From the Founder’s Perspective: State of Early-Stage Leadership
DTC investor Radhika Malik interviewed founders Rakesh Yadav and Somya Kapoor on stage at StartupGrind Silicon Valley 2023.
Radhika I am excited today to have two DTC-backed founders that we’ve gotten to know over the last couple of years: Rakesh Yadav from Aidaptive and Somya Kapoor from TheLoops. I will let them introduce themselves. Rakesh, want to kick us off?
Rakesh Hey everyone. I was at Google for 14 years. It was my first job. I worked on the Google ads machine learning platform. I quit Google about two years ago to start Aidaptive.
Somya Hi everyone. I’m Somya Kapoor, CEO and co-founder of the great company called TheLoops. We’re building AI-driven CX operations. Prior to starting my TheLoops in 2020, I was at another startup as the first employee. Before that I was at ServiceNow and SAP in a multitude of leadership roles in billion dollar businesses. So, in the last six years I’ve gone from big companies all the way to starting my own business. It’s been a journey.
Radhika When we were talking, you shared that when you were about to start TheLoops, another investor told you that there are far better ways to make money than starting your own company, but you did it anyway.
Somya Absolutely. I was at one of these startup events, and an investor got on the stage and said, “Okay, if you want to make money, there are far better ways of doing than starting a company.” And at that point I was like, “What the hell is he talking about,” right? I mean, I can start a company and sell it in a couple of years. Or, I can go big and IPO.
But on this journey, I’ve learned a lot of things. If you’re in it for the money, don’t start a company. But if you’re passionate about a topic, a concept that you want to prove the world, and it’s something you want to work on for the next 10 years of your life, go ahead and start a startup.
Radhika And so you started TheLoops.
Somya I was just done with corporate BS. I was in the hub in Silicon Valley constantly seeing new ideas, fundamentally changing the way we were doing business. But I was surrounded by people saying, “Oh you know what, none of this is going to work.” Not Uber, not Airbnb. But I could see massive disruption happening on the consumer side and how that was going to come to the enterprise side. I was tired of trying to convince others that this change was coming.
Radhika Rakesh, you had a similar experience. For a long time, you were building the AI/ML that powers the ads infrastructure at Google. What got you interested in starting Aidaptive?
Rakesh I was the textbook definition of entrepreneur even at Google. I would get called in for doing “zero to one” projects because after five years I earned a rep of being good at that. At Google, you could take a product from zero to a billion in ARR because of the scale and Google brand. I stayed focused on that.
Radhika What about the perks like free massages?
Rakesh (laughs) Oh I never got a massage! The only thing I got is black coffee and maybe lunch, like a startup. Machine learning had such a huge impact over time on the ad platform. Constantly adapting as the whole world changed in front of us. The main insight for me was that in the next 10 years, machine learning was going to have an outsized impact on our whole community, our humanity. My main motivation was knowing that in 10 years there will be some market leaders with the best ML platforms. I wanted to get the ball rolling in that direction and be part of it.
Radhika Alright, let’s talk about investors. When you left Google you had a very strong Rolodex, a network of people you were able to raise with a bunch of notable angels and VCs were just handing you term sheets literally, right? But tell us about that process. How did you choose your investors?
Rakesh Yeah, so thankfully over 14 years, you’re building up your skill set and network, so I’ve invested in that part of the story building a great team of mentors/leaders/folks. For example, half of my team at Aidaptive have worked with me for six plus years, well before I started the company. Same goes with my angel investors. I brought in 20 plus angel investors who know me for a decade plus like DJ Patil, the former US chief data scientist.
I think what you are mentioning is during fund raising I was lucky enough to get preempted offers. I ended up going with the DTC term sheet that was two thirds of my maximum offer. Partly this is because with Daniel Docter, who’s on our board, I had built a relationship over a period of six to nine months at that point. We can fight with each other over any idea, but still it doesn’t hurt our relationship much.
Radhika You are choosing people to go on a journey with you for the next 15 years. So, make sure they’re people that you can fight with that you actually like, respect, trust. Somya, does this resonate?
Somya I think choosing your investor is as important as choosing your partner in building the company. It is super critical. Take your time, you will get more “noes.” Than “yeses.” Actually, you’ll get 95% “noes.” It is a different world today than in 2020, 2021. If you are passionate about what you’re doing, keep at it despite the “noes” is what I’m going to say.
But as you’re choosing your VC, be super diligent in who you pick because that person is going to be there with you in thick and thin. It’s as similar as choosing a partner that you’re going to be married to. This relationship goes until the end node of where you want to take the company.
I was lucky enough that the first term sheet that we got was from Dell (Technologies Capital). We took it and we did our diligence on the people – at that time it was Raman and Tyler that joined the board and then later Radhika joined us as well. The VCs that we chose were operators, people who had done it before. They were not the financial analysts that became VCs or people that were just creating PowerPoint decks. These were practitioners who had built companies and products and understood the grind of what that means to build a company in an environment where you don’t have a brand and nobody knows who you are.
It’s in that environment that you’ll see the true colors of VCs come through. When things get tough, who has your back? Who has that sounding board that can guide you through the ups and downs of making certain decisions – because you are going to be making tough decisions – either shrinking your team size, adding more people, letting go of customers that you onboarded that are not required right now. That experienced sounding board is a very, very valuable asset when building a company.
Radhika So tactically, if you were to go back three years, what would you have done similarly or differently in choosing those first investors?
Rakesh One of the main things is that as investors are investing, they’re doing due diligence. You should do reference checks as well. Find three founders – one early stage, second is later stage founder and third is someone who has exited or been acquired. Ask them tough questions about the investors you are considering. At the end of the day, all of us founders are our own community. We all need to support each other and most people are very honest. You may hear many crazy stories. I’m not going to repeat any of them on stage but if you want to find me after, I’ll help you out.
Somya I think one thing Rakesh highlighted really well is that this founder community is so accommodating. I can tell you that every founder that I’ve met, including Rakesh who I just got to know two, three weeks ago, is phenomenal in sharing insights and feedback. I don’t think I’ve gone to any founder, early stage or late stage, that has not helped or guided me if I’ve asked.
And seconding what he said to do your reference check as you’re picking a VC just like you’re doing with every employee that you add in. It’s very, very important to do reference checks.
Radhika Yes, absolutely. What are areas that you leverage your investors for? Where do they add value? Share with the audience: tactically, once they raise money, what can they leverage their investors for?
Somya I’ll start on a positive note I can share. Tyler from DTC is a tough cookie, but someone that stands by you in tough times. He put me through a financial exercise in my early days the first year and I was like… “I have so many other things to do, build a product, hire teams, get customers. Why are you putting me through this financial grind?” He would give me scenarios every weekend like
- What if you were raising a series A with these five facets?
- And what if you’re raising your series B?
- What if you had this liquidation clause or this or that clause added into your term sheets? What would your end results look like?
Coming from a product background, as someone that’s managed go-to-market activities at big companies, we don’t think this way naturally because there are people doing your financial plans for you. They’re giving you a budget and you work within your budgets and to do your rollouts and everything. So that really helped in grounding and building a business.
As founders you’re going to realize apart from building a product, getting the right set of skill set, hiring and building your team and getting the next raise, you are constantly looking at your financial plan. That’s what actually tells a story to the next investor. They look at the numbers to see how you’ve managed cash flow. How have you hired people. How has revenue come in. And how have you really gone through things? And all that story comes from the financial aspect of it. Now, if you asked me, I’ll tell you what’s our EBIDA, net burn, gross burn, net retentions and so on. I had no clue around this three years ago.
Another area is with customers. If they’ve invested in you, they also fundamentally believe in the idea and they can talk about your product and your ability to deliver on that vision to other customers for you. And third, is in recruiting talent. I’ve heard that people tend to perform the best at specific company stages like from zero to $5 million, $5 million to $20M, $20M to $100M. They can help guide you in finding the right early-stage talent.
Rakesh I think of investors as support systems. Look at your strengths. Mine are product and engineering. So then what I needed to build a business – finance, team building, marketing. I went through my network of friends and found people for each area as angel investors. So, for example, Keval Desai from Shakti VC, who’s our second biggest investor, helped me out through ideation of our GTM strategy. Even down to my slides. They were engineering heavy and he helped me change the design and over time get better at listening to customers a lot more. We used to meet every Friday for one hour; he was basically a team member for the first year. And DJ Patil has been like my therapist. He’s one of the only people who really asked me, “Hey how are you doing?”
Radhika US Chief Data Officer… a very qualified therapist to have.
Rakesh Well also, goes without saying that anything machine learning, data science, he’s very well connected. And he’s founded his own startup and that helps a lot.
Radhika The macro environment looks a lot different from when you started your companies. Share with us what you’ve had to change about how you operate the company, how you’re hiring and keeping everyone motivated.
Rakesh I got lucky because half the people on the team have worked with me for six plus years. Of 35 people, 20 of us know each other and we just decided we’ll keep working together. So that helps with culture and motivation. The biggest change from working together at Google is that because we started during Covid, we’re a remote-first company. We are in India, Japan, and the US. That means a lot more async communication. We send out things like monthly updates across all job functions. We hold monthly AMA sessions in two time zones. Basically, we have to communicate a lot more heavily just to keep the culture going.
Somya I started in 2020 and now we’re in 2023, a different era completely. The financial dynamics have changed. In 2020, nobody talked about profitability in a seed stage or a series A startup. You were building a product. What are you talking about, profitability, right? And today, I think majority of VCs are looking either are you profitable or do you have a path to profitability. You don’t have the luxury to keep building a fun project for two years, three years.
Something that I’m glad Rakesh was really lucky to avoid – I had to go through a downsize because we hired way ahead of the growth. But that was the nature of the game in 2020 and 2021. Keep hiring because you’re going to hit 3x, 10x, 100x. So your go-to-market team was getting bigger and bigger because you’re always projecting nine months to 12 months ahead of what our growth would look like. We were hiring way ahead of growth and had to trim down in 2023. Now, you’re not hiring ahead of the growth, you’re hiring ahead of a quarter. If you see an uptake, boom, and your pipeline is going 10x, you hire people at that point. Not before.
The pressure is coming down not on just later-stage companies but to us at seed and series A also. VCs are expecting some of these dynamics from the early stage mindset. Being very cognizant of mindful spending and understanding that you don’t have the cash runway forever. It was not like that for the last 10 years but the paradigms are completely changed to what they were before.
Rakesh It’s back to fundamentals of building a real business. No longer fun projects.
Somya Yeah, still hopefully having fun doing it. Because you don’t shut down on the weekends. Someone asks me about weekends. I’m like, what are you talking about? What are weekends? I don’t even know what a weekend looks like. If I’m out somewhere, I’m constantly thinking about work. There’s something I’m behind on. So for people starting this journey, I don’t know what work-life balance is anymore.
Rakesh What’s it like this at SAP as well? At Google was always like life-life balance.
Somya When I was at SAP, I had a business class. Traveling to Germany for work, business class. Now I sit on the last section of plane while I’m traveling to customers, a different perk. (laughs)
Radhika Thank you so much to both of you for keeping it real.