Alex Salazar on Taking Arcade from Zero to a $12M Round (Alex Salazar / Arcade - Ep 56)

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Alex Salazar: being stealth people think it's because, you, wanna have this big launch and, or you wanna hide your idea.

And that's actually the dumbest reason to be stealth. We were stealth we didn't want anyone to have preconceived notions on what we were so that we could just iterate and pivot as fast as possible. And I have to explain to anybody why yesterday we were this and tomorrow we were that.

Jason Yeh: ​

There's this funny thing about fundraising that doesn't really get talked about from the outside. It looks like a clean, straight line build, pitch raise, money scale, but when you're in it, you realize just how much more goes into fundraising and building a venture scalable company For most first time founders, you [00:01:00] end up getting burnt out by the process. I know I did. You get told the same advice over and over again. That doesn't really make sense to you, and you're stuck trying to translate vision into traction while the clock is ticking.

But what happens when you're not doing it for the first time?

What happens when the founder is a former VC who also built and sold a company before and still decides to go back to zero, take no investor meetings, even with hoards of VCs waiting for him and grind it out with just one other person in Tiny office?

In today's episode, I get to talk to Alex Salazar, co-founder and CEO of Arcade. We get to talk about what it's actually like to raise when you're not just a founder, but a former investor yourself who's built and sold a company successfully. We get into why they stayed in stealth, how they ran dozens of customer tests without building anything, and how you know when an idea is finally clicking, which ultimately led them to raising their $12 million seed round.

This episode is especially illuminating because I get a chance to talk to [00:02:00] Alex, an experienced fundraiser who understands both sides of the table to connect the dots for first time founders to clarify the lessons they can take from his experience with this company.

But before we get into the company or the raise, we talked about where it all started. At home with a mom who is building a tech company and quietly setting the blueprint.

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Alex Salazar: okay. So one, um, I was, I mean, like, I was incredibly lucky. Um, my, you know, this is gonna date me, but you know, my parents, my mom was in the tech industry, right?

Jason Yeh: Hmm.

Alex Salazar: mom was, uh, my mom had started, uh, what, what's called a value added reseller. And so, um, you know, she was a distributor for IBM and HP and Compact and companies you never heard of anymore called like bookie data and stuff like that. Um, and she was a distributor for all of these like big tech companies, you know, back in the early [00:03:00] eighties, um, to Latin America and the Caribbean. And so I, you know, I, I very much grew up around the industry and as a result of all of this, I was one of the first kids in my neighborhood to have a personal computer, a real personal computer in his bedroom. and, um, and this is also before, you know, video, video games became like, you know, this, this thing that parents were worried about. Um, and so my parents very much put video games on my computer for me. Um, and, uh, and at the time the video games were all pretty crappy, and I was young, so the only real video games that they could give me were like, educational video games, like math games, stuff like that.

And so, really early age, I was, I was jamming on computers before anybody else my age was. Um, and that's kind of where my love of tech started. Also, my love of video games. And so, uh, I got older, um, you know, I, like many of my friends were really into video games. I had started to build my own rig. Right. You know, every, you know, and because my parents were [00:04:00] computer distributors,

Jason Yeh: Good deals.

Alex Salazar: Yeah.

I had like the, I had the, I had the, the catalogs so I could just order like the individual, like Ram and CPUs and I could like spec it out to the nines. 'cause I didn't have to go to the store. I could just order directly from, you know, ACEs and Intel and all these different people. And in, you know, and Nvidia in the early days when Nvidia was just like a graphic store company.

Jason Yeh: Yeah.

Alex Salazar: and so I always had, I was always decked out on like the coolest rig. And I had assembled every last, every last little inch of it. Um, and, uh, but it was really, really more love of video games than anything else. Um, I always thought I was gonna be a doctor. So I mean, like, until I put AP bio my senior year and then I had a total like, identity crisis. 'cause I realized I hated fucking bio.

Jason Yeh: Yeah.

Alex Salazar: I was not like a memorization based person, but at the same exact time I was acing physics. Um, and I'd already applied to pre took to pre-med. Uh, for college. And so, like, you know, I kind of hit this realization a little too late. Um, and so, [00:05:00] um, you know, I had ultimately like not gone to the universities I was planning on going to. I ended up going to a local university my first year called the Florida International University Goold and Type Go Gold and Panthers, I think. Um, and, uh, while I was trying to figure out like what, what it is I wanted to study,

Jason Yeh: Yeah.

Alex Salazar: um, I bounced around in the first, I bounced around very quickly, thank God I, I bounced around, um, a few different majors, uh, within the span of two quarters. Um, and so I quickly went from like not really knowing what I wanted to do, to knowing I wanted to do engineering, to knowing I wanted to do computer engineering to realizing I didn't like bread boxes and physical shit to like setting, I wanted to do computer science

Jason Yeh: Hmm.

Alex Salazar: and all of that quickly that I transferred out to Georgia Tech and then, you know, had the career that I had.

Jason Yeh: So, let me pause you there. Uh, you know, your, your mom was a distributor, was it her own business or did she work for a bigger company? I, I'd be curious what your influence around entrepreneurship was.

Alex Salazar: Yeah. You know, I'm still trying to live, [00:06:00] I'm still trying to live up to my mom's shadow. Uh, you know, my mom, my mom is incredible. Uh, so, uh, my mom, uh, my, this is my mom's first company. She had started as a computer distributor. She was.

the first computer scientist. She was the first female computer scientist, I think to come out of Columbia, the, the, the country. and for sure the first female computer scientist to graduate from Florida International University in Miami.

Jason Yeh: Hmm.

Alex Salazar: Um, and so like this, you know, the, the roots go deep in this. Um, and so this is her first tech distribution company. Um, she sold it, um, when I was around, I wanna say like nine. Um, and so, you know, our family went from being like very middle income to, you know, suddenly doing quite well. But mom, mom was really good about it. Mom, like actually never showed it. So we needed to move. We lived in the same exec house. Uh, we just took nicer vacations. Um, and, uh, and then mom started her second one, uh, when I was about [00:07:00] 12 in sixth grade. uh, it was, and, and like the first one, it was started in our garage,

Jason Yeh: Wow.

Alex Salazar: in the hallway next to my bedroom is where all of the phone calls and faxes were going out. And so, um, you know, from a really early age, I got to see and be a part of companies being started.

Jason Yeh: Wow.

Alex Salazar: and that company also, you know, the, both those companies were Ink 500, um, you know, mom was on tv, mom was on Oprah at one point, right?

Like talking about starting companies, right? And so, um, and so I, I had front receipts to all of this and, and my mom believed in child labor. And so at the age of 10, I was stuffing envelopes,

Jason Yeh: Yeah.

Alex Salazar: Um, for mailings, you know, by the age of 15 I was cold calling Africa to go sell computers.

Jason Yeh: Wow.

Alex Salazar: so

Jason Yeh: Well,

Alex Salazar: don't be on the African phone book.

Jason Yeh: so Alex, I, I, I, I'm very curious about this 'cause just like trying to like, uh, work backwards from, from where you got to, but you said that you were interested in being pre-med. How, how was this not just like [00:08:00] pre-ordained that you would be an entrepreneur? Like, tell me a little bit about that disconnect.

Alex Salazar: Yeah. You know, I, I never even occurred to me, uh, you know, I saw, I honestly, I saw how hard mom was working,

Jason Yeh: Hmm.

Alex Salazar: and I was never like, oh, that sounds awesome. Let me go do that. Uh, but you know, you never fully appreciate how much osmosis is kicking in.

Jason Yeh: Yeah,

Alex Salazar: you know, my sister and I, uh, my, you know, my sister's also super successful in tech as well.

She know she's a vc. Um, and, um, you know, you know, we just never fully appreciated how much osmosis, you know,

Jason Yeh: for sure.

Alex Salazar: getting. And so, you know, we knew, you know, we knew my mom's personality issues. We knew when she was firing people, we knew when there were server issues. We knew when, you know, there was currency, you know, devaluations in Argentina.

Like we, we, you know, before we knew how to drive

Jason Yeh: Hmm.

Alex Salazar: but we didn't know the value of it because, you know, when you're a teenager, nobody, you don't know what matters. And so, um, just, I wanted to be a pediatrician and that was it. And there [00:09:00] was, and you know, my, my, and you know, my mom's credit, my, you know, my mom, my mom's pretty loose about it, you know, my mom was never like, you're gonna have follow in my footsteps in any

Jason Yeh: Yeah.

Alex Salazar: Her thing was just like, Hey, this is very immigrant parent. She was like, Hey, you're gonna either be a doctor, a lawyer, an engineer, or an entrepreneur, like pick, right? Um, and so I was like, oh, I'm gonna be a doctor. And that was it.

Jason Yeh: Super interesting. As, as a side note, it's funny, my, uh, my mom, uh, is a chemist, a PhD in chemistry, and my dad has a PhD in physics. And I had this similar thing with you where like I was going down this path around like chemistry and I remember it being just rote memorization 'cause there was all these exceptions.

It was never just like a, a logical string. Whereas I was super attracted to physics because it was like certain laws and then just play it all out. Which then drove me to computer science as well.

Alex Salazar: Yeah,

look, I'll, I'll, I'll give you a funny anecdote. This is kind of like these, these moments when you know you're in the right place at the right time or

Jason Yeh: yeah.

Alex Salazar: you're doing your calling. [00:10:00] Um, I had not yet really landed in computer science just yet, Right.

Jason Yeh: Yeah.

Alex Salazar: that, that's when things really went vertical for me, like personally.

But, um. I struggled so hard to just get good grades in biology and chemistry 'cause of the memorization and all the exceptions and all this stuff. when it came, uh, to physics, um, I was now already in college. I was taking like a college level physics class, electromagnetics, um, uh, I hadn't studied for an exam. I hadn't even, like, I just completely whipped, right? I, I hadn't even done the homework. So like, I literally did, I just did not know what we were about to get tested on, I just mathed my way through the test

Jason Yeh: Yeah.

Alex Salazar: and I got a beat.

Jason Yeh: Pretty good.

Alex Salazar: and that's when I, that's when I knew, I was like, I'm in the right place.

Jason Yeh: Yeah.

Alex Salazar: I, I didn't understand any of the fucking concepts, but I my way into, you know, being ahead of the curve.

Jason Yeh: Yeah.

Alex Salazar: and so I can do this really.

Jason Yeh: Yeah, And, and I think like, this is where I'm going to sort of accelerate the storytelling and, and jump you to a different [00:11:00] point because I mean, the thing that I'm pulling out here is. A bit of a love of like, problem solving. And I think that's kind of like where this builder mentality, especially one that is, is rooted in, in like computer science training, et cetera.

Uh, and we're, we're gonna kind of jump over a lot. I, I think you've gotten probably a lot of opportunities to talk about your previous successes and the companies that you had started. But the topic that we want to talk about really is, is fundraising, especially fundraising for this current company. Um, and you are, you know, square in a, one of the biggest booms we've ever seen around the growth in ai.

And as a side note, I'll just say like, I, I think there is, there's something very interesting about how people growing up with AI as a core technology are going to have to evolve. Evolve. Because I think you see it. I see it too. The problem solving training that we got, not having AI do all these things for us, allows us to use [00:12:00] AI really, really well.

And I'm just curious what happens in this new generation, um, similar but differently, you know, fundraising is something that I think is like, completely changed with this, like what you call vertical takeoff of ai. And, um, what I, what I want us to accelerate to, to, to like set the stage is tell me a little bit about, uh, you know, the starting point of arcade.

I don't know if you call it arcade dev or arcade, but, um, because, uh, you know, I, I look at your quick background. You had, you had been an entrepreneur, you'd sold a company, you were a venture capitalist. You know, you're probably having a pretty comfy life, you know. I wanna hear a little bit about jumping into your next thing, like what pulled you in and did you know from the very beginning that you would go run another venture backed startup?

So let's start there.

Alex Salazar: yeah. Uh, it's a great question. So, um, I've been acquired, so this is, you know, I, I, I started a company called [00:13:00] Stormpath, sold it to Okta, was it Okta for three years. Um, and, um, you know, when you get acquired there's always like, you know, the, these packages that have you stick around for a while.

Jason Yeh: Yep.

Alex Salazar: so, um, and mine was a three year contract and I stuck around a little bit, a little bit longer.

So I wanted to kind of land the plan on a project I was on.

Jason Yeh: Hmm.

Alex Salazar: And my plan the whole time I was at Okta all three years, uh, was I'm gonna start another company, right? I, I'm gonna start another company. And, really interesting because, you know, for anyone paying attention in the product team at Okta, there was a very obvious market opportunity that no one was really tackling very well. Um, that was just ripe for a company to be started. And, um, and I saw it on a few other people that I worked with, really saw it. um, and, and a number of us individually, separately had had started to really get the machinery going to go start companies to go tackle that space. Um, and, and, and, and more than one ultimately did. Um, but I ultimately pulled back at the last minute [00:14:00] and I

Jason Yeh: Hmm.

Alex Salazar: you know what? I'm, I'm, I'm not. for me personally, um, I couldn't, I couldn't get over this nagging feeling that cloud computing SaaS was just mature. It was kind of like that wave was over. And, um, and I didn't want to go start a company in, in a, in a, in a, in a, in a, in a mature wave.

Um, so much of the success we had had in my first company was because we had just caught this really early cloud computing, cloud infrastructure developer, API services market, right as it was starting. And the tide raised all the boats and, and we were one of the boats. And so you can make a lot of mistakes when that stuff's happening because there's so much white space you can just bob and weave in every direction.

Jason Yeh: Yeah.

Alex Salazar: When a market's like mature and old and kind of like, you know, already pretty crowded, you know, you, you're, you know, you don't have a lot of white space. Like you've gotta nail the thing you start with.

Jason Yeh: Can I, can I pause you there? 'cause there's a, there's an interesting thing that, that I want you to react to is like, you were excited about an opportunity, but it did seem like other people were [00:15:00] seeing it and you were in a, in a mature market, right? And so you decided to pull back, you knew that you wanted to start a company though.

And, and then what I'm getting at is like the importance of project selection here, right? Did you ever have that feeling like, ah, God, well now I don't have, like, is there, is there this anxiety being like, well, will there be another wave? Because I've had conversations with friends about waves that we've missed.

Mobile crypto, you know, like things that we didn't like

Alex Salazar: Yeah.

Jason Yeh: to ride the wave around. It was like, will there ever be another huge wave? Like what, what was going through your head?

Alex Salazar: Yeah.

so I very much had that. I mean, my, my

Jason Yeh: Yeah.

Alex Salazar: tell you like, just how, you know, how, how hard I was to actually like taking it. Right. You know, I, I knew I was started on the company, I was ready, I wanted to, I needed it. I just, the opportunity wasn't there. And, and, so your point, opportunity selection is like 90% of the game. Um, and I've seen so many of my friends like kind of force a startup because they want to be [00:16:00] entrepreneurs and not because there's an opportunity that's screaming to get started. And like, I don't wish those outcomes on anybody because that is five years of your life that you were just lighting on fire and it's super stressful

Jason Yeh: Yeah.

Alex Salazar: don't get a financial outcome.

And

Jason Yeh: Yeah.

Alex Salazar: was the fucking point? Um, and so I didn't wanna do that. Um, but in terms of waves, like there's always a wave man. Like, you know, through human civilization there's always more waves and the waves are just coming faster.

Jason Yeh: Yeah,

Alex Salazar: so I was pretty confident a wave was gonna come. Um, I, you know, I think by this point it was pretty obvious that there was gonna be an AI wave and just no one knew exactly what it was gonna look like. Um, enough people were already talking, but enough was percolating an ai. so I felt confident there'd be another wave. I, I, I couldn't tell you when, I had already personally allocated to 24 months of my time, like, you know, before I decided to go venture. I had already kind of talked to my wife and said, Hey, you know [00:17:00] what, here's what we're gonna do. 24 months and all I'm gonna do for 24 months is I'm gonna go do, like, just embed myself and just, you know, put myself in the path of luck. and just go re immerse myself with engineers, re immerse myself with customers and just see like where there's desperate need for something I. that might, that's authentic to me.

Jason Yeh: Yeah,

Alex Salazar: and uh, and it's a model I've seen other, other people I know really well, like pull off. Um, and so it's a model that felt real right to me. then, um, at the same time I was getting, um, I was getting a lot of outreach, um, for venture And, um, at the time there was just a lot of stuff happening in venture.

A lot of people were retiring, A lot of people, a lot of venture firms had decided that they needed fresh GP blood and uh, they, you know, everybody's wishlist was exited founder who's worked at a successful company with a Stanford MBA and a computer science background and the developer in dev space. And so, like

Jason Yeh: check.

Alex Salazar: I checked all of those, I was getting every phone call out there.

And so, um, you know, venture capital's [00:18:00] always this opportunity that entrepreneurs like all dream to go in. 'cause you know, you're gonna do half the work and get patient twice as much. Um, and so, uh, I was really lucky. I had a friend of mine who had just started his second fund. Like he had just raised fund two for his

Jason Yeh: Hmm.

Alex Salazar: stage deep tech firm. And so, and uh, and, and he was very generous with like, how he was structuring the firm was very benchmark like in terms of voting and, and economics. And so, um, I was super fortunate. I, I got an offer to join him and, and not having a real opportunity in my mind. And pandemic had just hit. I didn't want to be alone in my house playing video games. Um, I ultimately decided to go join him and go try and be a vc. When I'd gone into vc I had actually committed to myself that I was gonna go be a lifelong vc. I was gonna be the best VC that I'd ever lived, right? But I was gonna be a vc. Like it wasn't intentionally like a stepping stone, starting another company.

Jason Yeh: Hmm. Okay. That's, uh, okay, so. Let, let's keep going with this. 'cause you are in venture capital. It is, it is a great seat to be in. If it, if [00:19:00] you wanted it to be a stepping stone, right? All you're doing is absorbing ideas that are coming in. All you're doing is like meeting the right people. That could be co-founders, employees, customers, et cetera.

Um, but something happens. Some, some sort of light goes off that makes you believe that that wave is coming and that you, you need to like, jump off the VC boat and start paddling. Right? So tell me a little bit about what you saw and, and you know, what, what, what was the thought?

Alex Salazar: Yeah. So there, there were, there were like three major milestones that, that ultimately led to me starting a company and they'd happened to quick succession. So, you know, I'm in vc, AI's already pretty hot, but it's not, it, it's, it wasn't yet like this tectonic shift. It was more just like everybody knew the wave was coming, but all the companies, you know, the, nobody was really breaking out yet.

Nothing. Nothing was really like stand, there wasn't a platform. and, uh, but you could tell something was coming. And so like all, all the deals that we're seeing were AI companies. [00:20:00] and I was passing on most of them because, you know. A bunch of different reasons. But, um, one, uh, uh, one of my mentors is an incredible vc, uh, a former incredible vc, a guy named, uh, Andy Radcliffe, uh, who started Benchmark Capital.

Jason Yeh: Wow.

Alex Salazar: so I called Andy and I was like, Hey Andy, I'm in VC now. How do I go be an incredible vc? And he is like, look, it's really simple, Alex. Uh, you just gotta, you gotta nail deal flow. And if you have great deal flow, you'll have great, you know, you'll have opportunity for great decision making and great deals, but everything will kind of cascade from there. I was like, God, how do I get a great deal flow? He's like, look, I, you know, I only know one way to do, there are many ways to do it, but the way I know how to do it is just go meet the top technical talent in the category you're in. And I was like, I can do that. And so I started networking with all of the very best people in ai. And then every time I grabbed coffee or lunch with any of them, I'd be like, Hey, who are the people in AI that you respect the most? And then I just kept spider webbing out until I was, had a really big portfolio of people that I knew who were like exceptionally AI people. then I met my co-founder, um, now I met him [00:21:00] in the context of deal flow. then he ultimately became, you know, my, my point person for technical diligence on AI companies. So

Jason Yeh: Hmm.

Alex Salazar: never intended for us to go start a company together. And he was the, uh, he was the head of AI engineering at Redis. He was the one that turned Redis into Vector database. So he knew a ton about AI and was in the field and knew, knew he knew a lot. And then from there, you know, the AI waves climbing, I've, I've kind of now in inadvertently met my co-founder and then all of a sudden GP two, GP two, 3.5 drops, then Chatt PT drops. And that was the first moment where I was like, oh shit, this isn't just like a language model, this isn't just a chat bot.

Like this is a platform, like

Jason Yeh: Yeah.

Alex Salazar: reason because this has an API that can reason like. I felt pretty confident there was gonna be a whole series of software applications built on top of this. sure enough, immediately after that, like every single deal, like crossing my table from a venture capital perspective was some sort of wrapper on, on GPT-3 0.5

Jason Yeh: [00:22:00] Yeah.

Alex Salazar: 3.5 Turbo came out. And that's where the first tool calling model. And so if people don't know what tool calling is, it's the, it's the AI's ability to go interact with a, uh, of, uh, another piece of code, uh, another service. Like, you know, like the, the com, the, the most common example is the model can now go call a weather API. Um, and when I saw that, it was just further reinforcement of what I thought I was feeling

Jason Yeh: Mm-hmm.

Alex Salazar: and to contextualize that in my background, the same exact fe I had the same exact feeling like 10 years ago when EC2 and S3 had come out and I was like, oh man, there's gonna be a boom on this. And very specifically, there's gonna be a middleware boom. And so I felt that same thing. And I, and within the firm I was like, guys, this, it's huge. There's gonna be middleware opportunities and all these companies are gonna get started. And, and so, you know, I started to really sharpen my deal flow look and what my, the deal flow that I was looking at. And I wasn't finding the company that I wanted. This is [00:23:00] classic, uh, founder VC problem is like you, you start to envision the company you want and then you start looking for it, and that's never good. but that's what I was started to do. And then, um, I fell in love with this one company. Um, I, then I got really close to doing the deal. And then ultimately I backed out I, and, and because they weren't going deep enough into LLMs,

Jason Yeh: Hmm.

Alex Salazar: and I told 'em that, I was like, Hey, look, your product's amazing.

Your tech's incredible, but you're like, you're taking like a half step into this. And that's just not what's gonna win. Like, you're gonna, you know, you're gonna be compared too much to the existing vendors in this, in the category you're in. But if you go all in on this new technology. You can't be compared to them because you'll be a different product and competition sucks.

Don't do it. And he, you know, listening to VCs is never a good thing. They lack context. Um, so sure enough, he'd ignored everything I said, and I was like, well, he's not gonna listen to me. So I called up Sam and I was like, Hey, Sam, like, what if we did [00:24:00] this? uh, and Sam was like, let's go. And so, um, you know, I had a conversation with my, my, with my, with my venture firm.

My venture firm, new one. Like, you know,

Jason Yeh: Yeah.

Alex Salazar: they know enough founders. They, they, they, they could see the writing on the wall that I was getting the itch. And so, you know, we, we parted, we parted ways really friendly. You know, they're an investor at the company. They, they, they were, they were first money in. Um, and super supportive. But, um, but yeah, I mean, being in BC was incredible because you, we saw the wave early, basically met all the top people that led to me having an a very authentic, technically credible and, uh, and, and amazing co-founder.

Jason Yeh: Yeah.

Alex Salazar: ultimately, uh, you know, saw an opportunity to go create a company, uh, based on where I was seeing gaps in the market.

Jason Yeh: Yeah. So, you know, we talked a little bit about how this round came together. Um, and I have an idea of where I want to start a conversation. Um, but let's quickly just describe what [00:25:00] happened. So you see this and you're like, okay, no one's building this. I'm getting frustrated that people aren't doing the whole thing.

Alex Salazar: Yeah,

Jason Yeh: I know somebody that might wanna work with me on this, so I'm gonna go do it.

Alex Salazar: yeah,

Jason Yeh: Um, you, obviously, this is not a thought of like, maybe I'll bootstrap a nice small company that, that, that doesn't move the needle for you anymore. So tell me a little bit about how you thought about capitalizing the company to start

Alex Salazar: yeah,

Jason Yeh: Exactly what happened

Alex Salazar: that, that's an incredible question. Um, it was a, it's look, when you're first time Foundry, you don't know what you're doing with respect to capital. And when you're a second time founder, you, you've done enough venture capital where you, you kind of have a read on, on how to do this, right?

Jason Yeh: and when you're a second time founder that had been a VC in between then there's a little

Alex Salazar: Yeah. You just, you, you, you, you, you kind of know what to do, right?

Jason Yeh: there.

Alex Salazar: um, first things first. Um, I knew I was gonna keep it extremely lean in the very first phase. [00:26:00] and so, and so we kept it completely stealth. We didn't, you know, nobody knew what we were working on. There was no website. Um, and, um, and we took very little capital, like very Little capital, just enough to pay Sam, frankly, like I wasn't even taking a salary. uh, we got this little tiny office, um, at like a off brand WeWork, called spaces. They're fantastic. I. love them

Jason Yeh: Little backhanded compliment there.

Alex Salazar: and and, uh, and we just started grinding, like, you know, I, I wouldn't say in secret, but in stealth. Um, um, and, and, and, but we knew what we were doing. Like we had a very clear process. where like, we are gonna just keep on without writing a single line of product code. This was a big rule, like, we're not gonna write any product code. we are gonna fake everything, but we're gonna immediately, day one, we're gonna start putting [00:27:00] like product, fake product in front of customers and asking if they're gonna pay us 100k for, it and we're gonna do that two times a day, every day for as long as it takes until we start getting signaled. And, um, and in that phase we took no VC meetings despite everybody losing their freaking minds because like when a second time founder who's exited, like leads a venture firm, to start a company, suddenly every VC signal goes like off and everybody wants to go have a conversation. And we didn't take a single one of those meetings.

Right. Um, and people, some people got really aggressive, like we had people showing up at the door. Um, and um, and we turned everybody down. And then we just kept doing that. And, and then we, and, and because we were, it's interesting because being stealth people think it's because, you, wanna have this big launch and, or you wanna hide your idea.

And that's actually the dumbest reason to be stealth. We were stealth we didn't want anyone to have preconceived notions on what we were so that we could just iterate and pivot [00:28:00] as fast as possible. And I have to explain to anybody why yesterday we were this and tomorrow we were that. that it was to just, it was to just like grease the skids on rapid iteration. And sure enough, our original idea was terrible. It didn't work like nobody wanted it. Um, and, but because we were iterating so fast, we were able, in the span of about six months, we were able to go from this idea that we thought was really powerful. then ultimately nobody wanted pay for it. To suddenly finding this like massive bottleneck in ai, which was authentication and tool calling,

Jason Yeh: Hmm.

Alex Salazar: that suddenly like everybody was like, when can I play with it?

Like, when can I get access to it? Um, in that entire period, we didn't take a single vs call. Now we always knew we were going to capitalize this company with venture capital

Jason Yeh: Mm-hmm.

Alex Salazar: that we were gonna go for the long haul. which means we were gonna raise a lot of money in multiple rounds and, and really try and take this thing all the way as far as we could possibly take it.

Jason Yeh: What I love here is how deliberate [00:29:00] Alex and his co-founder were about running their process. Alex had every opportunity to raise early and didn't. Instead they stayed small and focused, gathering more information from customers and hunting for something that signaled a big opportunity. After the break, we'll talk about what happened when the idea finally clicked.

​

[00:30:00]

Jason Yeh: Yeah.

Alex Salazar: why we knew we were gonna do that and not bootstrap and not have something else is that I, the [00:31:00] software markets, especially in hot categories, they don't lend themselves to bootstrapping. Everything happens too fast, right? Like they're winner take all markets. You're either first or everything sucks. Um, you know, maybe you're second, but you're at like a distant second uh, and being third is like, you might as well not exist.

Jason Yeh: Yeah.

Alex Salazar: um. And so we knew that if we wanted to increase the odds that we were gonna be successful, we had, we had to go for the brass ring was gonna take a lot of venture capital, but we wanted to make sure that we were aimed properly we took capital it's very difficult, um, to go find that early product market fit or that early product tug. if you've got like, you know, 10 people on staff and you have boards and you have, you know, a bunch of other stuff distracting you,

Jason Yeh: Yeah.

Alex Salazar: two people in a room.

Jason Yeh: So, uh, we, we ki I kind of knew this is where the conversation was gonna go, right? And, [00:32:00] um, what I had described about what's important in an interview like this, or a conversation like this is to, is to try to draw some things that other people can take from, and you even brought this up, you're like, oh, I, I don't know.

We were preempted. I kind of know what I was doing. And so I wanna make sure we have a conversation that's helpful. Right.

Alex Salazar: Yeah.

Jason Yeh: And I, I think what might be fun is for you and I to, I. X, vvc, x vvc, founders, et cetera. I know why people wanted to back you, right? But if we think about the things that they could believe are true about you and this opportunity, what do we think that the takeaways from a first time founder who hasn't raised before should understand about this?

Like, and, and I'm gonna lead you a little bit, uh, to, so that we, we can have a, a, a more meaningful or meaningful conversation with texture that other people can react to. But there are certain [00:33:00] things that investors need to believe are true about this team and this opportunity when evaluating any deal, right?

There are certain things about you, Alex, that are a little bit easier to believe, right? We don't know if they're actually true, but they're a little bit easier to believe. And I wonder if you can kind of think through those if you were evaluating. Alex raising capital for arcade as a, as a vc, and, and maybe we can talk about like, are there things a first time founder could do to get close to what you're doing?

Do you know, do you know what I'm trying to push you towards here? Okay, cool.

Alex Salazar: you know to over, I'm gonna oversimplify the venture capital decision making process,

Jason Yeh: Love it.

Alex Salazar: you know,

Jason Yeh: it.

Alex Salazar: a lot of to it, right? But it. You know, the, the investor needs to believe that this is gonna be, this is, this is a huge opportunity that if this company's successful, it is going to be deck of corn, right?

Publicly traded over $10 billion of market cap and, and be an [00:34:00] acquirer and not an acquirer.

Jason Yeh: Mm-hmm.

Alex Salazar: Um, and so, because otherwise the economics of venture don't work out, right, because they, they need like one deal to pay for all the deals. So they need, they need to believe it could be a deck corn. And, and, you know, and most of them aren't impulsive, like most of them are gonna do some homework and some math. so what you have to believe first is that the market opportunity, forget the company, but the market opportunity that they're going after, the problem statement, how big it is, the user base, you know, propensity to pay all that stuff is gonna be big enough for that to be true. now sometimes you get surprised and there are markets you didn't expect. Uh, cursor's a great example. Like who would've thought, you know, uh, developer IDE was gonna be a hundred million dollar a year business in a few months. Like, that was unexpected. But many markets you can predict, right? Like AWS like how big is the server and storage market? It's enormous. Um, it always has been. Um, and so, uh, I was operating, [00:35:00] uh, in a market that is well known to be a very big market. Um, you know, identity and authentication is, has always been a very big market. Uh, we were all like a, a big piece of our product. This is in, in the weeds for, for agents, but um, is also the integrations market, and that's also a very big, very like, consistent market.

MuleSoft, Workato, Zapier tibco before that, like, uh, you know, IBM and, and IBM and or and Oracle still do a billion dollars a year in pure integration software. And, and so it wasn't a very hard. Market argument to make to a vc. The second piece, is it a big opportunity where if, if successful, they can return the fund multiple times over

Jason Yeh: Yeah.

Alex Salazar: the, the second thing is, okay, is this the team that is going to be able to out execute everybody else?

Jason Yeh: Yep.

Alex Salazar: Um, there's a lot of teams out there with great ideas and great markets, but like, eh, you're, that, that's not, that may not be the horse to bet on. [00:36:00] you know, uh, being a sign time founder generally helps a lot because there's a lot of mistakes, um, that they're not gonna make, um, that they's just a lot of stuff they're gonna skip.

So, um, if everybody could start their company as a second time founder, everything would be a lot easier. But, you know, that's the way it goes. But the other thing is authenticity.

Jason Yeh: Mm-hmm.

Alex Salazar: you know, it's very easy for anyone to wake up tomorrow and be like, oh, I'm gonna start an AI company, or I'm gonna start an off company. But if you're not Sam Par t my co-founder and mean like. It's gonna be hard for you to make the argument to a, to a, to a high caliber venture capitalist that you're gonna go win that market. Um, and given my background in auth, uh, and Sam's background in enter in, uh, in, in AI and our combined backgrounds in enterprise, um, it was also for many VCs, uh, like a pretty clear, uh, great combo of opportunity and team.

Jason Yeh: [00:37:00] Awesome. And so I'm gonna push you into one more hypothetical here, which is, I think you've described why Sam and Alex are a great team going after a big market, second time founders like ai, et cetera, et cetera. As a, if you were to back a first time founder who is, who is just getting into market around things, these things, like, can you, can you talk to me a little bit about the things that if you're, if you're trying to be a little bit aggressive, you're like, well, he's never done it before.

She's never done it before.

Alex Salazar: Yeah,

Jason Yeh: But I see something, or, or there's, there's something that catches your eye, that indicates that you might have caught them early onto that path of becoming the next

Alex Salazar: yeah,

Jason Yeh: you know, the next whatever. Um, and, you know, I'll add on one other component here, which like, a lot of people love throwing in Calendly as an example of like, that is a dumb small idea, but like, what is it that catches a [00:38:00] VC's eye around something that could be big?

So,

Alex Salazar: yeah,

Jason Yeh: strokes here, I, I wanna make sure we kind of like, bring this back to something that, um, maybe first matters would hear.

Alex Salazar: Look, um, there's always exceptions. There's always gonna be these unexpected companies, um, like Calendly and other people, and I'll put those to the side.

Jason Yeh: Mm-hmm.

Alex Salazar: Um, because, you know, I, I suspect Calendly first financing round was probably pretty difficult, or I think they were bootstrap for a while. I, I forget. Right. But, you know, let, let's pretend they were raising a traditional seed. I would be, I would expect that their first seed run would've been really difficult. because it, it wasn't like the opportunity ended, it was not, would, would not have been obvious at that point. Um, but for every, like for the general population of, of startups, um, let's presume that they're already articulating a really big market that's itself. What do people look for in a first time founder? And we actually experienced this in our, in my first company 'cause we had this as well. look, the first thing they look [00:39:00] for is, I think the best VCs is, uh, founder market fit, or people sometimes shorthanded to authenticity. Like, are you in a category where you are advantaged over somebody else?

Right. The business world is not fair. Nobody wants to invest in a company that doesn't have an unfair advantage. And so Is one of the easiest, unfair advantages for a VC to filter on. And so, uh, when we were starting my last company, we were first time founders. We had two major advantages. Uh, my co-founder was this guy named Les Hazelwood.

Les Hazelwood was like the open source, uh, like, uh, creator of this major software security authentication project in the Apache Software Foundation. everybody knew less. Um, and I, uh, had, had, had a really strong career at that point, um, both as a software developer, then eventually as an enterprise sales rep. Um, and so [00:40:00] for a vc like, oh, like these guys understand the tech. They're really credible, they're authentic to the space and they know how to sell. And so like, that might be the bet, but the question to make it more generic is like, why you, like, what is it that you know that no one else knows? is it that you can do? no one else can do or very few other people can do. And why is that super relevant and critical to the opportunity that you're now chasing? you are an amazing machine learning engineer and you're great at, you know, building agents, that's awesome. If you're gonna apply that, you know, to selling toys online, ah, that's not gonna fit, right.

Um, and so it's, there's gotta be a imagine a fit for the best species to care.

Jason Yeh: Yeah. So, [00:41:00] uh, you know, I, I wanna wrap up this point and, and I have a, like, sort of a parting question for you. Um, one thing that I think that you touched on that I think people might react to is even describing you in your first company is like this. Fancy person on the open source, you know, sort of authentication side of things.

You were a successful enterprise sales rep. And, and then that combination of tech and, and go to market is like magic. You know, it's like something we've all look for. And I think there can be a, be a reaction to be like, ah, but like, like that's so crazily like, special. Like how I don't have that. Like how, how am I supposed to get there?

And I think this kind of goes back to our initial part of this conversation around like project selection, opportunity selection. Is this the right market to go after and is this the right time for you? Like, are you even ready to go after something this big and assume that you can [00:42:00] attract investors?

And so I, I think that's like where I wanna wrap up this part of the conversation is like, the bar is high. You know, if, especially if you're going after venture capitalists who need to return funds, they will be prioritizing. Second time founders like Alex, and for first time founders, they do need to see those amazing set, you know, sets of characteristics and maybe like a twinkle in your eye and something that makes them believe that you're gonna be able to learn faster than other first time founders.

So, um, important things. Yeah.

Alex Salazar: Yeah.

I'll add, I'll add something really specific that I used to tell people all the time, and

Jason Yeh: Yeah.

Alex Salazar: I still believe it firmly is, you know, in the tech industry, the bare minimum that I think a team needs is they need to have exceptional technical talent will pass the scrutiny of a technical vc, which is most high quality, high caliber vc.

So you need to have like the best Fucking engineer at minimum founder possible, if not a whole team. [00:43:00] Um, but that's not enough. There's many incredible engineering teams that fail miserably and VCs know to look out for it. You also have to pair it with having real market sensitivity. Like if you have your finger on the pulse for whatever reason, everybody might have their finger on the pulse for a different reason.

But if you are like sensitive, product aware and you're a credible technical team that go, like the best VCs know to look out for that.

Jason Yeh: Yeah. Yeah. Um, in other funded interviews, Alex, like, we go through the twists and turns and the rollercoaster ride of, of raising venture capital, and it's especially twisty attorney uppy Downey for first time founders because they don't know what the fuck they're doing. Right. But from the surface it would be like, oh, this was like plug and play.

And I assume a lot of this was really easy. Um, but I wonder if you can even think back on the [00:44:00] more stressful times, right? Because like, look, you, you said, uh, you could have raised money just by saying, Hey, that's like. Remember me, you know, and go out and raise money, but you decided you wanted to go to, you know, test the market and figure things out first.

Anything you can share about like, you know, it wasn't always like, I knew this was gonna work because like, I don't think you wanna raise capital for a bad business either. Like tell, tell me anything that kind of creeped in doubts or any sort of negativity.

Alex Salazar: look, I mean, you know, every, every company is ups and downs. Every company's stressful. And, and we had our fair share and continue to have our fair share of really stressful moments, and we will forever, right? Um, we were, we, we, we, we were absolutely convicted that the original idea, the original idea was gonna be this, uh, site reliability agent to help you diagnose y that der was going down or something. And we, we were absolute conviction that that was gonna be successful. And then we were really surprised when like, we couldn't get customers to care. Right? that was really stressful, right? Because now all of a [00:45:00] sudden, like we, you know, my, my co-founder quit his job and like, you know, I'm sitting here in the wind and, uh, we're like, crap, what do we do?

And, you know, now I've been through this before, so I, I had a playbook for like navigating a pivot now, thankfully a pivot of two people, which is very much, much easier, um, which is why we did it this way. But that was really stressful. You know, there were, you know, there were, so we had to just throw a bunch of shit against the wall and just start calling people and just testing a bunch of ideas.

And sure enough, like we started to get signal and then we started to feel better. Um, and we went through that like three or four times. Like we did not just go from one idea to the winning idea. Like we went one idea to a terrible idea, to a terrible idea. And actually one of our truly horrific, truly embarrassing ideas was the one that led to really good idea that is now our,

Jason Yeh: Hmm.

Alex Salazar: um, and so. And, and, and funny enough, we had actually purposefully explored an idea we knew was terrible, just for the, for the sake of, of, of just seeing if we could find [00:46:00] insight from it, right? Um, that's a whole nother conversation. So we ultimately start clicking into the right thing. We're still in stealth. um, know, we wanted to make sure that what we were seeing wasn't obvious.

The, the biggest, the biggest risk anyone runs into is you're starting something obvious. And, and so I didn't wanna be starting something obvious and I was worried that it was obvious. And so we, what we do really quick, just for the context of everybody, is we make it very easy to connect and a large language model to other services.

And so if you want, you know, if you want your, your, your, your agent, your large language model to go read your email and send an email or interact with Salesforce in any way, um, arcade makes it very easy for the developer and, and, and so that we handle all the integrations, but at the backbone of it is authentication. Because the reason why Chatt PT can't send an email or read an email is that it can't authenticate as you into Gmail. So that's what we do. We thought this was obvious. And so the one company [00:47:00] we were certain was gonna be, you know, building a competitive product was a company called Lang Chain. And we knew the folks at Lang Chain.

And so we reached out to other folks at Lane Chain to show 'em what we had really feel out like, were they gonna be friends? Were they gonna be competitors? Just so we knew. And sure enough, they loved it. They were like, oh, this is great. We have this problem. We are running into this all the time. Like, you know, we've had to build some stuff, but we really, It's not what we want to do.

And, and that was great. And when that happened, we, you know, we were still just doing our chugging along. We had capital. We, we, we didn't need more money. But around that time is when suddenly the VC interest really started to build up. Um, and it was premature. We weren't ready. And that itself was stressful because the thing. That people don't fully appreciate is that VC interest is not VC commitment. And so,

Jason Yeh: It's true. It's very true.

Alex Salazar: and so, you know, if v if you take a VC meeting and you're not ready for it, [00:48:00] they're going to make a decision.

Jason Yeh: Mm.

Alex Salazar: And I don't want anyone knowing or deciding anything about us until we were ready to tell people what we were working with in a very structured way. And so what had happened, this is good for everybody to know, is in, in the Bay Area in particular, a lot of the best venture firms have a lot of really good engineers on some sort of agreement.

They call 'em scouts and they're just there to go scout New Tech because they know people like us are calling them to get feedback on our products. Now those scouts are supposed to tell you that they're a scout. None of 'em ever do. And so all of a sudden we start getting phone calls from like all the big brands. And they're like, Hey, we hear you're working on authentication for agents and integrations for agents. And we're like, how the hell am I figuring this out? So all of a sudden we're getting all this interest prematurely and that itself is really stressful.

Jason Yeh: Yeah.

Alex Salazar: So we, so it's becoming harder and harder for us to tell people no. [00:49:00] So we're getting ready. of a sudden, at the same time, our relationship with lane Change starts to like, starts to evolve and, and suddenly Harris and the CEO there wanted to put out a sample application that used us. We were still in stealth and so we had to come out of stealth in order to go put the sample application out it much earlier than it planned, which itself was actually pretty stressful 'cause we weren't ready. And then we knew that once we did that it was gonna be very difficult to keep the cat in the bag for financing. so we had to basically scramble. To get all of our financing documents, you know, our, our, our, our, our memo, our, our, our story really tight, really fast so that we could hit the button and just be ready to go.

Jason Yeh: Yeah,

Alex Salazar: because I

Jason Yeh: me about the tell. So I, I know we'll clean this up a little bit 'cause like there's a lot of cool stuff in here and, um, I wanna be respectful of the timing. Um. I love that you just [00:50:00] said, even with all that pressure and force, you're still like, we, we have to get our story tight. You know, we, we have to get that stuff together.

Even, even the most stacked deck, you know, needs those things. I think that's important to hear. Um, but I, I force you to think about, you know, the failures of your first ideas and the, the required pivots from terrible idea to terrible ideas for the bad thing. I, I also wanna let you kind of like revel in one of the positive feelings.

Do you remember the first call you made or the call you where you were like to a VC that you wanted to hand it, hand them a bone and be like, Hey, we're gonna do it now. Do you wanna, you know, do you remember what that was and what that felt like?

Alex Salazar: thing is that we didn't do that

Jason Yeh: You didn't do that? Could,

Alex Salazar: that.

Jason Yeh: could have done that?

Alex Salazar: so here's what happened because, so, because we got preempted

Jason Yeh: Yeah.

Alex Salazar: we were planning on doing that, we had our short list of people who I already love, which, you know, a whole side note is like I. You know, if you, you should have a list of, you know, you should figure out a way of creating a list of the very best [00:51:00] individuals because like, these are marriages you can't get out of. And there's a, you know, not all VCs are awesome to work with and some are incredible. And so I I, having already been through it, and I was very lucky, all of my last VCs were incredible. I had a short list of people that I knew I was gonna call, right? And, um, and so I had this list, I had this plan to, I had spent so much time manufacturing this wonderful, like, strategy plan that we were gonna execute. And, um, and people have been banging on my door and I told them all, Hey, don't worry. Like I will let you know when I'm ready. Like, don't worry, just chill. Um, and then one of my favorite investors had just started his new fund. It was in the weeds, but I didn't know he had activated the fund. And I love this guy.

His name Pete Sonsini. He runs Law Ventures.

Jason Yeh: Okay.

Alex Salazar: was, he used to be at NEA, he was the, he was early money at Databricks Perplexity. Any scale,

Jason Yeh: I've heard he is amazing.

Alex Salazar: he's incredible. he was on my board at my last company, first Capital, into my last company. And so I love [00:52:00] working with Pete. So Pete was at the top of my list. So, but I didn't think Pete had activated his fund yet. So when Pete asked to grab coffee, I thought we were gonna just jam on life, you know, and, and his new fund, even though it hadn't activated it yet, I didn't think he was, you know, I, I didn't think he was a candidate, to, to, to, to invest in this just yet. And so I take the meeting Pete shows up and sits

Jason Yeh: You sucker.

Alex Salazar: uh, sucker.

I was kicking myself in because I know better. And,

Jason Yeh: Yeah.

Alex Salazar: and so we're sitting there just jamming and just catching up on life. And he's meeting Sam, he's meeting me, and the meeting ends and we didn't even really get into too much depth. at the end he's like, cool. So like, I'm in, and I'm like, sorry, what? He's like, I'm in. And I'm like, Pete, we're not raising. And he's like, Yeah. no, I know, but you're gonna, And so like, dude, I'll, I'll do the whole round. And I was like, whoa, like, wait a second. Like, we need to figure out how much we're raising.

And like, you know, there's other, you know, I want, I wanna pull together a group of people. And Pete's like, yeah. Like, yeah, let's figure it all out. Like, you know, [00:53:00] here's term sheet. And so, and, and we, we, we were legitimately not prepared for that. And so it suddenly it went, you know, we were already getting accelerated in our process and now suddenly the process turned into like an overnight process, right?

And so I'm crashing into, like the very next email was to all the people that had promised I would let know. and then I had to go reach out to 'em and be like, Hey hat in hand, and be like, Hey, I'm letting you know, but like, I'm letting you know that I'm already have a term sheet. And so like, I wanna have a conversation with you about you participating in the round as opposed to you leading the round.

And that was, you know, that was a difficult conversation. Um, very privileged one, but a very difficult one. And sure enough, like we suddenly found ourselves in a, in a whirlwind. process. Um, we got to be very picky, thank God. But it was still a whirlwind. You know, like you can only process so many venture firms at once.

Like I, I think, think, I think the cap is like eight. I don't, I don't think, I don't think a human can process more than eight firms at a [00:54:00] time. I think we were, I think we were. And because ours is so compressed, and, and I think we were crapping out at around six, um, we were, you know, we had a very targeted six. Um, and the whole process tipped the tail end up being two weeks. And then just trying to like, put together the round and the composition in a way that was gonna work for the people that we wanted to work with. And we were really lucky. We landed incredible people.

Jason Yeh: Yeah. And so you ended up, uh, I think pulling in something like $12 million, you have the money to bring on the best talent. Um, you have this beautiful sunny office in, in South San Francisco. Um, but Alex, I mean, I think this has been a, a very fun conversation if you can, if you can't tell how much of a dork I am about this stuff, like I could probably have extended this conversation for another hour.

But, uh, to be respectful of your time, and I know you have a lot to do and build, uh, I wanna wrap it up there. But, um, this has been awesome, great insights. Uh, very excited to see what y'all do, uh, at Arcade. And we'll be looking forward [00:55:00] to, you know, a follow-up conversation, as I'm sure you have, you have plans on how to deploy capital.

Alex Salazar: Cool. Well, thank you for having me. It was awesome. ​

Jason Yeh: That was Alex Salazar, co-founder and CEO of Arcade, A platform allowing you to securely connect your AI to APIs, data code, and other systems. what stuck with me the most about our conversation is how even with his track record as a successful founder, operator and vc, Alex didn't skip the hard parts.

He went back to zero, stayed in stealth, ignored investor noise, and spent months honing his idea so that when they went out to raise it was for the right reasons.

When we come back, we'll hear from my producer Paige about what stood out to her about our conversation.

​ [00:56:00]

Paige Randall: Hi, Jason.

Jason Yeh: Hey, P, what's up

Paige Randall: It's Monday. [00:57:00] I am, I'm, I'm hanging in there. I gotta get my co my second coffee after this and then potentially, potentially a pop.

Jason Yeh: now? I feel like I go into Mondays having a Sunday night to think about stuff and have a bunch of ideas that I want to implement, as you heard this morning. So, uh, lots of energy. Would love to talk about

Paige Randall: Yeah.

Jason Yeh: though.

Paige Randall: Yeah, which this episode had a lot of energy. Um, and you know, we always do bring on a wide variety of guests. So we've had like semi, I guess, semi similar, um, circumstances in the past with different guests that we've interviewed, but no one quite exactly like, um, Alex. So I definitely did wanna touch on a few things that I thought were interesting that we could riff about a little bit.

Jason Yeh: Yeah.

Paige Randall: The first thing, honestly, that I'm very curious to your perspective on is I loved his definition of why he chose to do stealth. Like I've, I never fully [00:58:00] understood stealth, I never understood the different benefits, advantages, potentially disadvantages that come from it, but his take on how. Their main reason for being south is so that they had the ability to switch and try things a bunch without having the repercussions of the public.

Knowing that, and just being able to test all these different ideas out, I think is incredible. So I wanted to kind of talk about that for, for a sec.

Jason Yeh: Yeah, and, and I just so that we can encourage our listeners to go back to other. Amazing episodes. I, I think what you were referencing was Scott CRI and Ian Swanson, two founders who had great exits, great networks, who then went out to raise again. Alex had even on top of that, uh, a stint at a venture capital firm, successful stint at a venture capital firm, which is another level of, of network.

And know, when I think about someone who has. The ability to raise whenever they want. It's the purest, I think [00:59:00] it's the purest thing to look at when it comes to strategy.

Paige Randall: Yep.

Jason Yeh: Yep. If someone can do it and they're not doing it, is that something to learn, uh, from if you, you know, if you're not in that same situation.

And so for him, yeah. I love the idea of being stealth because he talks a little bit about if you announce, uh, the different. Impacts that the, the perception of what you're doing can have, and I'll often talk about this post closing around with founders, which is, I have found that let's say you close your first round, you still probably don't have product market fit.

And so your company needs to be able to wiggle, wiggle, wiggle to figure out the right way to go. And I'll tell you, if you raise around and you want the. Spotlight. You want the limelight to be able to say, yes, I raised $2 million. It, it really corners you from a, from a mental perspective where you're like, you told the world you were building Instagram for cats [01:00:00] and as you went down there, you found out people don't really like cats.

They like dogs, but now you told everybody I did that for our cat lover friend But you told the world you were building Instagram for cats and now it's just. Ego wise, it's kind of hard to be able to like shift because you've made this big announcement. And, and I think the same goes in the very beginning when you're kind of just telling everyone, uh, if you're telling everyone and you're even before you're raising capital, it's like, it's just annoying.

It makes you second guess the, the pivots that you need to make. And if you're in stealth, you get to avoid the noise, run your own iterative process to figure out what customers actually want. And then when you get real signal. to investors. And in this case, I'll just say too, he had a pure reason to be stealth. the, the, um, clever, more clever reason or more string pulley reason is that, man, great example is if you tell an investor, no, [01:01:00] that'll just make them want to invest in you more. So if, if they're like, we're not telling you what we're doing, we're heads down. It's like, oh my God, what is Alex working on?

So I, I loved it.

Paige Randall: Yeah, and I, I think you touched on a lot of important parts there, and I also liked the fact that, you know, obviously. This is a different type of scenario compared to people who are first time founders. Maybe they don't have a network, et cetera. But I do think there is like underlying strategy that still applies.

Like, um, even now in the, in the market today, uh, investors are, it's known that they're looking for a little bit more, right? They're looking for more, they're looking for things to be built out a little bit further, et cetera. Not everyone has the ability to do that. And yes, although Alex and his amazing co-founder have this background that allowed them to be trusted by more investors a little bit more easily, I think there's something to be said for the amount of time they spent on collecting data.

Like I think I wrote down they, he said two times a day they would talk to customers until they got the signal. So, I mean, who lo who knows how [01:02:00] long that was? But, so they were talking to customers, building, I guess, a potential list of customers interested in whatever ideas that they were, um, you know, focusing on, um, and having that kind of be their traction, especially when they found the signal, um, with those different customers.

So I think that that can serve in its own way. As a type of traction to, to show investors like maybe if you can't build or don't want to build something in code yet, like they didn't either 'cause they weren't sure where the best signal was. You can also come to them and show how much market research you've been doing and that can, you know, some show some sort of type of traction in research as well.

Jason Yeh: Yeah. I love that you called that part of the conversation out too, because it's like, again. Alex could have raised just by like raising his eyebrow. You know, people would wanna, would want, would've wanted to fund him if he had just kind of twitched in their direction, right? if this guy who can raise isn't above [01:03:00] that process of like. Not, he was like very strict. We're not gonna write a line on code until we know what we need to build. If this guy's doing it like that, like who are you to be rushing into building code or coding something or building product because you feel like you have the insight that no one else has that you can build without confirming, uh, with your customer.

And so, yeah, I I, it's another example of. Alex was a little bit worried before when we, when we reached out to him about being on the pot, he was like, I don't wanna come off as like a, you know, it was so easy. Silver Spoon founder who could raise. And I'm like, no, no. Like, there are always amazing lessons to be pulled from someone who can raise easily.

And, and I think that's, that's one that we need to triple underline. It's like, not only, not only like can you build a case and get data and get your version of traction without. ability to build, you know, product, in some [01:04:00] cases, in most cases, like you probably should be doing that before you're writing a single line of code anyways, so yeah.

Paige Randall: I like that. Get your version of traction. 'cause I feel like it's easy to be like, you know, we just can't do it. We don't have, like, we don't have the technical, um, co-founder yet. We don't have all these things and it's like. Those are very real challenges actually. Like definitely don't wanna undermine any of those, but I think there's a lot of ways you can get creative, like genuinely around how to prove that there is an opportunity, how to get your own form of traction, whether it's a wait list or anything with customers that are ready to be signed up for what you're going for.

I think that that does show something and it shows some sort of opportunity and you know, if on top of that they like the founder, they like the team, they like the space, you know, that still can. Could push them over the edge even without you writing code or having a product built.

Jason Yeh: Absolutely.

Paige Randall: Wow. I'm, I feel like we're getting good at.

Jason Yeh: Hey, you, you were waiting for me to correct you or like [01:05:00] what you said.

Paige Randall: Uh, the other funny thing, I mean, those were like the two things that I really, really liked about this episode strategy wise, because I feel like in today's market you just gotta get creative and like, I love these different ideas that, that founders have around that. And then I also thought, like, I didn't know much about Venture Scouts before this episode, or just like I've heard of them.

I never really understood what they did, what they were. It was so funny to me how like when he was doing all this research with customers to try their product, I'm like, how do these venture scouts sneak their way in and, and get, like, how do they do that? What kind of research are they doing to know that he's building?

Jason Yeh: These VCs, they, they have, they have spies. You know, the best ones have little spies. They wanna find the next Alex Salazar who's like, making more progress than they want the, uh, the market to know about. Yeah. And so these, these scouts who are unidentified [01:06:00] as scouts Yeah. They'll, they'll get information like this and it's, that's worth their weight in gold for sure.

Worth their deal, for sure. Sure. To like get access to a deal like that.

Paige Randall: Yeah, it's crazy. But those were really the, the two main things. I feel like we kind of covered mainly what I wanted to talk about. Um,

Jason Yeh: I mean

Paige Randall: I dunno if you have any other,

Jason Yeh: I mean you're so on this now. At some point you're gonna be graduating from this role.

Paige Randall: I mean I can't help but I have a great mentor

Jason Yeh: Awesome. Well that, that I think, is that the

Paige Randall: I think that's a debrief.

Jason Yeh: amazing.

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