ICEO (00:00) When you're an investor, your job is to say no 99.9 % of the time. Okay. You're going to see a thousand companies invest in one. Yeah. So since VCs are using that founders, the good founders, the smart founders need to start using that too. ICEO (00:16) Stephane Nasser is the CEO of OpenVC, the investment platform which has enabled startups to raise more over $1 billion from major investors like Google, Sequoia, and NASA. Speaker 1 (00:27) When we talk about data-driven VC, there are three big steps. Number sourcing is finding potential startups, know, filling your, what we call the top of funnel. So if today I receive maybe 50 decks per week, can I receive 500 using AI and data? Number two, the screening. So once you receive those 500 deals per week, you need the robots to screen them. And today this is also very much used, increasingly used. ICEO (00:57) Every month, 1,200 new startups raise investment with OpenVC. There is 40 % investor reply rate. And the investment vehicle OVC Ventures invest on the top 2 % opportunity. ICEO (01:07) to have a true startup that can 100x the money within seven years. That's not easy. How do you convince an investor that your project, your company, that is, you know, an idea today or an MVP with a thousand users can 100x a million dollars in seven to 10 years? And so there are a few indicators for that. Usually, when you come to a VC and say, hey, I want to raise funds. I need a million dollars for seed. What the person is thinking is, okay, can this guy get Diego Calligaro (01:38) Stefan, tell us, why did you build OpenVC? Steph From OpenVC (01:41) Hey Diego, so I built OpenVC. We started four years ago with my co-founder, Lucas, and the idea was, can we build something that helps entrepreneurs raise funds and investors find cool startups? So that was the starting point at the time. Diego Calligaro (01:57) Okay, perfect. Tell me what was the motivation maybe for you to really build this platform in the first place? Steph From OpenVC (02:03) Yeah. So I think the starting point, like a lot of people, is that fundraising is a very painful process, very inefficient, very unpleasant, very broken. Everybody agrees on that point. But then when it comes to solutions, honestly, there is no great solution because either it's expensive or it's restrictive or it's complicated. And we were like, OK, what if we threw the economic model out of the window? What if we agreed to build something open and free for the community? And we see where it goes. So that was our kind of initial thesis. OK, let's build this platform, allow investors to declare what they invest in, allow founders to reach out, and we screen the deal flow in the middle. so investors don't get spammed. So that was really our core initial belief that this could be valuable. And so that's what we did. And after four years of iterations, improvements, adding features, fixing the UX, fixing the bugs, a lot of customer support, now we have a full comprehensive platform that helps both sides. But yeah, the kind of initial stuff was... Diego Calligaro (02:55) Yeah. Steph From OpenVC (03:10) you how do you say, you have to, you own each, you scratch your own each, right? And it was the case. I've been a founder. I've also been on the receiving side. I started my career at Microsoft Accelerator. So we received a lot of deal flow. I was the one handling that volume. And so I've been on both sides of the table. Later, I've worked at a firm in San Francisco. And we also had a lot of investor startup interactions. So I've seen that again and again and again. And was like, hey, can we build maybe something better? That was just the idea. Diego Calligaro (03:47) Yeah, indeed. And bring us back to the day in which you decided to really dedicate yourself fully to this. Steph From OpenVC (03:56) So there are many days. The first day was when I found out about Airtable, because I don't code. I'm not a technical founder. And I had this list of investors in a spreadsheet that I had built. I was like, hey, I could actually put it on Airtable. And then it's much more powerful because I can share it. It can be edited, et cetera, et cetera. Many more possibilities. So really, the day I discovered NoCodeTools, Diego Calligaro (03:58) Yeah. Steph From OpenVC (04:19) I was like, okay, I can build something quickly and easily. And then I partnered with Luca, my co-founder, and we launched OpenVC, I think it was March, 2021 on product hunt. So that was the first day, but we didn't go full time on OpenVC. We still had jobs and we just built on the side. And then two years ago, we were starting making a bit of money. I think we're like 5K monthly and like, okay, so. This is working like it took us two years, right? Two years building on the side. And they're like, OK, now we have something that is working a little bit. And we decided to go full time. So that was the second day. And yeah, and since then, we never look back. Diego Calligaro (04:56) Yeah, because from what I remember, like you often ask to the community as well about feedback about UX. It was also this like the decision to go full time. Did you ask, you pose, I think a question to the community, like should I go full time or not? Steph From OpenVC (05:10) Yeah, yeah, of course. you have a great memory. Yeah, so we posted something on... So we use a lot LinkedIn and Twitter to communicate about everything we do. We're very open. And we ask people, hey, this is what we've built. This is where we are today. Should we go full-time? Right. And of course, people say, yes, go full-time, go full-time because... It's like, jump, know, jump, jump, do a backflip. Because of course it's not them. The truth is we had already made our decision, but it has a few benefits when you ask people. One, people will sometimes make you see things you didn't think about. So, you know, they will give you additional insights, a different angle. So it will not necessarily change my decision, but it will help me refine it. So that's number one. Number two. because you get people excited, you get people on board, you get people engaged. They feel that they contribute. I you know, I'm not saying that we're lying. We knew we wanted to go full-time, but then everybody feels like going full-time with us, and they really feel that they participate in this project. So that's just really cool. I mean, it's marketing, but it's also just, we run this company like it's a game for us to some extent. We just have so much fun. and the game of fun when it's multiplayer. So I like to bring as many people as I can into the conversation. Diego Calligaro (06:29) Yeah, that's really interesting, the approach. Also sometimes very practical asking about pricing or UX tips to the community. Yeah. Okay. So... Steph From OpenVC (06:38) But there's also something I should tell you. We don't have a designer on the team. So the truth is, we need people's help, especially with UX, features, this kind of stuff. I do the business side. Luca, he codes stuff. But in between, we have a gap. So I do the mockups in Google Slides. And then that's what I give my co-founder. So a lot of time people help us a lot, right? We say, okay, hey, I show on Twitter, this is the screen I've designed for this feature. What do you guys think? And then people go out, that's very bad. That's terrible. You need to change this, lighting, the colors, the shape. said, great, please criticize me. That's free consulting basically. And a few people have gone so far, like redesigned stuff for us from scratch for free. just because they want to help and they love the mission and they love what we're building. So it's just this community building that pays off over time. Diego Calligaro (07:35) It's amazing because many times people speak about, okay, you need the feedback from the client, need to have that conversation to learn more. And it's impressive how you brought it to a next level in which they are also the one contributing to the implementation of it, which is a, would you think that also this contributed to put you on top of Product Hunt and really driving that? Steph From OpenVC (07:56) Yeah, 100%. There are many tools like OpenVC. There are many fundraising CRMs, deck tracking suite, investor lists. And honestly, if you're the client, if you're the user, it's hard to tell which one is better. Well, I think OpenVC is better, but there are many different tools. And if you're the client and you trust, they all look the same to you. They all have the same features, same UX. So at the end of the day, if you love OpenVC because you've been part of the conversation, you've seen that we're genuine people, you see that we care, we see that we have an identity, and I think that makes a difference for people, that they have an emotional connection to the product and to the team. So that's definitely part of the success, right? They don't upvote us on Product Hunt. because our design is better. They don't upload us because our data is more accurate. They upload us because they love the mission, the vision, and the stories that we share with them. Diego Calligaro (08:57) Yeah, amazing. And you are essentially in the middle of these two worlds between venture capitalists and founders, which are many times, there are worlds that don't speak the same language. There are many times is understanding as well. What would you say are the main challenges when connecting these two very different worlds? Steph From OpenVC (09:18) Honestly, I think... A big challenge is matching accurately people. Like matching people is easy. Matching accurately is extremely hard. When you talk about founders and investors, people think it's a marketplace, right? Supply demands, you have to find an equilibrium and just link them. But actually, the dynamics are much more complex because you're going to have some top 1 % founders, right? exited founders with strong traction and all the positive signals that all the top VCs will want. And then you have maybe level two founders, and you have VCs that are a bit lower on the prestige scale. And so it's like a dating app to some extent. You have people from 0 to 10, and you have to match them. But that's what Tinder does, by the way. That's how the Tinder algorithm works. but they can base on looks, which is the first filter for people. It's not nice to say, but it's the truth. You cannot do that with a startup because you cannot just rate a face or rate a body. So that's one aspect. And then you have so many dimensions that conflict, geography, check size, industry. So these are actually sub-sub-submarkets. And within each sub-market, you have a kind of ranking of how exciting a founder and investor are. Then you have to match them accurately. it's not something that you can manage like e-commerce, saying, I have an inventory, and I have customers, and I'm going to just move the inventory. It's not like that. It's much more refined. And then on top of all of that, you have the psychological aspect. Right? The psychological aspect. So one example. In a marketplace, you want to give as much information as possible to help people decide, okay, I tell you that here are the dimensions of the product. Here are the colors of the product, but you don't do that in fundraising. If I give you just, you know, a list of startups that are raising with a name, their logo, what they do, investors will not get excited. because they feel, it's like meat on the shelf, right? Anybody can access it. It's not exciting. They want a deal that feels a bit secret, a bit mysterious. So that's why, for example, we don't have a public list of deals with the startup names and founder names. Because if you do that, kind of lose the mystery, lose the aura, and investors need to feel like they hunted a deal. So you have so many things like that that makes this space very peculiar. And of course, most founders don't understand that because 95 % of founders are first time founders. They have never raised before. And what they know is comes from the consumer world. They know about Tinder and Amazon and they think they can just swipe left or right or one click purchase their fundraise. But it's actually a complex process, like enterprise sales. have multiple stakeholders. Everyone has their own incentives, big psychological aspect of things, how you look, how you feel. don't want to be the one begging and reaching out. You want people to come to you. So yeah, it's a very complex thing and founders just don't know that. They don't know. And so they fail. when you have, know, we tell you 90 % of startups fail at raising. Well, of course they do because how could they know all of that? That's what it is. Diego Calligaro (12:34) And before moving and digging more on this topic regarding founders, I would like to stop on the investor side because you constantly assess as well technologies for venture capitalists and also the space of data-driven VCs. Can you tell us more about the trends that you see within the data-driven VC world? Steph From OpenVC (12:38) you Yeah, for sure. Very easy. When we talk about data-driven VC, there are, I think, three big... steps or pillars. Number one, sourcing. It's finding potential startups, filling what we call the top of funnel. So if I'm a VC, today I receive maybe 50 decks per week. Can I receive 500 using AI and data? That's the first step. Today, there's a bunch of tools doing that. They usually look at LinkedIn, Crunchbase, GitHub. They adjust all the public data available. And then they try to rank these opportunities and tell you, this is the top 10 % you should look at. So this is pretty straightforward today and is being increasingly used. Number two, the screening. So once you receive those 500 deals per week, you need the robots to screen them. And today, this is also very much used, increasingly used. It doesn't work perfectly. And I benchmarked actually, think a few weeks ago, I benchmarked one of those tools over 50 decks. So I run 50 decks for that tool. Then I assess the 50 decks myself. And I'd say it's like 90 % accurate, but when it has 10 % failure rate or mistake rate, that's a big problem because some of those decks are actually very good. And for some reason, the assessment is incorrect. And so... But this will probably be fixed in six to 12 months. It's just the technology is catching up. The last step is investing. So can AI decide to invest? So not just do the first filtering, but really send a check almost. So that is not ready at all. There are a few people in the world working on that. It's a much more complex problem. And it will be solved first in later stage, because at later stage we have more data, right? We have financials, traction, all that stuff. And so it's easier to compare deals and make decisions. The hardest part will be automating the investment decision at early stage when you just have a team or just an idea, because, you know, it's even for very experienced investors, it's still a mystery, right? Who would predict that Airbnb would be successful? So... It's happening today. AI and data-driven VC is about productivity and basically how one VC can do more alone. Maybe tomorrow it's going to replace investors in the decision process, maybe at later stage, but that's very speculative. We will see. The first part is definitely happening. Definitely. Diego Calligaro (15:20) And so essentially in terms of automation, how much do you think like today and in three years, for example, we can automate about all this process of traditional ABCs? Steph From OpenVC (15:31) Well, basically, you're going to automate the analyst, 80%. So if your team today has five analysts, in three years, we can probably have just one. And this analyst will be pressing the buttons on your AI software to bring deals, pre-screen them, and just filter and do the first call. You're still going to do a first call. But what's interesting, I mean, Diego Calligaro (15:34) Hmm. Steph From OpenVC (15:54) is that you're going to see more deals and everybody will see more deals. And I suspect that all those algorithms are going to show the same deals to kind of rank high the same deals to everyone. So I suspect that the concept of proprietary deal, know, having deals that others don't see is going to become more rare because it's going to be harder to be the only one to know about a deal. And so there will be more competition for those high profile deals, I suppose. Yeah, so basically the analysts will go away and you will focus more on the LP relations and maybe you can redirect some resource to portfolio support or to marketing, which is sometimes the same thing. But yeah, that's what I anticipate. I see really cool stuff like in London, a lot of firms are doing cool stuff. in Nantown and San Francisco on these topics. These are really two places where VCs are investing in the tools and the people to make this happen. Diego Calligaro (16:47) From your perspective, can you give a practical example of the best tools that you see applied to specific CBCs? Steph From OpenVC (16:54) Sure. So I cannot say which VC is because that's confidential, but I can tell you what tools. So one example, you have Landscape in the UK. And those guys have the technology that, like I said, is going to scan LinkedIn, GitHub, and other data sources, identify new founders that are likely to be raising. These are maybe founders that are not raising yet. They don't know that. But they're high potential people that, for example, just went stealth. And they feed your thesis, Because, for example, they have worked in the automotive industry before, and you're a mobility fund. So these guys are probably going to be looking to raise in the next 12 months. So contact them because they also have a successful track record. So they are founders that you want to speak with as an investor before everyone else. So that's one example. Another example, let me think in terms of, well, Fornax. So Fornax based in Germany, those guys. So the first guys are in London, Manchester, like in the UK. Fornax in Berlin. And those guys, they have a technology that scans your pitch deck. and assess it on three dimensions. So you just give you that your pitch deck is going to tell you, okay, team out of 10, markets, like business out of 10, and the kind of clarity flow of your deck out of 10. And you can adjust those, know, dimensions, of course, but this is really great for VCs because it just helps you. sort through the big volume. So let's say you have landscape that brings you, you know, 100 new deals per week. And then you have Forenext behind that will rank them and help you prioritize your time because you cannot handle 100 deals manually, right? It's just not possible. And so they're to help you figure out the top 1%, top 5%, and that's where you spend your time. Diego Calligaro (18:43) Okay, clear. And because there's a lot of this activity when it comes to assessing, automating the assessment of the investor deck directly from the VC side. And as well as from the founder side, how to like not say in automatic way, but through AI build that because you're also working on this part. Can you guide us through this point as well? Steph From OpenVC (19:06) For Founders Diego Calligaro (19:07) Yes, exactly. Steph From OpenVC (19:08) Yeah, so since VCs are using that, founders, the good founders, the smart founders, need to start using that too. And so on OpenVC, for example, we have partnered with Fornax that I mentioned. And so you're able to, as a founder on OpenVC, you can run your deck through Fornax and see how you will be rated by your VC before you send your deck. So you know that today, OK, if it's 90 % good, OK, you can send. If it's 60%, don't send, because you will end up at the bottom of the VC list. So this is the same thing that happened with resume. 20 years ago, you send your resume, and someone will read your resume. Today, if you send your resume to HR, it's going to be scanned by a software. And so now, applicants know that. And what they do, they optimize their resume to be read by the machine. So for example, in the PDF, you will include the keywords that the machine will search for. So if the job application asks leadership skills, you're going to use leadership skills in your resume because the machine will match that. So the exact same paradigm is happening in VC, in sourcing the deal flow. where the founders will now optimize their deck for the machine. It's like SEO, in-deck SEO, you know? But that's what's happening. So now you have to talk to two people. You have to talk to the VC, and you have to talk to the robot in your P-Shack. Diego Calligaro (20:37) And if we look at the future, looks like we'll have a future in which all the founders will automatically create true AI, their decks. And on the other side, they're going to be, we see they're going to screen decks created by a machine essentially. So how does this future look like? What are the implications when they're essentially machine assessing machines? Steph From OpenVC (20:52) Yeah, correct. So I see where we're with this. Honestly, this machine is doing stuff that people have to do anyway. So let me put it this way. Let's look at the founder side. Today, either the founder have to prepare the deck themselves, review the deck themselves, or maybe get some help, hire a deck designer or a coach to help them with that. and then send it. So the machine, the AI, helps them with that part of the process. And honestly, it's pretty great because founders are really bad at assessing their own pitch deck. And I love founders, and I'm always on their side, but most founders are really bad at that job. So having software to help you with that is a good thing, in my opinion. Now look at the other side, on the VC side. So. Same thing. You have an analyst today, and the job of the analyst is just to receive decks, decks, decks, read decks, decks, decks, and do the same job. So we just remove the boring parts of the job, give it to a machine, so we can focus on the high-value task. As a founder, you don't want to spend 16 hours just reviewing your deck and fixing it. It's not high value. And what's really cool is that, yeah, it unlocks resource. So on the founder side, usually founders cannot afford the service they need. Like if you need help to review pitch deck queue as a founder, most people cannot afford that. But the machine, you can. It's not going to cost you $1,000, $2,000. It's going to be like $10, $50, $100 max. So it's actually value creation here. It's democratizing something that was exclusive and expensive. On the VC side, In my opinion, this is the biggest benefit. Because on the VC side, the main problem was that the VCs have too much deal flow, and that's why they only look at intros. Because they cannot handle, like I said, 100 decks manually. Now, if you have an AI that does the screening for you, suddenly you can open up and you can say, hey, send me your deck, we're open, we're going to look at everything. And then the machine does the screening for you. So suddenly VCs are less closed. more open and give a little more chance for everyone to join the game. So I don't think it's a bad thing after all. Diego Calligaro (23:14) Yeah, indeed. what about the relevance of the deck then? Because in this world of completely automation, it's going to be the deck itself still relevant when the assessment is really matching and identifying what the VC needs, what are the metrics looking for on the side of the startup. In this world, why would there exist a deck in the first place? Steph From OpenVC (23:36) Yeah, that's a very good question. Some people have worked on, how do you say, destroying the deck, Thinking, OK, what if you just give your data, give the information, you don't need the deck, because the deck is just a data wrapper, right? You wrap your data into a document. But like we said, there are two recipients. One recipient is the machine, the other recipient is the VC. And the VC is a human being, which means he likes when it's pretty. He likes when there are fancy colors and big margins and the nice fonts and shading, and that it can be read quickly. It's a bit exciting. There's a story inside. So you have two stakeholders. You're talking to two people. And by the way, If you look at what happened with resume, it's the same thing. You have resume today for the machine, but they are also read at the end of the process by a human being. So you cannot just go full machine. It's a hybrid process, and so you need a hybrid document. Diego Calligaro (24:35) Yeah, indeed. And also when it comes to the screaming part, mean, the online presence of the founder as well is gonna become, I guess, always more important because the screening itself. So if you are not online, but maybe you have a potential there, you are actually not within this funnel, essentially. Steph From OpenVC (24:55) Yeah, yeah, absolutely. I don't know who said that, but if you have a great product that can do amazing things, but nobody knows about it, it's as if it doesn't exist. Or when a tree falls in the forest and no one can hear it. Did it really fall if nobody can hear it? So it's a bit like that. Diego Calligaro (25:03) Mm-hmm. Yeah. Mm-mm. Steph From OpenVC (25:17) You have to be out there as a founder. You're the product to some extent. People invest in the founder first and foremost. And so I know some founders don't like this idea. I know they don't like that. why do I have to be active on LinkedIn? Why do I have to be on Twitter? I don't like wasting my time with this. I want to be speaking with my clients, building my products. And it's the VC job to see that I'm good because otherwise they're missing out on a big opportunity. You may think that, but me as someone who's advising you on fundraising, you're making a huge mistake and you are shooting yourself in the foot like crazy. But everyone can think what they want. I just think it's a massive, massive mistake. Diego Calligaro (25:55) Yeah, indeed. Because of course, if now you can build a business without that online presence, it looks like in the future, this is going to be exponentially important to have because as AI is going to be used as well to filter, assess products or investments, that online piece is going to be exponentially important. And if a person doesn't have it or is not as a high level, it's going to impact significantly the business, essentially. Steph From OpenVC (26:20) Yeah. There is a whole strategy in fundraising that is called inbound fundraising. And inbound fundraising is basically the founder in the six to 12 months before raising start to be active on social media, follow all the investors they're interested in, reply under the comments, publish some posts, engage with the investors. You know, you can start a podcast, you can start a blog and you interview Diego Calligaro (26:21) or not having at all. Mm-hmm. Steph From OpenVC (26:43) those investors, right? You're not talking about your race. You're not talking about what you want. You just put yourself out there and you build a persona. You become an opinion leader, a thought leader for those people in that space. And then the day when you need to to raise, then they know who you are. Well, I have a good, you know, you mentioned that I posted something on on on social media and I said, hey, we're going full time. for OpenVC, remember that. Well, I got three messages from investors. Hey, you're going full-time. Can we get on a call? Can we invest in your company? Because I didn't ask for anything. I just mentioned, hey, we're going full-time. maybe you're going to raise. see. And this gave us three highly qualified investor calls. And we were not even trying. So this is really powerful. Some people are really good at that. There's this guy, Matt Sherman, in... Arizona, I think, is based. The guy interviewed 200 VCs just because he was like, one day I'm going to need to raise, and this is how I'm going to build my network, just by interviewing them, creating content. And yeah, I think it's a very, very smart play. Diego Calligaro (27:45) Yeah. And it show a long-term vision as well. I don't need to know, I need to build it now for the future. So that's very important. Steph From OpenVC (27:50) Yeah. Yeah. And it will also be helpful to hire people, to find employees, to also be helpful to find clients. If you become the guy who speaks about, I don't know, renewable energies and new technologies in renewables and stuff, because that's what your startup is about, you're going to be followed by people who buy this kind of technology, people who partner with this kind of technology, people who work in this industry. Diego Calligaro (27:56) Yeah. Steph From OpenVC (28:15) So that's how you become someone when you're no one. And we all start from zero. Diego Calligaro (28:19) Indeed. Very interesting topic. let's go back a second to the investors themselves. We'll have to touch on a point, which is many times misunderstood as well, when it comes to the feedback that the investors give to founders. We know very well that this feedback is rarely true, but why is this? Steph From OpenVC (28:45) So yeah, I published a post that where I basically said, don't believe investor feedback. It's not honest, it's not true. So obviously, mean, it's a title, right? I need people to click it. So it's a bit provocative. But I think overall, it's true that investors don't give honest feedback. When you're an investor, your job is to say no 99.9 % of the time. You're going to see 1,000 companies invest in one. So that's 99.9 % rejection rate. So now, every time you reject someone, if you have to give them an honest feedback, tell them the real reasons, it's a lot of work. Because if you tell someone who really believes in their project, like you You have made me a meeting with them. They presented a deck and they put so much effort. You have to give them a good reason. You cannot just say, hey, sorry, I don't like it. If you give feedback, you have to give really good feedback. So you have to think about it. You have to look at the product, the market, structure, an explanation, and you have to phrase it in a way that is not offensive, that will not trigger them. So you have to say it nicely. You have to pick your words carefully. So that's a lot of work. And that's work that is a waste of time because you're not going to invest in the guy. So you don't care. Like, and you cannot do that for a thousand companies. So that's the first problem, right? It's just the ROI is negative of giving feedback. The second reason is that a lot of founders, some founders are big cry babies. And if you give them feedback, you know, some will say, thank you. understand. I appreciate you giving feedback. Have a good day. it's a small word. Maybe we'll meet again in the future, which is what you should do. But some founders, and I've seen that many times, they become defensive. They become defensive. So they come back to you and say, point one, you say the market is too small. But I told you the numbers are this and that, so the market is actually big. Point two, you said traction is not there, but we actually have. So they come back to you. But for you, it's not a conversation. It's just you ask me feedback. I give you feedback because I'm nice. I don't want a conversation. This is over. Let's move on. But founders, and some founders, a few, not many, I have to say, but I see that maybe twice a month, they become aggressive. They start calling you names. I've had people tell me I'm racist because I don't even know the guy's race or color or whatever. Because I didn't even know open the pitch day. It's just. know, I'm racing because it's like out of scope. It's stuff that I mean, just for basic reasons was, was bad fit. And so some founders, you know, they have been trying to raise for long time. They have been hurt a lot. They have had a lot of rejections. They're having very bad day. And so when they receive a negative feedback, they cannot take it and they just go crazy. And when you're an investor. And this happens once or twice, honestly, it just disheartening. You're like, okay, you know what? I'm going to stop giving feedback. So a lot of investors I know, especially, you know, new investors, like angels, emerging managers, they give feedback the first year because they have the motivation. like, yeah, I'm going to do it right. And after that, they just give up after a few messages. you know what? Fuck it. I'm not going to, you know, kill my mood for the day because I try to be nice to strangers. I'm just going to tell them, you know, too early, come back later. Or, yeah, sorry, it's not in our scope. They're just going to give you a bullshit reason that doesn't make you hurt. You know, it's like when you break up and the girl tells me, when someone breaks up with you, and the girl tells you, it's not you, it's me. She takes the blame on her so you don't feel hurt, and you don't come back and start asking for reasons. Yeah, sorry, it's me. I'm just not ready for a relationship. when actually she's ready for a relationship not with you. So that's the exact same dynamic here. And so for all those reasons, when an investor gives you feedback, thank him respectfully and then move on. And don't read too much. mean, pay attention. Maybe there is some good stuff in there or some true stuff. But don't overindex for investor feedback because Diego Calligaro (32:19) Thank Steph From OpenVC (32:39) it's likely that they didn't think about it too much when they made it. Diego Calligaro (32:43) Exactly. And can be an opportunity in the future as well. Let's talk now about scummer investors. I know you organized a meeting with an investor who stole money from a founder. Tell us the story. Steph From OpenVC (32:56) Mm-hmm. Yeah, for sure. So this was not an investor. This was a fundraising advisor. And the guy, I mean, it's very classic story. A founder connected with an advisor who said he can help him raise funds. And he's connected to the rural family in the Middle East, whatever. They go through a couple of calls. The advisor sends a contract. to the founder, the contract looks very professional, says, OK, you have to pay $5,000 fee, initial fee, to start the collaboration. Paper is signed, the founder sends $5,000, and then the advisor disappears. That's it. It just stopped answering emails, stopped taking calls. It just stopped completely answering. And this happens a lot. This is not a rare occurrence. I wrote a bunch on the topic. And there are so many ways. This is just one way to scam founders. There are a dozen more. I have a whole list with examples. founders just need to learn. And sometimes they learn the painful way by losing their money. In that case, in that specific case of this guy, I managed to reconnect with this scammer, the fake advisor. and got on a range of call with the guy, who's the advisor. And in the middle of the call, I brought the founder who got scammed. And he didn't know I knew him, right? Because I knew few people and so we're connected. didn't know that. So the founder shows up, the guy goes, but then he mutes his microphone. We're like, hey, what happens? Yeah, no signal. And then he left the call. Of course, we didn't expect anything. The guy is in another country. We don't even know if his name is real. So the money is lost, right? It will never be recovered, but that's OK. What we did instead is we put everything on social media. So we named him. We showed his face, show his name, his company, put it on LinkedIn, on Twitter. think we have almost 300,000 views on LinkedIn since yesterday. This was like, 18 hours ago, right? So it's a fresh story. So this is really fun. The guy sent me an email, the scammer, like now he wants to me. please, please sue me. I'm begging you. So this is going to be very fun. But the thing is, I'm not a founder. I didn't get hurt by the story, but the guy, he truly lost 5K, right? And that's a lot of money when you're So founders really need to learn that. Diego Calligaro (35:02) Huh. Steph From OpenVC (35:17) There are people out there who will pray upon them. And you have to always do your due diligence, right? Do multiple reference calls, do a background check. contract doesn't protect you, especially when you don't meet people in person. These days, we do a lot of business remotely. Diego, you and I, we've done business together and we've never met in person. And so you have to be careful. Don't just wire $5,000 to a stranger. But it's a lesson. The funny thing is, I was thinking about that actually yesterday. I spoke to my dad. My dad is an older man now. He's Egyptian, as you know. He lives in Egypt. He would never make that mistake. Why? Because he comes from a, I'd say, low trust society, right? And he does business the old way. He's very, you know, himself, very tough man, very predatory. He would never, like, even if it's in the contract, he's not going to pay you until he really has to. And a lot of founders, people in tech, honestly, they are soft people, right? They are intellectual people. They have grown in safe environments. with a rule of law, high trust societies, you know, and they're not used to scammers and, you know, and they're honestly easy victims for people who come from different backgrounds and different culture and that are not afraid to be really evil. I'm personally, I kind of grew up with one foot in each space, I can handle both, but. For other founders, they need to be burnt once to learn. So that's what happened, unfortunately. Diego Calligaro (36:43) Yeah, we see it as well many times of this fake investor reaching out to founders and providing money as well. It's quite common, but it's very good that you are exposing as well this. And then let's talk now as well about the VC, how the VC work. I know you write a lot of content about how the VC work as well. Even here, a content that sometimes was copied, I believe. More about the flow that it goes from the LPs down to the VCs and then to the startup. Can you guide us through this flow and all the game of the venture capitalists? Steph From OpenVC (37:24) Sure, of course. So big picture. Imagine a pyramid. Well, I'm Egyptian. Imagine a pyramid and three stages. So at the bottom, you have all the startups, all the founders want to get funded. The second floor, the VCs, so the investors. But actually, there's a third floor, the top of the pyramid. And these are people we called LPs. And a lot of founders don't know about LPs, right? They don't even know it exists. They think that VCs invest their own money. VCs don't invest their own money. VCs are middlemen. They take money from the LPs, and they invest that money in the founders. So this is the whole simplification of the ecosystem. LPs, VCs, founders. So the money from the LPs go to the VCs, and then to the founder, ultimately. Now, why it matters to you as a founder is because... When you're a founder, you're not the client of the VC. A lot of founders think, OK, I'm the client and the VCs are, you know. Basically, what's happening is the other way around. The VCs use the startups as a raw material. And they roll them up into a portfolio, an investment portfolio, that then they sell metaphorically to LPs. So when you're a founder, you're selling. You're not buying. You're not buying funding. You're selling equity. Now I have it in the right order. You're not buying... Funding, you're selling equity. And a lot of founders don't realize that until you explain it to them, then they understand. And so this changes the mindset. In most of the cases, you'll be the one pushing your product. And your product is equity. When you're raising funds, you're selling a financial product. So you're competing. What are you competing with? You're competing with other startups because every startup raising is going after the same VC money. But you're also competing with... any other investable assets, right? Crypto, real estate, stocks, public stocks, commodities, because the LPs and then the VCs in between, the LPs could invest in any of those asset classes, And startup equity is just a very special type of asset, very exotic asset, but it's a financial product. So there are many financial products on the market. Startup equity is one of them. And the process to acquire it is called fundraising. And so those LP is basically they give money to the VCs to buy startup equity for them, hoping they can resell it later at exit, at an IPO or at &A. And so you're a salesperson when you're selling equity. That's why you have to market your raise, right? Fundraising is sales, but the first step is marketing. So you have to build your brand. It's what we discussed with inbound fundraising. You have to build your brands as a founder. You have to build your network. and sell your equity to those GPs. So that's the thing that a lot of people get the wrong way. Diego Calligaro (40:08) What are the specific numbers in terms of returns from the LPs' expectations? And that's why the VPs as well have those specific expectations in terms of returns, essentially. Steph From OpenVC (40:19) Yeah, I see. Yeah, I see what you're referring to. So basically, if you're an LP, like I said, that is really what it is. You could invest in startups or you could invest in the S &P 500. Right. So the same block of money could go to two different buckets. So usually you do a little bit of both. But for the return investments, to be worth it on the startup side, you need usually 3x to 6x on your money. You need to 3x. Depending on how much you're investing, you need, let's say, to 4x your money. So what it means for the VC at seed stage is that you need to 10x or 100x the money you invest on each startup. Because you're going to invest in 10 startups, but 9 will not return much. Out of 10 startups, five will die. Two will bring basically 1x. So if you invest a million, you get a million back. So you don't win, you don't lose. But it's been five years have been lost. So that money could have been invested somewhere else and bring returns. So it's actually negative. And then two startups will bring 2x to 5x. So you invest 1 million, you get five seven years later. But you have all the first loss. You've lost the first five startups. So you basically just covering your loss. So you have invested in 10 startups and at nine startups, you're still not making a profit. So the last startups has to return the whole fund and more. So that's why typically you're going to want 10X to 100X, meaning I'm a VC. I invest $1 million in your startup. I want to get between $10 and $100 million in return at exit seven to 10 years later. I'm giving a range because there are other factors, like the fund size make a big difference. The bigger the fund, the lower the numbers. But if it's a small fund, you probably want 100x. So that's the kind of LPGP conversation. Now, if we move to the VC startup conversation, what it means for the founders is that you have to show a project, you have to show a startup that can 100x the money within seven years. That's not easy. How do you convince an investor that your project, your company, that is an idea today or an MVP with 1,000 users can 100x a million dollar in 7 to 10 years? And so there are a few indicators for that. Usually... let's look at SaaS because SaaS companies are the most well-known example. We're going to look at your revenue and apply an annual revenue, your ARR, and apply a multiple. So if your company makes $5 million per year in ARR, multiply by 10, that's $50 million in exit value. For a $1 million investment that seed to 10x, you need a billion dollar exit. So it means you need $100 million in annual recurring revenue. Sorry, I know it's lot of numbers. You asked me the numbers. I'm just doing what you asked. I'm sorry for the listeners if it's a bit unpleasant. But now we are at the stage where I'm a founder. I need to show that my company can hit $100 million in annual recurring revenue in seven years from zero to day. Now, what does that mean? Let's go one level deeper. $100 million in revenue. If I'm selling a product for $1,000 per year, let's say I'm selling a CRM, I'm pipe drive, selling a CRM, $1,000 per year. If I need $100 million, it means I need to sell to how many clients per year? So you do 100 million divided by 1,000. That's 100,000, something like that. I'm not good with math. So I need to prove that you can sell a product that costs $1,000 per year to 100,000 people in the next seven years, and have 100,000 clients, recurring clients in seven years. That's the math. So when you go to a VC, and by the way, what I explained painfully, this is instant math in a VC mind, right? So when you come to a VC and say, hey, I want to raise funds, I need a million dollar for seed. What the person is thinking is, okay, can this guy get to you know, sell to a million people at $100 per year in seven years. If yes, I have a winner. If not, it's not worth investing because I can only bet on winners because I know nine out of 10 will fail because that's the math that my whole business is based upon. So sorry again for the math, sorry again for the numbers, but I believe founders should know that because that's the assumptions. that drives this whole industry. Diego Calligaro (44:45) Yeah, that's so important, this part. And it's good, you explain it in a very specific way. So then that perspective is so important when you rise those funds. And those funds that you mentioned yourself, of course, it's very difficult to rise. But you also mentioned once that venture capital is not for poor people. Steph From OpenVC (45:08) Mm-hmm. Diego Calligaro (45:08) And what do you mean by that? Steph From OpenVC (45:10) Yeah, so. In short, if you're poor, and when I say poor, I mean really poor, right? Not middle class. mean, like, you really live on food stamps. You struggle paying your rent. You should probably not start a VC backed company because you will find that, number one, it's actually expensive because you're supposed, as a founder, to cover all the early costs, right? VCs will not pay for your MVP developments. VCs will not pay for your incorporation or for your patent and all that stuff. So even before you can have access to funding, you have to spend before you can get VCs to support you. So a lot of people think, OK, I just have an idea, and VCs will pay for all the costs and development and stuff. It's not true. VCs come after you've taken the first risk. So if you're really poor, you just cannot afford to start a startup. So you cannot even get to the level where VC will consider you. That's number one. Number two, if you start a you do this thing. It's a high risk, high reward. So if it's successful, you're going to be a billionaire. But if it fails, you're going to end up with almost nothing or with less than nothing. You're going to maybe lose more. So it's big bet. So if you are a wealthy person, you know, have, you know, a house and a stable situation, you have retirement and all that stuff. It's a bet that you can afford to take because worst case scenario, you, you know, if you're a millionaire, best case scenario, become a billionaire. Worst case scenario, you remain a millionaire, right? Your life will not be like damaged. But if you're a poor person and you're going to put three, five, seven years into that startup and it fails. then you're really back at zero. So that's dangerous on a personal level. And I know it's not a popular thing to say because people like to think that through VCs and entrepreneurship, I can go from rags to riches. I can go from poor to mega rich. That's a nice story. That's a story that people love to tell because it feels good. What I see working with founders is that people who raise they successfully raise, they usually already have a good situation because they have done many things before business-wise. They have a track record, they have been successful and so they have money and they're not, they don't need the funding, they're not in danger personally, their family stable, they can focus on the business and it's of course it makes sense. It's like saying okay I want to play in, I don't know, you know, League One, I don't know how you call it in Italy, in the first division in football game. The league, Serie A exactly. But yeah, you have to climb the steps. My personal opinion is, as a founder, it's probably better to have a first business success outside of VC. Maybe you bootstrap a company, maybe you have a career at a... Diego Calligaro (47:39) Yeah, the league, Serie A Steph From OpenVC (47:56) I don't know, Microsoft or Google or something like that. That will give you some money. That will give you some network. That will give you some track record. And then on that, you can do, now phase two, now I'm going the VC way. And I'm going to try to go big. But I'm already safe and stable. And I'm not putting my life at risk. I'm not my financial life at risk. I'm not putting my family at risk. I spoke with a founder who I mentioned him in the blog post, right? This is very interesting. The guy explained, yeah, I started a startup, I raised funds from VCs and actually I'm from a very poor family initially, it's from India. So what he did, like when he started, his whole family relied on him. He sent money back home to pay for his mom, for his brother to go to school and all that stuff. So a lot of people relied on him. He said, I could not start a startup at the time. So he took a job, I think at Uber or something like that as an engineer. get paid super well, right, hundreds of thousands per year, did that for like five, seven years, saved some money, put his family in a safe place, bought him a house or whatever and back home. And then after that, okay, now I can take a risk, right? Because I have savings, I have retirement, I own my house, my family is safe. And then he started his startup. And I think that's a natural order of things, but some people don't want to acknowledge that because... It's not, it doesn't feel great. It feels that it's excluding people, but I think reality is exclusionary anyway. So I'd rather be honest and just tell people what it is. Diego Calligaro (49:18) Yeah. And so tell us about the difference here when rising funds, know, because of course, if you have more connections, you know, you have a bigger network as well, that probably is going to be easier. many people don't have that, especially first time founders. What would you say like are the best practices when trying to reach now to investors. Steph From OpenVC (49:42) Are we talking about a founder who has time or who has no time to raise? Diego Calligaro (49:47) Okay, these are two different topics. I will say the one that doesn't have time, which is most of the active ones. Steph From OpenVC (49:52) Yeah, doesn't have time. so the first step, that always the first step, assess your fundability, which means you want to understand how fundable you are. Like I said, fundraising is sales, you're selling your equity on the market. There are other products on the market. Is your product exciting and sexy for investors? Are they going to want to fight to invest? Or is it going to be painful and difficult? It's very important to have this assessment initially. Because if you see that it's going to be difficult, you probably need to adjust your whole strategy. You're not going to race fast. So if you know that you're not very fundable, then you probably need to identify what the problem is. Fix it. Maybe you need three, six months to improve your traction. Fix your team. I mean, all these kinds of things that you can do. And then you can raise. So maybe you're to want to cut your costs to extend your runway. Many actions you can do before you can raise. Improve your personal branding, being active on LinkedIn, on Twitter, to build your network. So if you're in a rush and you're not fundable, buy yourself some time and improve your fundamentals first. And I know a lot of people don't want to hear that. because they're like, I need to raise now. I have three months to raise. But that's not how the world goes. So that's for founders who don't have time and are not very fundable. Now, if you're fundable, this means that you have a strong team, a proven team, proven team with a track record. So you've done things in the past that show that you can run a business successfully, that you are an outlier. as an entrepreneur, as a technology person, whatever. And or you have traction. These are the two things that matter. Team, traction. That's the only mean. There are small things, these are the top two. Traction means you have usage, you have growth, you have retention. Right, the key metrics. So if you have that, then after that, it's just a matter of execution. I mean, I wrote a whole book about that. It's basically, your investor lists really well, find the best access points. Maybe it's going to be cold, maybe it's going to be inbound, maybe it's going to be via intros. And then run the process efficiently. You need to use a CRM, track your pitch deck. Your materials must be really good. You must have a solid data room. You must have a solid pitch deck. And of course, You must have an appropriate round size, valuation, all that stuff. Don't go cry. I've seen people who have never raised before have never, we're raising $50 million. OK, good luck. So there are so many, many, many ways to make a mistake. It's so easy to make a mistake. And that's why I always tell founders, do your homework. If you've never raised before, it's fine. But prepare yourself. Take some time to read about it, take some time to prepare, maybe have a little budget to get help. I'm not against spending a bit of money to get the right amount of help if it's the first time you raise. Maybe it's a lawyer, maybe it's a designer for a deck, whatever it is, maybe it's a coach. But do your homework before I do the research to write people. But yeah, don't just be naive. Everybody's competing for that pot of money. It's very competitive. So you cannot just, you know, I've seen people come to me and say, hey, nobody like, you know, I don't know why I cannot trace. And then you're like at the pitch deck and it's a complete catastrophe. If I put like, yeah, I did in two hours, I don't have time. Well, if you don't have time, don't trace, right? And don't come to me and complain. So there is really this, the bar is really high. And even when you know that, Because you hear, fundraising is difficult. You're to get rejected. It's normal. But then when you actually raise, you're just, it's even harder than I thought. It's like between, there is this quote in The Matrix by Morpheus. There's a difference between knowing the way and walking the way. You know it's going to be difficult, but until you're walking the path and you get hurt every day, that's when you realize how how tough it is. yeah, make sure you're fundable. And once you're fundable, prepare really well and be professional about it. Do your homework and avoid all the beginner's mistakes because you only get one chance to make a good impression. So it's not a thing where you can iterate. I'm going to ascend and see how it goes. Every investor, you get one shot, one opportunity. So don't waste it. Diego Calligaro (54:00) And if you look at yourself, you see, you've been seeing thousands of texts. I know you were screening one at a time as well, especially at the beginning. So you've probably gone through so many requests, sometimes unrealistic or even funny, I would say, in terms of what they're asking. Can you give us some examples? Steph From OpenVC (54:17) Yeah. I don't like to make fun of founders because a lot of times it's just people who don't know any better. Like I said, it's not something you learn in school, right? It's a very niche skill. There are a few people that are really unpleasant and entitled and demanding. So those guys, usually post them on social media. So let's try to see some fun stuff. I had one guy. This was really weird. Nice guy and everything, but... He was always referring to God in his emails. I must have his email somewhere, but it's basically that I'm praying God that you understand the project we're doing for the greater good, blah, blah. mean, that's weird. And he's probably a very religious person, obviously. It's okay to be religious. Don't bring religion. into your fundraise, right? These are two separate things. So this was very unusual. This was very unusual. And it's not that you're religious that is a bad thing, but it shows that you don't understand social rules. the signal it sends about you as a founder and your lack of social intelligence is not good. So don't do that. What else? Honestly, it's not funny. I don't have funny stories. It's all pretty depressing. It's all pretty depressing. It's stories of people who just do it wrong and they're running out of cash and they are making bad decisions. Like the guy who went with the fundraising advisor and lost $5,000 because they're emotional, they're in a rush. Diego Calligaro (55:30) Yeah, it became amazing. Mm-hmm. Steph From OpenVC (55:46) So I don't have many fun stories, unfortunately. I wish I had, but it's... Diego Calligaro (55:50) unrealistic expectation, say, know, not necessarily. of course, Steph From OpenVC (55:54) It's always the same stuff. I have done nothing. I'm nobody, meaning I don't have a track record. I've done nothing, meaning I don't have traction. And I want to raise $10 million because this is a great idea and will be a billion dollar idea. By the way, I'm raising $10 million for 1 % of the company, of course, because it's not fun otherwise. there was one. OK, have one guy. It was really, really something. So this guy sends two pitch decks. So the guy was the kind of CEO of two different startups raising at the same time. And what was the story? So he sent the deck to one VC and to another guy. And the two guys met or something. And basically, his deck landed on his two decks with him, like two different companies, nothing in common, right? And even some other team members, like, I don't know, was it a scam or was it just trying to two startups in parallel and didn't realize it's a bad idea? But yeah, you don't do that. so long story short, the VC was like, man, I mean, what startup are you building and which one are you focused on? Because this is not something you do, right? You have to show that you're committed and you're focusing on one project. So this is the kind of, but like I said, it's more... mistakes or ignorance. Diego Calligaro (57:06) Yes. Looking at these mistakes, what would you say are the most typical ones that you see coming through? Steph From OpenVC (57:13) Yeah, unrealistic valuations and round size. And the most common mistakes is people who don't understand venture capital. So for example, if you raise now, seeds, it is expected that you'll be raising series A 18 months later. And it is expected that you will 3x your top line. So your revenue should grow from let's say, $1 million ARR to $3 million ARR 18 months later. And then you expect it to raise. If you had raised, I don't know, two, you're going to raise eight. And this is very obvious for someone who's been in that space a little bit. And that's just the rules of the game. And of course, there can be adjustments. But that's the blueprint. A lot of founders just don't understand that. They don't know that. So they're like, yeah, I'm just going to raise now and not raise in the future. Yeah. OK, but that's not what investors expect because maybe if I want to follow one or maybe if I expect to be able to sell secondaries later or something like that. the common is just sending the wrong signals out of ignorance. That's what I see. And so it can be a million things, right? can be that you're not full time on your company. or you say it openly, it can be that your market size, your market size is $10 million. And nobody is going to fund the project if the market size is $10 million. That doesn't make any sense. And so these are honestly the mistakes I see. So there are a million ways to be wrong, a million ways to kill your project because you don't understand the game you're playing. Diego Calligaro (58:48) Thanks for sharing Steph. And maybe few last reflection about this. If you can share your piece of advice for CEOs that are trying to rise and also for venture capitalists that are trying to find the right startup. Steph From OpenVC (59:06) OK, so for the founders, if you're a CEO trying to raise, number one, do your homework. If you've never raised before, learn the rules of the game. Take a couple of days. Don't jump straight into cold, demanding VCs. Read contents. Of course, you can check out OpenVC. That's what we do. But you can also check YC School. You have a lot of resource out there. You can even ask Chagy Pity. But. There is no excuse to not be informed today. All the information is out there. It's free. So just take a weekend to educate yourself on how this thing works, because you're going to give yourself the biggest advantage there is, number one. Number two, understand that the market is the market, and you don't get to decide what the rules are. So there are standards for valuation. There are standards for round size. You cannot just say, OK, I want to raise in two weeks. You're not going to raise in two weeks unless you're Musk, right? But if you are not Elon Musk, then things take time. And this is just a process. on that point, advice number three, social media is your friend. Like Twitter plus LinkedIn, you have billions of dollars in funding. Investors are very active there. They're watching what's happening. You can literally make their phone ring with notifications if they follow you. So there is a whole strategy here about inbound fundraising that you can learn and that will help you raise successfully. But again, it takes a bit of time. So the best moment to start raising was 20 years ago. The second best moment is now. So if you haven't yet, Now is the moment. Now that's your signal. That's your sign of the destiny. Sign up and be active on the social media. And of course, check out OpenVC. have tons of resources for you. That's our founders for VCs. They are big boys and big girls. They know what they're doing. They don't need my advice. But I would tell them, yeah, tap into AI. Tap into those tools. They are here to increase your productivity. They probably know that already. There is a ton of really super cool tools today that will help you better serve founders and better serve your LPs. So yeah. Diego Calligaro (1:01:12) Great and looking back at your career, also your role, now what would you have done differently? Steph From OpenVC (1:01:20) so so so. Maybe I would have monetized OpenVC earlier. Because for two years, we were kind of a free software, because we're not very serious about it. And I found that when we started monetizing and making money, and we could go full time, we managed to grow faster, of course, and reinvest and improve the product. So yeah, I think we would have. Had we monetized earlier, we would have moved faster. And so that's probably what I would change. Diego Calligaro (1:01:49) Okay. And then last question here. So the world is going through an accelerating rate of change in which technologies are impacting always more society. What do you see are, what are your main concerns and also what excites you most about the digital future? Steph From OpenVC (1:02:07) Robotics. So AI is amazing. I absolutely love it. But AI plus robotics, where you can have an impact on the physical world, this is going to be awesome. If you can have robots at home to cook, clean for a fraction of the price, think about older people, can keep their autonomy, thinking about difficult tasks that... like difficult on the body where can put robots instead. And I think it's just scratching the surface. But I'm very excited, more as a consumer this time, right? I'm just so excited about this idea of having robots at home and powered by AI and who can do just all the boring, difficult stuff. That's very exciting. Diego Calligaro (1:02:50) Thanks a lot for your time. It's been an amazing conversation and definitely we'll come back and speak again in the future. Steph From OpenVC (1:02:58) Thank you Diego, it was great.