‘Investors invest in lines, not dots’: The founder of a $470 million startup explains how to get investors on board

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Here’s an excerpt from the transcript:

Alyson Shontell: Does the money come easily? Was it a bit of a slog? I know you had two different co-founders I think at the time.

Payal Kadakia: When you have hype of something like Tech Stars, it definitely gives you some clout but at the end of the day, we didn’t have the numbers at the time. It was a moment for me to go back to my mission and I decided we would let go of certain people. We would focus the company on pivoting and iterating, which was a hard decision to do but what was the point of keeping a product up and funding that when it’s not working?

…

Shontell: How hard was it the first few years and were investors actually interested in it? Did you find that it hard to pitch to them at first?

Kadakia: I think I had a lot of people who were like, “Payal, we love you but product’s not there,” or “business is not there.” I never gave up, though. I think as a founder and entrepreneur, you just keep hustling through it. I knew I’d figure it out and as long as you don’t run out of money, which is the number one key, that’s like your right to keep going. You have to keep making hard decisions, like I remember I needed a bridge round and people were like, “of course,” because they were seeing –

Shontell: Explain what a bridge round is.

Kadakia: I needed an extra $300,000 to stitch between where I was with my capital and where I wanted to go and I wasn’t ready to go into a big round and so it was awesome because I think people were just like, “your progress.” I always say investors invest in lines not dots. I was giving them so many dots that were so much better than the last time I had seen them and I was keeping people in the loop. For me the reservation number and our revenue trajectory, I remember just sending charts and the hockey stick to people. So many of my investors, I remember when they were like, “when you texted me that, it was like oh my God.” I remember sitting down with Hayley from Birchbox and I was like, “here’s what it looks like,” she was just like, “show me that again.” I feel like that was when I knew we had cracked something that was really special. That was January of 2014.

Shontell: I had investors emailing me saying, “I’ve seen you write about Payal before. Do you know her, and can you intro me?” You had a serious demand that cooked up. VCs are like, “Oh, what’s the next shiny thing? I have to get into this hot deal.” You were — you became that hot deal. What was it like when you hit that inflection point? Do you notice a change? How do you deal with that as a founder?

Kadakia: I did notice the change. I remember going out to raise my series A and ending up with multiple term sheets when I had gone to Silicon Valley probably four times at that point and coming back with nothing. This is when I met Fritz, and I was like, “Fritz is the type of person I want involved in my company.”

Shontell: Fritz Lanman is your now CEO.

Kadakia: He’s the CEO of ClassPass. It was one of those moments when I met Fritz I knew he believed in my mission. I was meeting all these people who I know were now chasing me because they saw traction, but I didn’t know if they believed in my mission. It’s really hard to figure that out in three days when everyone’s like, “Let’s sign a term sheet tomorrow.” I had that struggle, and I remember Fritz and I chatted about it. He was very much helping me with the fund raise. I was like, “I just don’t know if I trust any of these folks. I don’t know them, and I want the chance to get to know them.” I had multiple data points with them, the same way they have multiple data points on me — it didn’t feel fair. Fritz was like, “I think I can get you the capital,” so he ended up leading my series A and getting more involved in the company, and I said no to some really great people who actually got involved in the company in later rounds because I had enough data on them.