision.

Like I said, sometimes there is a little bit of fuzz at the very earliest stages for this. Sometimes people can raise a few hundred thousand dollars, but when you are trying to raise big money from large venture funds, you need to find somebody else or listen because they are probably going to bring somebody else in.

Shubha K. Chakravarthy: Good point.

Jen Baird: I’d rather be the one to find that person than actually have my investor impose them on me.

Shubha K. Chakravarthy: Very well said. What has become clear to me is at the very least, if you can get them right away, you have a line of sight to parsing off each of those critical roles, business, regulatory, compliance, and more.

Jen Baird: You don’t need all of them at the beginning. But you need to realize that there are different skill sets, and you don’t need every one of them at the beginning. Two or three people as the founding team is plenty but you are going to end up with 5, 10, 15, 20, 50, 60, 100, 1000 later.

You are going to grow that team over time and you are going to need different people with different skill sets and actually all that phase of growth requires different management skills.

So, that is just a part of what it means to build a business. When you are thinking about these startups, are you trying to build a big business? If you are, then there are going to be people, technology, markets, sales, and all of that stuff comes along with building a big and robust business.

At the end of the day, you want to grow the business to the point where you as the startup CEO is actually dealing less with the strategic issues of the day to day over time. That is not what is true when you are a five person startup, but it is absolutely true when you are a 50 person startup.

Shubha K. Chakravarthy: Those are some great insights. You talked earlier about figuring out what the technology is.

As a founder, how do you evaluate whether something is worth risking all of this stuff? You talked about pouring in your blood and tears and sweat? How do you make that evaluation? How can you make it more objective rather than less for someone who is looking to take that plunge?

Jen Baird: The most important thing is, what is the unmet need you are meeting and how well does your solution meet that? In every case, you have got to figure out an unmet need. That is important. You know, it can’t be a casual unmet need.

Now, understand, I don’t build startups around games. There is a style of startup that I like to do and they are high impact startups. That means that somebody out there has got to have a point of pain that is burning them and they are going to need your solution to address that point of pain and they are probably doing something to address that point of pain already or maybe it is not that big of a point of pain. That is the first and foremost thing.

My most successful startup’s first potential customer that we talked to and did customer discovery with had this reaction to the concept of what we were planning to do: “I do not believe you. When can I have one?” “I do not believe you” means it has not been done before. “When can I have one?” is literally “I want to pay you to give me the solution because your solution would meet my need.”

For one of my more recent startups, the reaction was, “This is Holy Grail territory.”

I want people talking about holy grails. I want people asking, “When can I have it?” and immediately volunteering their help to get this product to them. If I am getting a “Oh, that would be nice” kind of reaction, that is not strong enough. It needs to be strong.

The strength of that unmet need is the number one point. The strength of the customer response is critical. You need to go out and talk to people who would buy this thing. You need to figure out who the customer is and talk to them. I am not talking to one or two of them. I am talking tens, twenties, thirties, a hundred of them. Try to find people who are literally crawling across the desk saying, “I need this. I want to be part of this.”

Another thing that is really important is thinking about the stage of development of your concept. It is often very hard. And remember, I do venture-backed startups. I raise money. That is not the only way. In fact, if you can do it any other way, you probably should.

But you do not want to go out and start raising money too soon. You want there to be a prototype. You want there to be some kind of evidence that your solution works and that people can react to it.

There is a staging aspect, and many times, solutions that you can license from a university are not developed enough yet to justify a startup. Although they are better than a napkin solution, you can move faster through the stages when you are dealing with a strictly technical solution or an IT play. However, if there is any hardware involved, you need to have some stage development.

Do not do it too soon. It must have plausible financials. Could I realistically sell it for $50,000 and make it for $10,000 or $15,000? What do the margins look like? What is the price point that the need supports, and how much can I realistically make it for? You need to have some plausible solution that says you can build this.

Another piece is understanding how big the market is. I once had an experience with a gastroenterologist involving a pressure-sensing catheter. We were trying to get a grant, and this was one of the earliest startups I was involved in.

He got mad at me when I was trying to do the market analysis for this grant proposal. He said, “You have to understand, Jen, I know this is going to work, but none of my colleagues will agree with me.” I stopped and thought, “Wow, I have a market of one.” Okay, you cannot have a market of one.

I learned a very powerful lesson in that moment. If I cannot find a number of people who would want to buy it during customer discovery, it is a problem. I need to know that there is a significant market, that there are hundreds or thousands of people, depending on the price point. If you are selling a $50,000 product versus a $5 product, the number of people you need buying is different. But you need to figure out if you can build an organization to deliver this product.

A lot of times, I know somebody who built a business and they could never get enough volume to deliver to keep themselves alive. I mean, they just starved for money, even though the product was pretty darn cool. There just wasn’t enough way to access the market with the way they were delivering the product and they ended up having to shut it down. At the end of the day, these are businesses and they need to make money. You have got to have a line of sight to that.

Shubha K. Chakravarthy: So that brings up an interesting point. Just earlier, you mentioned, “I don’t believe you can do it. When can I buy one?” which reflects disbelief that it can be done. On the other hand, it is a sign that it could be a market of one.

The difference, I sense, is that they did not believe it yet but still wanted to buy it. This is different from simply not believing it without any follow-up order or interest in buying. If you do succeed, there is a potential market there.

Jen Baird: Let’s clarify that distinction. The person who said, “Okay, I don’t believe you. When can I have one?” represents a large potential market. For instance, we found thousands of immunologists who wanted our product.

In contrast, in the other case with the gastroenterologist, none of the other specialists agreed that the solution addressed a problem they thought needed solving. Even though one gastroenterologist thought it was the greatest thing since sliced bread, five others would say, “Why would you want that?”

This highlights an important point: the solution and problem should not be too obscure. I once worked with a company developing turbine-free wind energy, which was hard to explain and technically complicated. People would not sit still long enough to understand it, posing problems for fundraising and selling.

Now, I look for problems that can be described in a few words, prompting people to immediately recognize the issue. If it takes 10 or 15 minutes to explain, it becomes challenging to pitch to customers and potential investors.

The problem needs to be intuitive to the customer you are targeting. For example, we worked on a product related to hemodynamic instability, specifically detecting signs of shock earlier. When we told doctors, “Our solution can detect signs of shock hours earlier than anything else,” they immediately understood its significance and potential impact.

The key is that your target market needs to grasp the problem and solution quickly. While it may not be intuitive to those outside your target market, it must make sense to the intended audience. If they can see it as a “holy grail” solution, then you are on the right track.

Shubha K. Chakravarthy: Which is a great point. To extend that example, let’s say you have five doctors who are all excited about your shock solution. Now, you are talking to investors who are not necessarily experts in that field. How do you translate that excitement?

Is it enough to say, “I have talked to five doctors who are in XYZ specialty, and all five of them are dying to buy”? Or is there a better way to communicate that?

Jen Baird: How do you obtain the evidence that investors are going to need? This is a really important part of forming a company. By the way, having five interested parties is good, but you are going to need 25 or 50 of them before you have enough evidence.

I personally take great notes when I am interviewing people. I write up all of those notes. I extract pithy quotes from those notes. I share the pithy quotes and then I have the backup of all the detail of what somebody said so that I am doing that customer discovery and making it accessible to the investors.

First, you have got to be able to describe it in terms that investors will understand, but you do need to realize that investors look at this differently. Investors will assume, at least for a while, that your solution actually works. So you can declare, “I have this solution and it works,” and investors will give you the benefit of the doubt for a while.

But they have to understand what the problem is, and they have to believe or be able to get their head wrapped around it and have to be like, “yes, I can see why that is a problem.” And sometimes that means asking, “Is there a third party? Does the CDC think it is a problem? Is it something that they have heard of?”

I am working with a startup right now that tries to reduce the risk of healthcare-associated infections, or HAIs. Many people have heard of HAIs. They understand that if you get an infection when you are in the hospital, it is a problem. Many people know that the hospital does not get paid if they have to fix a problem that they caused, like a hospital-acquired infection.

So these are the kinds of things where you can talk about something that investors can relate to, or they have had somebody experience and they will be like, “yes, that is a real problem.” Then you say what the solution is and then they will save for later kind of proving out that the solution actually works.

By the way, the best way to prove out that the solution actually works is to have customers that are buying it, or to have customers that are indicating that they are going to buy it or having interviews from customers who have tested it if you cannot get to that point.

Because if you have to go through a regulatory process, you may not be able to get there, but you are trying to provide evidence that your problem is real. Your problem is significant and your solution works.

A lot of times people, founders want to prove my solution works and do all kinds of the technical proofs. That is actually a later stage thing, later stage in the fundraising process. The first blush is, “do I understand the problem? Do I believe that the problem was big? Do I think this business could be big?”

And I am going to assume that you have actually figured out a solution that works. And then later in the due diligence process, there will be some stress testing of does the solution actually work? But the best way to prove that is to have a customer or a beta tester or somebody like that, who looks like your future customer, be able to say to the investor, “This solution works. I have used it.”

Shubha K. Chakravarthy: Awesome. Which brings us to the big question of fundraising, right? You have been through the grind many times. Can you give us a one on one on what are the basic things a founder needs to have in place before she goes out for her first outside raise, be it angels or investors? Just give us a primer on that.

Jen Baird: Yes, I believe fundraising is challenging. It requires vastly more work than most people realize, and this effort competes with building the business. For a founder, it can consume half of your available time—and your available time is essentially every waking hour.

I have occasionally heard people say, “Well, I talked to five investors and I couldn’t secure funding.” However, when you have spoken to a hundred investors and still haven’t succeeded, then I will believe you have worked hard enough.

I have raised 75 million dollars for various startups, and engaging with a hundred investors is not unusual at all in the process of raising capital.

Shubha K. Chakravarthy: For one raise?

Jen Baird: For one raise, for one round. I mean, it gets easier as you get more established and at a later stage because there is more evidence and you are talking to people with bigger checks, but it is not unusual at all. They have to talk to many people and I think many times founders think it is going to be a whole lot easier.

One of my first time CEOs that I’m coaching right now sent me a note over the weekend and he is so excited. He is like, “I heard this investor speak and they would be great.”

I’m like, “they may be great when you are ready to raise money, which we are not yet”. However, I think he thinks it would be like you just go talk to them and boom, they would give us money.

It likely will not be that simple. The process will probably involve talking to dozens of people, most of whom will say no. That’s a fundamental part of the challenging fundraising process. Now, the first question you should ask yourself is this: Please try really hard. Many people think, “I need to get a paycheck, therefore I need to raise money.”

However, trust me, that is not a compelling reason for investors. What they really want to know is whether you need the funds to build this business into a gigantic, high-impact enterprise. If you are not aiming to build such a business, then it will not be appealing to them. So, consider what you need to do ahead of time.

Preparing for Investor Meetings: A Comprehensive Guide

Jen Baird: By the way, this takes nine to twelve months minimum, in my experience. You have got to go out there and do all that customer discovery, collect all that customer data, build some prototypes of your solution to demonstrate that the key technical risks have been mitigated, figure out the business plan, the financial model, and the business planning elements.

Let’s say you actually have a reasonable business; these are necessary before you ever go talk to potential investors. Investors are going to be looking at how strong that point of pain is, how good and innovative the solution is. If it is not radically better than what they currently have available, then why would somebody buy it?

What evidence do you have that someone will buy it? What financial models can you build that show this can be a big business with a big market? What financial model can you show that demonstrates you actually know all the pieces you need? All of this requires time, work, and evidence gathering before you start fundraising.

Then you are going to be looking for and figuring out what the right size of the round is. Oh, my goodness. In the last eighteen months, I have spent more time with first-time founders helping them figure out what the right size round is. A lot of times, it is like, well, I can only raise this much. Okay, that is a start.

But I have actually had a couple of people where I am like, look, if you raise that much, you are in no man’s land because it does not allow you to get to the milestone you need to reach, and it is not enough. So, you have got to figure out a way to raise more, or you have got to be willing to take this chunk, accomplish these things, and then go raise again.

People have this way of fuzzily thinking, “Well, everybody raises 500,000.” Well, guess what? 500,000 is probably not enough. If you can only raise 500,000, what are you going to accomplish with that? I mean, you better be able to accomplish something really major to justify raising a few million the next time.

There are stages, and you have got to be able to fit in the boxes that investors expect because investors are cruising through lots of options. You are competing against so many other companies, and that is what makes fundraising really hard. You are focused on your problem, your solution, but investors are looking at it like a big marketplace of options, like a smorgasbord, and they want to say, “Hmm, that one looks really tasty and that one not so tasty.”

Shubha K. Chakravarthy: You bring up a fascinating point. It is a three-point puzzle that you have to solve. On the one hand, you have the industry and it has its own cadence. For example, if you are in MedTech versus pharma versus software, the size and timing of the rounds are very different, right? Because of how much you need to investigate.

Then there is the financial modeling factor, which is how accurate is your picture of how much you need. And then there is what the market, irrespective of the industry, is at today, which is it a good market as a risk on or risk off market?

The Importance of Financial Modeling in Fundraising

Shubha K. Chakravarthy: Can you talk first about financial modeling and what would you recommend that you believe is a bare minimum that a founder needs to have before she goes out and tries to raise money?

Jen Baird: I’m not a great commenter on that because I came to this space with a lot more finance in my background than most. I started out as a teenager loving to read personal finance books. This is a little weird. I admit it. I’m a little weird. But I did. I started there. I went and I got a finance degree. I worked in banking and then management consulting, which is all about financial models.

So, I did all of those things. By the time I started my entrepreneurial career, I had strong financial modeling skills, strong understanding of accounting and financial statements, and a strong understanding of how that translates into a business and how you build a financial model around that.

Does everybody need to have all of those degrees? No, probably not, but the CEO and founder of a company is expected to understand the financial underpinnings. You better understand that and then that may be something that you need to find a way to learn about it and to be conversant in all this terminology.

Honestly, some of that is what I’m bringing to the table to these startups that I’m advising because the founders are more technical or more scientific or more domain specific and they don’t necessarily have all of that skill set. So, you can find somebody like me, somebody like an advisor to help with this.

But at the end of the day, you need to be conversant in it. I was on the call earlier this week with a VC that had asked me to be involved in talking to one of their potential investments and then we were having a debrief afterwards and the comment that was that they have a weak financial model. They’ve got a really interesting solution. They have made huge amounts of traction. They have got a very technical founder and co-founder. The problem is that it is not clear whether they have kind of the right stuff to be venture backed.

I said that I think they can learn a lot of this stuff, but one of the things that was a demerit for them was the strength of their financial model. It was oversimplistic. I have a quite robust financial model that I end up working with and I can tell you that you shut down that whole question mark when you have a really robust and strong financial model.

I got to the point where it is like, “Let me send you a copy of our financial model.” That was the end of the questions because people are like, “Oh, they do know what they are doing.” That was the end of it.

Whereas this conversation was, “I’m not sure they know what they are doing” because that is really on display when you don’t have a grasp on their financial model. When you don’t have a grasp on how the finances work together. I think this is one of the learning curves.

Being an entrepreneur means getting up learning curves. My biggest superpower as an entrepreneur and startup CEO is that I learn fast and I learn all these technical domains we were talking earlier. How do you go into all these technical domains? I can sit down and learn enough, understand the core of those technical domains, and understand how it translates, and to go out and gather information from the market, to gather information from the technology, to know how to bridge and translate that as a business and understand those things on the financial side of business, you need to have that skill set.

Now, I also like to have director or CFO of finance type of a person on my team. It is the worst thing in the world to actually do the accounting for me. I have really good finance and accounting instincts but I hate making sure that the checking account balances at the end of the month. I’m horrible at it. I’m really bad. So, I need somebody that loves that kind of stuff, loves to chase that last penny. But I need to know, what are the levers? How does that translate? How do I talk about things like revenue, cost of sales, cost of service, and gross margin, knowing that sales and marketing comes below the line?

I mean, you have got to learn these accounting concepts. You have got to be able to justify and talk about that because investors expect that if you can’t do it, then you are not the right person to be running the company because fundamentally the leadership of a company needs to be worried about and thinking about the finances and how that looks like.

Shubha K. Chakravarthy: The one thing that I will ask you on that specific company is, do you see it where it could be a potential deterrent? Where everything else looks good, but we are so not sure of the financials that we would rather say no.

Jen Baird: Absolutely. Yes, I mean I literally think that was the question that is going to get a little more attention and sometimes the investors will try and redo the financial model where they will build their own financial model. The problem is they don’t actually usually have enough information to do a great job of it, but they will build a competing financial model.

So, at the end of the day, investors are investing in the leader slash management team leaders, plural or leader singular of the company. This is a skill that needs to be strongly in evidence or they don’t want to give you thousands, hundreds of thousands, millions of dollars because if you haven’t demonstrated that you understand the money side of things, I’d rather give my money to a team that can.

Shubha K. Chakravarthy: And there is no lack of competitors for that money, right?

Jen Baird: Oh, there are so many competitors. If you have raised money and you have not filled in, you know, there is a little bit of grace at the very earliest stage before you raise any money. But after that, and by the way, you could be much more impactful if you can show that, “Hey, I am the startup CEO, and I am asking you for money. Please give me your money. You can trust me with it.” Showing that I understand the finances is one element of helping them learn to trust me.

There are many questions that must be answered in that trust transaction. But it is a trust transaction, and it is about money. Financial plans are a money thing. You have to understand how much money do I need? Where does it go? What are the terms of the investment? Do I understand it? Can I coherently talk about the terms of the investment? That means spending time as a founder understanding who those investors are and how they think about the problem.

I have seen, so many first-time founders, first-time startup CEOs who cannot talk about the money and they do not understand how investors think about it, and they do not think it is important.

They think, “I will tell them my story about my product and how important it is and my customers and how this has, you know, a billion-dollar business.” But if they do not spend time figuring out what a VC is about, then they will have a really hard time having that conversation with a VC because they do not understand their language and you have to learn their language and be able to comprehend it.

I was lucky. I came from a finance background and then I had the opportunities to learn that language and then I spent time learning how venture capitalists in the world work. “How do they make their money?” That allowed me to have a dialogue and understand what they are worried about and address their real concern. I see founders that are busy people trying to solve all the problems and they do not spend the time or think it is worth their time to understand this other market, which is the investors they need to help them.

Shubha K. Chakravarthy: Which is a really important point. Given that there is this competition and this demand for so many things right upon a founder’s time, what would you recommend as a simple and effective way to get up to speed on how an investor or a VC thinks? Especially somebody who is not financial like you are?

Jen Baird: I don’t know if there is a simple way. You have to understand the essence of financial statements and how they are built. You must grasp management accounting and how it is constructed. Then, you need to comprehend how venture capital functions and how venture capitalists make money. You must understand the portfolio effects that venture capitalists consider, the fact that they typically have a ten-year time horizon, and that they are deploying capital, building, and then returning capital.

All of these factors influence the types of investments they are willing to make. I write about a lot of this on my blog because I am trying to help people grasp the dynamics that are present. I have encountered many individuals who do not understand the fundamental fact that a venture capitalist who has raised money from limited partners has a contract, an agreement with those limited partners about what they will invest in.

If you are too far outside the circle of what they have agreed they will invest in, they will not invest in you. It does not matter if they personally like you. They have a fiduciary responsibility to those who gave them money, and they have agreed on the parameters of their investments, and their investors do not want them straying far from that.

For example, if I have agreed that this is a healthcare fund, I am not going to be investing in climate tech unless it is healthcare and climate tech, but it needs to check certain boxes. This is a classic scenario. People think, “Ah, I have heard of this gigantic Silicon Valley fund with a billion dollars under management.”

Okay, if you are raising $500,000, do not pursue billion-dollar funds. Why? Because it does not make sense for a billion-dollar fund. They cannot write checks that small logistically, so do not chase them. I have had this debate with founders who ask, “Can I not go after Kleiner Perkins?” It is because Kleiner Perkins will never invest in a company of this size at this stage. Look at what they are investing in. They need to put $50 or $100 million to work per company and you are talking about raising $500,000. It is a waste of their time.

You have to understand they have a $500 million fund and they are going to try to make 20 investments in it. So, $500 million divided by 20 is how much money per company. We are going to invest a third of it in our first investment, or maybe 50%. You have to do that math and ask, “Is this company and is this fund ever going to fit what they are looking for?” If you are not, then do not waste your time because your time is your most precious resource.

Shubha K. Chakravarthy: Got it. You talked about the size of the round and how important it is to get that right. Can you give an overview of how to do that right for a first time founder who has never done it before?

Jen Baird: Absolutely, understanding the right size for a fundraising round involves a mix of market norms and strategic foresight. For instance, raising under two million generally signals a seed or pre-seed stage. Moving into Series A, the figures naturally climb, and these are market bands you must be aware of. Yet, it’s critical to not just chase a number because it’s the norm, but to also critically evaluate what you genuinely need to reach the next significant milestone—essentially, the purpose of your raise is to mitigate risk.

Take, for example, if you require $500,000 to develop and test your first prototype to garner market feedback. I’ve encountered situations, such as a company I was advising, that planned to raise a million dollars. However, the essential automation technology they needed was $1.5 million. They fell short because they adhered too rigidly to “standard” fundraising amounts without considering their actual needs.

This brings me to another company that initially aimed to raise $500,000, planning a follow-up raise of another million within six months. Here, the issue was time—raising $500,000 wouldn’t allow them to achieve anything substantial before needing more funds. It made more sense for them to target $2 million upfront. This can be managed through tranching: commit the total amount but distribute it in stages based on achieved objectives. This method ensures continuous funding without the repetitive cycles of fundraising, which are often time-consuming and risky.

Sometimes, what founders perceive as meaningful progress may only be incremental from an investor’s perspective. Meaningful milestones must substantially de-risk the business, such as proving the technology works or demonstrating market demand through initial sales. The amount you decide to raise should be sufficient to achieve these goals and move to a higher valuation in subsequent rounds, which benefits both founders and early investors.

Moreover, funding rounds are structured in stages for a reason. They allow reassessment of company value and achievements, helping to preserve equity for founders and early backers as the company grows. This staged approach also aligns with market fluctuations, technical challenges, and other variables that might influence your company’s trajectory.

For instance, a previous venture I was involved in had to shut down when the market evolved to nullify our cost advantage. We initially had a 50% cost lead, which vanished, making it impractical to persuade customers to adopt our technology over established, equally priced alternatives. The milestones we could afford to reach were no longer substantial enough to justify further investment or to significantly de-risk the business, leading to the tough decision to cease operations.

This illustrates the critical importance of clear-sighted planning in fundraising. If outlining costs shows you need $250,000, it’s prudent to raise more, perhaps $300,000 to $400,000, to cover unforeseen expenses and ensure you’re positioned to initiate the next funding round effectively. Planning for a buffer to manage unexpected costs—is not just prudent, it is essential in safeguarding your venture’s future.

Shubha K. Chakravarthy: Which it is fascinating because I picked up a few threads here that I want to just play back to you. Number one is that you have got to be very clear what a milestone is. The new part to me was that sometimes that milestone might be bad news. You shouldn’t be going after it, according to your example. Then once you get the milestone, what I heard is that you need to make sure that is actually something that will excite investors enough to say, “Okay, I’ll buy that milestone from you by funding this round.”

Jen Baird: Right? Great way to put it.

Shubha K. Chakravarthy: And then you need to be very clear about the fact that, “Here, I have a very good idea.” So, back to our financial modeling, right? If it is $300,000, I can’t just spit ball it and say, “Oh, I think it is going to cost maybe a hundred grand.” You can’t do that because it is just not going to pay off. It is kind of the third message I heard.

You get all of these together and then you kind of bake in the market. You know, where you are with investors, what the competition is for the investment funds, and then you come up with this magical number that presumably will get you to a meaningful place that, without giving up too much of your equity is that a good characterization.

Jen Baird: I think that’s a really nice summary and you have to be prepared if you are going to raise money to share the benefits. You have to be willing to give up and share the future benefits of the company. You know, I see some people like, I want to maintain control. Trust me, if you raise money from outside investors, you do not have control, even if you have 51%.

You have got to be like, “I can make the pie bigger and keep your eye on that prize of making the pie bigger that everybody succeeds together” is how you have to think about it and you have to believe that you can take this amount of invested cash and multiply the value of that and if you can’t, don’t waste money. Go do something else.

Shubha K. Chakravarthy: You are talking to a first time founder. She has never raised funds before. What would be the top five things that you would recommend she start doing Monday morning so she can improve her odds of building a successfully invested company?

Jen Baird: I think the first thing is, if you haven’t raised money before and you are just starting down this path, know yourself. Really think about, “Is this what I want to do?” There are less risky ways to get a paycheck than building a company.

Okay, most companies fail and you need to be careful how much of your money you put at risk, and you need to have the temperament and your spouse and family needs to have the temperament to be willing to get into this stuff.

It is going to be long term. You know, if you can’t see yourself doing this for the next five or ten years or if you are not motivated enough to solve it. I mean, I wish it was shorter. I wish the flips were like this. They are not. They never are. I should say never say never. I know there are counterexamples to that, but it is so rare to be successful. 90% of startups fail. It is like 0.001% become unicorns, which is a billion dollar valuation startup. So, you really got to be motivated by something other than, “Oh, this is a great way for me to make lots of money.”

I hope your motivation, and this is what you want to check, is that you really just need to solve this problem because that is what is going to get you up and motivated every day. Then you need to start building the team. If you are going to be the founder, your leadership skills and characteristics are under evaluation because the team is one of the most important factors for investors.

If you are going to be the leader of that team, a leader is defined by how many and who you can get to follow you. That includes customers, investors, team members, everybody. If you can’t lead well enough to get people going along with you, you are not the right leader for that company.

Then you just need to start understanding your market, understanding how strong the pull is. I think you have to focus your time and attention on who your customer is and understanding what their needs are, because it’s so easy to say I have a new mousetrap.

You need to make sure your mousetrap is really attractive to the mice. They better go figure out what the mice think is important; do they think cheese or peanut butter is better? I don’t know, you know, but if you aren’t making something, you know, building a better mousetrap, you better make sure it’s better in a really important way. I had a startup that I was talking to and I knew the market space that they were in and they had, you know, not enough improvement on the status quo of other companies.

I’m like, “Guys, nobody is going to care about your solution.” Yes, in this one dimension, you are better, but it is not even an important dimension. It is kind of a minimally important dimension. Yes, it is better, but nobody is going to care. It is so hard.

By the way, those other companies that you are going to be competing with are advancing their solutions already. So, you have really got to find and define that market space and then realize that investors aren’t going to necessarily appreciate it. I really do think it comes back to knowing yourself. Are you really cut out to do this? Most people aren’t. Know your market. Know your solution really well.

Is it really important because everything gets easier when the customers are dying for your product and want to throw money at you to get it. Then you have to do all the blocking and tackling with figuring out how to build a business. If you don’t know how to do that, then you better be able to get people to come alongside you to help you figure that out.

You better be learning all the time. The world of being a high potential entrepreneur is not for the faint of heart and there are easier ways to get a paycheck but there are not necessarily easier ways to have a huge impact on other people.

It is worth doing and I would not do it. I still am attracted to the whole process of it. It is not because it is easy and my husband laughs at me because he has been with me since high school and he is like, “You cannot stand to not be doing this kind of stuff” and he is right, but the very fact that I cannot and I am useless for doing much else, is what makes me good at being able to do this. It is a wide and diverse set of skills that you need and you have to be interested in learning all that stuff. Learn, learn, and learn all the time. So, you just have to start learning and there is lots written.

You are listening to this podcast which is chosen interests, you know, that is one of the ways that you learn is you listen to people like us talking about this stuff and you start picking up and you read my things like my blog. There are other solutions to try and be learning all those things, but you can’t be myopic. I mean the founder and leader of a company has to learn lots of the pieces and you don’t have to know, you have to know broad and then some areas you have to go deep.

Shubha K. Chakravarthy: The T shape, right? One deep and multiple?

Jen Baird: The T shape, but you have got to be interested enough to learn all kinds of new things that every startup that I have been a part of have learned. They have learned all kinds of new things about a new industry, a new function, a new technology and you have just got to have that insatiable curiosity to keep learning because if you are doing something new that by definition means that you are going to have to go invent and learn about it from different angles. That is what makes it fun. If that is not fun for you, don’t do this.

Shubha K. Chakravarthy: Totally hear that. This has been an amazing conversation, Jen. I really appreciate you taking the time. I learned a ton. I got a lot of nuances and I have no doubt that our founders will learn a ton as well. Thank you so much! I really appreciate the time!

Jen Baird: Absolutely. It has been very fun for me too. Good luck!

Shubha K. Chakravarthy: Thank you!