A Bubble Valuation That's Not So Inflated? (Bubble)

[00:00:00]

Emmanuel: like at some point, the business is really successful.

Whether you own 20%, 80%, 15%, 12%, honestly, doesn't change much. On the flip side, being stuck with a too high of a valuation can really kill you. Uh, and then

you're out of options and you're

dead.

This is funded a show where founders who raised millions in venture capital. Share the gritty side of what it actually took to get that money in the bank.

I'm Jason Yeh, not too long ago. I was trying to get my ideas funded. And back in the day, I was a VC listening to founders, pitch me for money.

‍

The goal of fundraising is to raise the most money at the highest valuation. Right. That is the common siren song that traps most founders when raising money. Most founders, but not today's guest.

You're going to hear that Emmanuel stress knob, a [00:01:00] French entrepreneur with roots as a developer, actually asked for a lower valuation in the seed round for his company bubble. A software company that lets users build apps without any code, otherwise known as no code. He pulled off a similar move when raising his recent $100 million round.

Which secured backing from Ali Partovi and other big name investors. There's a real strategy to maintaining reasonable valuation levels. And it's one that only someone who sees the big picture and has deep passion for a business can make. Emmanuel says he grew up wanting to solve exciting problems.

Even if that meant a small paycheck.

Jason: I remember pretty I grew up in a little bit of a weird spot in a sense that because I was good at Excel, I was helping my dad with the financial struggles of the family.

Emmanuel: So I always [00:02:00] knew from like,

the age of like maybe 12 or even younger, how much my parents had and, you know, I knew kind of everything.

Jason: Wow.

Emmanuel: But at the same time, I've never felt driven by money. And most of the career decisions I've made to date, believe it or not, because you might think it's not the case, being an entrepreneur,

we're not driven by the idea of getting wealth, uh, for myself. Uh, and the best example is a, I mean, I became a founder a little bit by accident. Uh, after we met at HBS. but for the longest time of my life, as a kid, I wanted to be a government civil servant in France, which gives you a lot of exposure to a lot of exciting problems to solve, you know, but certainly not

Like, I mean, you, you do fine if you add the high level, but you certainly not rich. Uh, and so . Money was not something that I was thinking too much about in the way we've been running Bubble, especially in the first years, like bootstrapping for like many years. And we probably get into this, was not structured in a way that I think was maximizing money for us in the first place, initially.

Jason: Yeah, [00:03:00] that's a super interesting, um, I mean, you referenced it,

but we were at HBS Harvard Business School together. Um, but I didn't know the background of your, your career objectives going into public. You know, it's still a service, which is also an interesting decision to even go to Harvard Business School,

but, um,

Emmanuel: well, HBS was kind of a way for me to quit that government program. In fact, before that, even though I had been working in Asia, I was still under some kind of an agreement with, uh, a ministry in France. Uh, so HBS was my way to be like, "Okay, I'm deciding not to get into public. Let's figure out what I'm doing next,"

and an MBA was a good way for me to do that.

Jason: I love that. Um, it's, that's a fairly common storyline of people using business school to, to pivot to the next thing. Um,

Emmanuel: Yeah. I think I met, uh, I made the best of the experience, almost

Jason: yeah,

absolutely. Um, and I, I think it's really relevant, even though I tried to not spend as much time with founders around the Genesis story of a company, [00:04:00] because I think you have a lot of opportunities to tell that on, on different podcasts.

Um, but this one in particular is pretty interesting. I think it must have been your second year in business school when you started thinking about doing this, because I remember talking to you at the end of school about what you were going to do next,

You mentioned this was sort of an accident of

starting the company.

And can you tell us a little bit about that?

Emmanuel: Yeah.

I mean, uh, the conversation we're having was about, uh, companies that I had an offer from, uh, that I thought I would be joining after business school. And, um, it literally the day before the expiration of my offer, which, you know, like everybody else, especially out of business school, you try to think about, you know, maximizing options.

So you don't say yes right away when you get a job, offer it. Right. I got to meet in person because I had exchanged emails with him before that, these guy in New York working on something new, and that became my co-founder. And so what that means is, um, I showed up to the coffee that we were having in the east village [00:05:00] saying great to meet you.

Uh, but I'm taking this job. I haven't said yes yet, but you know, it's a pretty, I was pretty happy with the offer actually. Um, and at the end of the coffee, Josh tells me, "Are you sure you want to take that job?" And I didn't say yes on the spot, but I literally said yes, 12 hours later, but basically I wanted some time to think about as some people around about Josh, because I didn't know him.

So I went on Facebook, tried to find some mutual friends and we had a ton because he was... so same class from Harvard College and a lot of our classmates from business school were from so I could find a ton of people. and then I wanted to make sure I wasn't doing something completely stupid from an immigration standpoint, because as people can hear, I'm not from the US, um, and in 12 hours, I talked to a few people, including, uh, like the HBS foreign student, uh, contact, you know, like the one person that was helping, for instance, with these things and 12 hours later, I said yes. And on Monday, and that was a Thursday, then I said yes on Friday and went back to Boston and started working Monday. So

Jason:

Oh, my

gosh. So

Emmanuel: very accidental

Jason:

[00:06:00] very accidental.

And I know you said like, oh, you wanted to make sure that you didn't make some silly decision and with the benefit of 2020 hindsight amazing decision. But I'll say that is a crazy decision that you, the, the decision to have an offer in hand, probably a great one out of HBS and then meet a guy

who you hadn't met before and choose him to be a co-founder in a company that, you know, six years, seven years later would be one of the first companies to really create such a hot space. But, you know, in 2012 that, uh, that is kind of a crazy decision.

Emmanuel: It was, it was. I mean, I couldn't rationalize how it happened, but if, honestly, it was mostly a good feeling, kind of the excitement of studying something new, a good fit was a person, very strong back-channeling on him through the couple of classmates. I could think about, that I could find that knew him from college.

and then the rationalized aspect was like, [00:07:00] and actually goes back to money a little bit, which is, um, I'm 29 now. I don't have a family. It's probably fine if I don't have sala ry, or like very low salary for a couple of years. If I take a job, whatever the job is, maybe it's that startup, maybe another one, hoping to get, I guess, get my green card and then get enough savings and everything.

Then at that point you might end up with a family and then starting a company is a much tougher thing. I was not really aware that you could raise money from the get go and get a salary out of this, that, because w when I was in business school, actually, I didn't think about startups at all. You know, like, I didn't think about being a founder. Even back to my immigration status said I didn't think it was possible, actually, as a non citizen. It turns out it was, there are ways,

I mean, you have to navigate things a little bit that you can make it happen. But so I kind of remember thinking, okay, it's kind of now or never. And so I decided it would be now. And then, you know, 10 years later, here I am.

Jason: Well look that that line of rationalization I think is great for people to hear, because [00:08:00] I hope people go through that same, that same path and that same path of logic of what it means to start a company before you have certain responsibilities and, you know, the opportunities that it creates for you.

So, um, now is the time that I actually want to transition to the core topic I usually discuss with founders, which is fundraising and capitalizing your company, and how you thought about those things because, well, first of all, what people should know is that you started the company in 2012. Um, and it's a software company, you know, one of the biggest, if not the biggest no-code platform out there right now, but for six plus years, you bootstrapped, is that right?

Emmanuel: Yeah, almost seven, six years and a half.

Jason: Okay. And before we get into this, because I want to make the timelines line up and I just like to call myself out when I'm wrong. There is this, there is this conversation that we briefly had, um, in the hallways of HBS. And I think we're, we're talking about what you were going to [00:09:00] do and maybe the job offer, but also this company.

And I think you were about to go do it. And, um, you described it, and You didn't use the term no-code because that did not exist. Um, you said, I want to build where I'm starting a company and we're building this software platform to help people build things without coding, you know, like, and I have a background in computer science and as you've probably experienced with a lot of different engineers, there, they have a very inflated sense inflated sense of importance and skepticism.

And I was fully like, "Emmanuel. there's, you know, there's no way you're going to be able to build any sort of software of, of significance in that manner." And, uh, I always like to bring it up just because you know, being honest and eating humble pie and making sure that I

take out my L's

Emmanuel: Well, I appreciate that.

This skepticism is a little bit the reason we bootstrapped, actually,

I mean, I don't know if you want to get into [00:10:00] that way, if

you want it to give the full timeline.

Jason: That's actually. Yeah. Well, before you jump in, I think this is where I'm very curious about what your mindset was like and your co-founders when you started, like, was this, did you feel like you needed to raise money, but you couldn't or was it always the sense that we're going to, you know, we're going to bootstrap a company and we're just going to build a profitable company?

How did you think about it?

Emmanuel: So the challenge is that sometime we write the story after the factor is the

beat and, you know, especially 10 years later,

But would basically see it came out to three things. The first thing is, and it's probably some kind of arrogance from Josh and I, but at some point I think every founder has that a little bit.

You have to be a little bit arrogant to be like, you know, everybody has failed doing that. I'm going to get it

right, which is, we didn't want people to tell us what to do. So that was the first thing. And so if you don't want people to tell you what to do, investors may be a risky path for you.

So that's the first thing. Then the second thing I was building on the skepticism that you have as an engineer, like [00:11:00] mostly everyone that we're meeting was impacted this often raising decisions in two ways. The first one is, well, first of all, it was not easy to find people excited about what we were doing because everybody thought it was impossible.

So people don't want to invest. I guess if we have like a resumes, I was like, you know, Josh and I have already built like a giant company and we can just, our name raise money. It would be possible. But on the idea itself, nobody, not many people wanted. We could probably have found some people if we had kept trying and trying and trying, but there was not easy.

Then the second thing is when you have a product that triggers so much skepticism from the market, you have to make sure

you have enough time to get your product right before going to market. Because if you go to market too soon, with a health big solution, all the skeptics would go back and say, "Oh yeah,

I knew that wouldn't work."

And then you actually made it worse for the next generation of tools. And so we actually realized, so, that's where, you know what I'm saying? There is a little bit of, you know, we're putting the events in [00:12:00] different orders. I think it's probably like early 2013. So about six months in, we started thinking, okay, should we raise money or not?

And then we started thinking, I mean, if we raise money right now by 18, 18 months from now, we'll going to have to show good enough metrics for the next round, I'm not sure we can do it honestly, because six months in, even though we already had customers, a couple of paying customers actually, um, not many, like maybe five of them, but, and when they say five, it's probably like $200 a month of revenue, like nothing. But still,

we had a couple of users, but the product was extremely early. And so there wasn't much, you know, I, it felt pretty early that it would be challenging to be in a good position to raise money, uh, 18 months later. Our intuition prove to be right, actually, because there were two companies that started maybe six to 12 months after us, that raise money, that went to Y Combinator.

One of them raised money from Andreessen or of it's, all great names. And he said exactly what happened actually, because they went through their cash. At least from the outside, obviously I'm not [00:13:00] privy to, uh, internal, uh, dynamics, but, you know, they went to a, they birthed the cash the product was not good enough to, uh, resonates well, and then eventually nobody knows about them today.

And then I went to the last thing around building a profitable business. I wouldn't say it was our goal, but it became kind of the goal because, well, when you embrace not raising money, then at some point you need to make money. So that means building a profitable business, which we did for the first seven years.

Jason: Yeah. Yeah. You got to stay alive and no, and I think there's just some interesting things to pull out of that, which is, a certain level of confidence in the idea, you know? because when you, when you face so much skepticism, that can be painful, right? Like, and I'm sure you heard it from classmates.

I'm sure you heard it from people that, by everyone. Right? Smart people, dumb people, everyone under the sun. Uh, although I I'm very, I love the quote. Um, you know, pessimists sounds smart and optimists get rich. I think there is something to be said in something that can kind of repeat out [00:14:00] there, especially within this story for people to draw inspiration from.

Because, um, when I talk to founders, I often talk about this amount of confidence and passion in a business because you have to be able to, um, you have to be able to talk to people that don't agree with you, or don't believe in your business and not be swayed by what they have to say. And I think that that must've been something for like three to five years, even, even with five, five customers.

Is, is that a point where you're like, okay, we, we kind of convinced some people, but like still

not sure.

Emmanuel: so that's what we had actually. So most people didn't believe it, but the few, so five customers where the paying ones. I would say in 2013, we probably have like, you know, maybe 20 to 30 active users that were using us, not that they're paying us They were extraordinarily engaged. Like, you know, they were on the platform.

I dunno, like, uh, 12 hours a day or something. And so that's where we would get like the early validation that, you know [00:15:00] what, we're actually on something here. Let's just make it . Better so that poor people can use it.

Jason: Cool. And, um, you know, during that time, I would say once you got to 20, this was still like a hot run in the market too. So there must've been a lot of talk about startups raising money. Um, can you talk a little bit about the time between 2012 and 2018, different points in the journey where you considered raising, um, were there periods of time when you were like, should we

raise money?

Emmanuel: Yeah. Yeah. Yeah. I mean, it's always, it's especially, I was dating someone in San Francisco for a couple of years at that point. And so I would say actually, this is a real thing. Like being based in New York where the New York tech scene was really nascent and my friends were not in technology, I was not exposed to fundraising, so I was not thinking about it too much, but then I was dating this person in San Francisco and whatever it would be in San Francisco, you

know, you know, how people in

San

Francisco it's all

about.

Jason: All the social events. Amanda, what are you [00:16:00] doing? Oh, you

have a

software.

Did you raise money?

Emmanuel: And they all, they all try to bring in as the next new startup to investor. So you get introduced to investors all the time. I mean, that's, if I want to be a little bit harsh, I would say people keep introducing each other in San Francisco, you know?

and so a couple of opportunities came to us in terms of talking to people. Um, some was big funds actually, that people would like everybody would know. Um, and that didn't really go anywhere, but we had a few conversations then we thought potentially, uh, and there was kind of me pushing mostly for romantic reasons because I was dating someone in San Francisco with a SIM person we thought about going to YC because YC reached out actually, uh, kind of out of the blue.

Um, and then at that point, so it was 20 17, 20 16. So we started building a team here and we felt that, you know, YC was not remote at that point in, it would not be great to be commuting, uh, for Josh and I to do that. So we had some conversations. That being said, there was not like if I had to give a percentage of our Mindshare, that wasn't amazing at that point, That's probably 5%.

[00:17:00] Um, so the years between 2012 and 20 17, 20 18 until the first round was signal fire in 2019. I mean, it's different phases. I was as a first year and a half two years, well, all about learning and discovering. I mean, I read, I relearn how to code, you know, I used to go to, as a kid, I completely stopped coding between 20 and 29.

And so I had to go back into it. It was about kind of like putting the core product together. I mean, in some ways a product we have today hasn't really changed since 20 14, 20 15, we just added more things to it. Uh, so that, that's a really exciting moment. Then the year 20 15, 20 20 14, 20 15 was tough because that's three years in,

we had enough users that the pressure was high, but the money was low. It's just the two of us that the, that the casual. So like, I wouldn't say Bubble was profitable for seven years, you know, you've got profitable to the end, but for a long time, it was just Josh and I not taking a very high salaries. So

Jason: Yeah. That's ramen profitability,

Emmanuel: Yeah. Yeah. And [00:18:00] almost, not even, um, I mean we could afford ramen some months, and then, um, so th that was pretty tough. And then we had our public lounge late 2015 on product turned that went very well. So then . We started having some kind of the, the buzzer a little bit, within the small crowd, but extremely engaged.

Like the community started like really happening. So a lot of things, so it started feeling better. Then we started building a team. So I kind of discover what it needs to build. I did a terrible job at first, but that's okay. Um, that's how you learn,

exactly. Then we get to what I would call a profitable business in a sense that our business was able to sustain the life with market salaries, except maybe for Josh and I like were pretty low, but other people were in market for like 12 people.

So not too bad, you know, like a, uh, a little SMB, but that was actually working fine. And that's where we raised our for our first round in 2019.

Jason: I met without getting into details. That means you bootstrapped to seven figures of revenue, for sure.

Yeah,

Emmanuel: exactly.

Jason: Awesome. Okay. So. That's a really [00:19:00] great bootstrap path. And, you know, we can tell some revisionist history, you can shift things around, but certainly ups and downs.

I'm sure there was lots of doubt, lots of periods of time when you're like, especially as your your, uh, colleagues or your classmates from before, we're doing bigger and

better

things.

It's

Emmanuel: Yeah, I was just, that was the biggest thing, actually like,

the pain of not having a very high salary in New York, like, you know, I was like 32 or 31. I was, my, my roommates were college graduates. I had to wait for the bathroom, you know, at some point you're like, okay, I'm getting a little bit old for this, but

When I started doubting a little bit and that kind of actually triggered, not trigger the fundraising, but it was part of the thinking here was the, a little bit, the opportunity cost of like, I was like, Yeah,

I mean, it's been five years. Uh, I still think these things can be massive. And from the beginning, actually, we felt like, you know, if we do this right, this can become the next big thing because programming is everywhere, but it needs to happen in order to be faster than that.

Um, and so that got us to the [00:20:00] round.

Jason: that's, that's a great transition because this is one of the things that I always like uncovering and most of the time. It's a discussion when I asked. So do you remember when you thought about, "oh, I, we need to raise for this round." Do you remember what the trigger points are? And most of the time it's essentially, we're about to run out of money, so we need to raise more money and that,

that wasn't

use.

Emmanuel: That was not our case.

Jason: So how did, how did you guys think about it? Do you remember? Can you put yourself back into this? Must've

been 2018 when you're thinking about that.

Emmanuel: Yeah. Yeah. I was. So, so it's, uh, it's a real partnership between two people, like basically 50 50 on everything, including decision-making and today we co-CEOs. And so that's for the better other words, like, you know, it depends the day. Um, so I was a little bit, so I started mid 2018 being a little bit more,

and be like, okay, I want to be a little bit faster and more aggressive here, maybe because I was a bit older, honestly. Uh, and I think that's where the opportunity costs. That was two years older, which maybe at that point mattered a little bit. You know, I was like 35 years. Josh was [00:21:00] 32. Um, and so I started pushing a little bit.

Josh was like, not convinced. He was worried of, you know, how is that gonna impact the current team that we have, you know. Is that going to start? Because at that point we were hiring maybe 1% a quarter. He's like, are we ready to take four person, a quarter of people to quarter, you know, like it's not obvious, especially when the first hires you make and not necessarily the right fit.

and so, so it took a little bit of conversation with the two hours. We ended up making the kind of the final decision. Okay. We want to do this in probably October of 2018, started working on a deck and everything. And then we started the formal process in January 2019.

Jason: Nice. So it was, uh, it was a bet on going faster.

It

was probably a bet on

Emmanuel: big and faced and the conviction that the business could sustain additional funding, which was not the case in 2012, back to my earlier point, how do we raise the in 2012 or 2013? We would have gone out of business.

We actually have a way very practical to explain how we go to that thinking and that one, I'm not rewriting the story.

It's actually something that I realized [00:22:00] as we were going is because I was doing all of the customer support myself, you know, for like five years. I've processed of over 20,000 tickets of support. And th the question that was coming the most frequently was always, can I be on this with Bubble? And for the first four or five years, it was always, not always, but 80% of the time.

Sorry. No, you can't, because that's why, you know, people are skeptical because, you know, it's by definition, a product laid Bubble which is going to be like a high level of abstraction of on top of programming technologies will be limited at first and still today. It's going to be limited compared to code.

The question is, what are the limits? And I think too, they would push the limits far enough, but so that by then we had not. And so we felt like fundraising to acquire users because that's usually what you find ways for to tell them no sounds that's the most stupid things to do. Um, and what happened in 2018 is that when people were reaching out and asking us, can I build this?

We started saying yes, most of the time, like maybe eight, only 20% of the time we sorry, that we can't. And so at that point I was like, [00:23:00] okay, well now if we have money and we get more users, the business can take it. So that combined with the, you know, the fact that we are way into step on the engineering side, I mean, it was basically Josh And I doing everything which was not scalable.

Plus the personal urgency got us to making that decision.

Jason: And so how was that fundraiser, uh, in terms of length and pain? I mean, If I were to guess, given how long you held out for, and the fact that both of your networks organically were quite good. And you had been dating a girl and San Francisco and having these introductions here and there, there were people probably hanging around the hoop.

If you will, like, who'd known about Emmanuel, had known about Bubble, quietly, but like

Emmanuel: Not, Not, really actually, but, but we got very lucky. I mean, not, not lucky, actually, I guess, not lucky, but we got covered in TechCrunch, in November, 2018. So like six years in, you know.

usually it started to get [00:24:00] covered in TechCrunch a little bit sooner So, That was our first profile. And so an investor reached out, uh, out of the, cold emailed us saying, okay, I would like to chat.

And his name is Ali Partovi, is fairly high profile

investor like from Neo, and so, um, what happened is he didn't know that, but we made the decision to fundraise in October, 2018. The article comes out in TechCrunch, I think mid November, he reaches out maybe a week later. And so we run an accelerated process with them for like a first part of the investment, like a pretty small part compared to the eventual 6.2, 5 million that we raised.

But you know, there, and the deal was like, I commonly, I secure room for me. I have a little bit of a discount and I help you fundraise. And so after that, we actually actually had it pretty easy because what, first of all, Annie is very good at this. and usually, you know, introductions are not necessarily coming from people who actually put money, but he did.

So it was a very strong, uh, very strong process, uh, help. And so after that, it was a pretty easy process. we were thinking it should be about [00:25:00] going ourselves. Maybe we would have done it well, I don't know, but it was certainly like a, kind of the best way for us to do that. And so effectively we started pitching, I think work first week of February and we signed a term sheet on like February 28 or something or 27, so that was pretty fast.

What Emmanuel just described is becoming more common. Some investors are joining rounds earlier taking on a small but meaningful piece. And then quickly pivoting to help founders raise on top of that.

When investors like that bring momentum, it's hard for others to pass up a share of the pie. Once they see the herd joining in. Two years after their first round Emmanuel and his co-founder Josh would raise a monster round. But when we come back, What were things like between rounds?

[00:26:00]

You heard the big climax of the story at the top? Emmanuel ends up raising a $100 million series a. We'll get there. But first I wanted to hear what it was like when his seed round hit the company bank account. Because often once the excitement wears off, the growing pains can set in.

Jason: one of the things that happens when you don't have resources to invest is that you [00:27:00] only focus on you being a little bit more defensive. than playing, uh, on the attacking side. And so you mostly build the team to support organic traffic coming to you. So we hadn't built a marketing machine at that point.

Emmanuel: Um, and so it's not like we had the money, but then we're like, okay, what do we do with this? So we started building a team high building, like our first growth associate and building some engineers, building other people, but it took some time. The other thing that we had is we had a little bit to . Operate like a culture change at the company because

going from a bootstrap company that does cool things a little bit under the radar because the market doesn't care anyway, because everybody is skeptical about what you do to being VC backed funded just requires a little bit of a different culture and not everyone liked it on the team. Uh, and so the first six months were actually exciting because we had the round and we were for the first time, not, I mean, still today I check, you know, how much we burn in cash and stuff like that, but

I was not as concerned after these first round, [00:28:00] but then the problem was like, um, some people didn't like it because we started being like, okay, now we're going to have to be a little bit more aggressive every quarter, speed is very important, which is something that it was just on Josh and I were moving extraordinarily fast because just two founders, I mean, you can be faster than this, but then between these two person phase in the round, we lost a little bit in velocity ethic.

And so it was a little bit painful in a sense that we added quite some people. Uh,

I mean, quite some people being like from 12 to maybe 18 or 20, and it took some adjustment to the culture, then that leads us to kind of early 20, 20. So yeah.

about like a little bit less than a year after the realm where, at that point, because we closed, I think in April.

Yeah. Uh, at that point we started putting together some marketing in place, started doing a few things and then the pandemic hit and it kind of blew up. For various reasons, a no-code engineer calls started getting a lot of traction and us in particular, because we were like one of the bigger ones that kind of started the thing.

[00:29:00] Um, and that got us to a pretty wild year during, uh, you know, moving remote that we were not, we had not been remote before. I was actually personally not a fan of it. And, you know, it turns out it's actually working very fine, uh, very well. and that got us to the round, like a.

Jason: It's a, it's a really interesting few things you touched on. I, I think it's worth saying, and I think this is a cliche that gets shared a lot as a headline, but not given the detail that you did, which is taking on venture capital is not all like rainbows and butterflies. There are things about it that change the dynamic of a company, that add significant pressure to both the founder and the people that work for the company.

And so I'm glad that you pointed out, you know, it wasn't like raising $6 million and then we were just popping champagne and killing it. It's like, yeah, there's a transition point here. And. You know, I'm sure you at . Some points maybe even doubted before the, before the [00:30:00] craziness of the pandemic. Um, so, so that's great to hear in great for you to share.

I appreciate that. Uh, and then wow. The timing of that raise leading into, the pandemic where I guess you probably also had a year to build out some features, things to make the product even better. And then all of a sudden

are.

Emmanuel: but not features actually, because we had built features, sorry to interrupt. But we had been building features for like eight years nonstop. So at that point it was more about building scale, especially with the traffic I think that was coming. And so it was a team was busier on the floor about a year, but yeah

Jason: oh, okay.

But leading into it, all of a sudden, there's this wave of people that are either, getting laid off from their jobs or leaving their jobs and, you know, a wave of solar partnership and a wave of just tons of building. Right. I guess that's the wave that you got.

Emmanuel: Yeah, exactly. I mean, if you think about it, especially in the very early, our best months in terms of growth was probably like, you know, April and March, 2020, because at that point, [00:31:00] people had a ton of time on their hand because they were stuck at home, very concerned about cash and, uh, wanted to reinvent themselves because we thought the world would be different forever, right? And Bob is actually something greater than that because it lets you reinvent yourself in a sense that you can become an engineer or web developer while you were not before, and maybe become an entrepreneur or do other things. But what is actually very cheap and actually free to learn. And, uh, it takes some time to learn and so people have time on their hands for that.

And so that's really that, yeah, this building thing where people are trying to reinvent themselves and invest in new skills for us was like a fantastic momentum.

Jason: I also think it's pretty interesting because a lot of the companies and stocks that, took advantage of this, a similar change in, in the market. Actually have kind of come back to us, right? Like come back down to earth. I is everyone going to love zoom and is everything going to go fully zoom and zoom is going to be the future.

And so you need to bet on huge growth and, and Peloton. And, uh, it turns out like, you know, when the world comes back a little bit, people are a little bit more like, I don't [00:32:00] know if I want to be fully on zoom all the time. And I don't know if I want to give up my in-person workouts or whatever, but it does feel like.

You know, a transformation and a discovery of an ability to build and take on different

jobs and companies that's something that's

Emmanuel: Yeah, this is not going to go away,

Jason: Yeah. Oka

y. So with that incredible wave, tell me how the hundred million dollar insight round went. And, and I'll say this, I've seen a lot of headlines of startups that are like,

" we just raised a hundred million dollar series A." And it's actually like a $5 million equity round with a $95 million line of debt. Let's just clarify, you raised a hundred million dollars

of equity from inside, two years after your very first round of funding. Um, tell us a little bit about how that came around.

Emmanuel: I mean, quite naturally planned ,stuff that people reached out to us, you know, starting in February, not in February, in about December of 2020, [00:33:00] we started feeling like, okay, growth is solid. we're still being careful whenever we want to open a new position, because at that point, you know, we had, we still had a lot of the money we already, we had raised before.

I think we're done at like 4 million or something. But, you know, for many of you like a cane, you know, you think about it a little bit before you start bringing people in, especially with salaries going up. And there had started to go up a little bit at that point. And so we discussed with the board and started thinking about how much we wanted to raise the plan and everything,

like we worked on the budget, we shared with our board at that point to have, uh, feedback and everything, then actually got a baby. So I was on paternity leave for about like a few weeks, maybe four or five weeks, uh, in February where, I mean, babies do sleep sometimes. So I actually spent some time building the deck, which was a great time.

And like I was outside of operational stuff and actually could invest really just on the deck and how we wanted to share our story within investors. And I, and after that, I mean, when you already had the city investor, like signal firewall was like introducing us to people. So we [00:34:00] met a couple of maybe like seven series a firms or growth funds.

I mean, we're a little bit in this weird thing. One of the challenges that we had as a company is that because of how history, because we were like so weird in a sense that we are bootstrapped, we had more revenue, so we have more of a new than a lot of the traditional series. They can eat it, but not necessarily, you know, the maturity as an organization that

companies pitching growth funds would have, because we didn't have like a full executive team yet, like a couple of weddings. Um, so we were pitching both series, end growth friends to see how that would go.

Jason: yeah.

Emmanuel: And it, it went pretty quickly. I I

Jason: So I have a specific question about this cause the, the gap from six to 100 is skipping kind of a couple steps, to be honest.

And so would love to know as you're talking to the board, as you're planning these things out, like, what was the budget number in terms of

what you wanted to raise?

Emmanuel: So we were planning on raising more, something like 50 or

60, and what happened and knowing what I know today, that one, like I would say we were being pretty [00:35:00] smart on this, is that we actually increased because we hadn't, we increase the amounts we raised without raising the valuation. So basically diluting ourselves more, pretty dramatically.

Like you can do the math, you know, from 60 to a hundred, um, because we felt it was a way to de-risk the business. And, uh, knowing what I know today about the world and the funding environment, this was one of the smartest thing we did. We were able to do that because we had not raised money for so long that in terms of dilution, you know, it's not like we had wasted that had taken 7% of our company, you know, uh, when it was, you know, just an idea.

And so we felt like it would be okay to do that. Uh, so we, we raised a ton of money, not at an insane valuation actually, instead of in terms of multiples, like we could have had a much higher value, like probably 50 or 60% higher valuation if we really have wanted to play that game, but I think it's a mistake actually.

I think, uh, instead what we did effectively is that we lowered the valuation because we didn't change the post money and raise more money. Um, and so the reason, Yeah. it's just [00:36:00] like, I started feeling when we raised that, Okay.

The market is pretty hot, like right now, like valuations are high. We don't know how long that's gonna last.

I'm not saying I plan, you know, everything that has happened over the last few weeks, but I certainly felt like, you know, this is like, this feels like a little

bit intense,

a little bit intense, right now. Let's derisk the business and have more runway, um, in general, like as a company and for Josh and I, as founders, we tend to take a lot of risks on the technology side.

What we do is very ambitious. And so we have to come up with a lot of new solutions. I don't like taking financial risks and in some ways, raising more money at a lower valuation or like, uh, increasing how much we raise without turning the valuation derisks the business.

Jason: Yeah,

Emmanuel: risks.

Jason: I think, um, to unpack that a little bit, the thing that I would, you know, one of the things I would point out is that founders are always wondering how much to raise. And whenever they see headline numbers of peers, raising large amounts of money, they believe that they should go out [00:37:00] and they should be able to go say like, well, if everyone's raising, you know, announcing 20 to $30 million rounds and haven't done anything or like have very little traction, we should be able to go out and do that.

Or maybe, Bubble raised a hundred million dollars. Let's go out and say we're raising a hundred million dollars. And I think it's important to note that a lot of those rounds don't start there. Right? A lot of those rounds that people raise, um, started a more reasonable, maybe the wrong word, but a smaller amount of money and dynamics in the round of people getting interest, help push that round up.

So that's, that's the first thing. Um, the second thing is like, let's talk a little bit more about what Emmanuel was just saying, which is, the opportunity to raise more and not actually change the valuation. I think you could have, I think with competitive dynamics and people excited, even with insight, you know, continuing to push the round up, but you decided to keep the post-money fixed, which means as you raise more money, you're just diluting yourself, essentially

lowering the pre money

valuation, is another

way to think about it.

But,[00:38:00] what, one of the things that Emmanuel's referencing is what it means to be sitting at a valuation and what your options are the next time around. So if you end up needing to raise more money from the private markets, or if you end up wanting to exit the company at different valuations, you have a very different set of investors, acquirers, opportunities to go public.

And so. Yeah, without getting into too much detail, I think obviously the way things played out,

um,

sitting on

Emmanuel: Yeah. so it's actually, the second time we do this, because when we did the seed round with uh SignalFire, we lowered. So here, it was an even more competitive deal in a sense that we have like maybe four firms, like seed stage firms making us like a, an offer of these term sheets. And so the numbers went up pretty quickly.

Uh, and so when we decided to go with SignalFire, we told them, okay, we're going with you, but let's lower the valuation by 15%, uh, [00:39:00] which they were a little bit like, okay, interesting. I do today, was a stupid decision, right. Because you know, it's fine. But I actually think, you know, you don't know.

And the optionality of having a business that survives more like has more options to survive. If you have growth issues, if the market goes crazy, it goes down and stuff like that is very much worth, I think the 1% that it costs us to Josh and I back in 2019, you know,

like at some point, the business is really successful.

Whether you own 20%, 80%, 15%, 12%, honestly, doesn't change much. I mean, I hope for is a founder's that he changes he to billions, you know, because that means you've created something massive, but the truth doesn't change much. On the flip side, being stuck with a too high of a valuation can really kill you. Uh, and then

you're out of options and you're

dead.

Jason: Yeah. And I, and I think a lot of companies are going to be experiencing that fairly soon.

Emmanuel: Yeah tough, yeah.

Jason: Yeah. And one thing I'll note with the Signal Fire around, um, not that, you know, in hindsight, you could have taken more and [00:40:00] you should have taken more, but one thing to consider, and one thing to think about is.

That firm, SignalFire, and that team must've just been over the moon about Bubble in their portfolio, and with the more reasonable valuation, you're you incentivize them like crazy to be, you know, on your side, pushing for the next raise, doing the things that they did for you. So, um, who knows, who knows what would have happened, but, um, obviously I think you can look back on everything and feel pretty comfortable with where you've ended.

So, um, Emmanuel, I wanted to ask you, given your fairly unique path to a hundred million dollar series A, are there things that you picked up along the way that you would give as pieces of advice to a younger Emmanuel, like maybe in 2012, and the hallways of HBS. If you ran into him and said, this is a dumb idea, No, one's going to be able to create great software through a no-code platform.

And younger Emmanuel is like, I'm still going to do it. [00:41:00] What are the pieces of advice that you might give, um, that would have helped you along your path fundraising or otherwise?

Emmanuel: Probably around building the team sooner. So whether that means fundraising sooner or not, maybe, but maybe we could probably have found ways to build the team a little bit sooner. I think, Joshua and I got a little bit too comfortable, just being the two of us for five years, it was that comfortable in the sense that it was insane.

You know, like we were doing everything ourselves, but now having a team to manage in some ways it is comfortable, because you're in full, I mean, especially when you have two guys that would know each other very well, you know, you're in front of your computer, you know what to do, you know, you don't feel like there is anything impossible.

You may feel overwhelmed, but you don't have in a management challenges, which as I discovered over the years is actually a much harder problems than writing boot code. And, um, I wish we had flex that muscle a little bit sooner that would have forced us, you know, probably stopped thinking about the way we write code in a way that is more, not scalable, but more, um, make it easier to involve engineers, which now I think we're in a good place with that.

But [00:42:00] honestly, in the first couple of years, hiring engineers, like now it's been five years, so now it's fine, but it's been very painful. Um, so I wish we had done that a little bit sooner. obviously I wish I had been better at hiring. in the early years, but it's like, I wish I were smarter. It's, it's kind of stupid to say that they, of course you do, but that doesn't mean you would be.

Yeah. that's probably like in some ways, uh, and I know it doesn't sound like that, but people will think, wow, like bootstrapping for these times is so impressive, but in some ways, you know, it's almost like a comfortable path, you know, not fundraising. and I think we go through it to a little bit comfortable.

Um, and I wish we had

Jason: Yeah. You could have you get to bet on yourself sooner.

Yeah.

That was my conversation with Emmanuel Strassman. And off who along with his co-founder, Josh has raised a $100 million series a for their company bubble.

When we come back, my producer, Olivia asks a very simple question. [00:43:00] Why do founders fundraise when it seems like they can just take out loans.

Olivia: [00:44:00] Okay. let me just start with this. So you kind of threw a little shade. I appreciated it. I got the sense that you were critiquing something you've seen a lot. I get the sense this is probably like a common LinkedIn post where people claim to have raised a hundred million dollars or some vast amount and you find out that like 5% is equity and the rest is in the form of a loan.

And that got me thinking. . is fundraising just a specific kind of a loan, first of all? and why do people even, why don't people just take out loans, I guess is one thing. I have a major question about, so let's start.

Jason: Yeah. Um, so you're, blending a few different topics that I think are worth picking apart or at least, um, illuminating For [00:45:00] everyone. the first is Emmanuel and I were talking about the fact that he just didn't raise that much money, and I thought that was so cool, whereas other founders will.

Put out in headlines, you know, they raised a hundred million, but 95 of it was debt.

Olivia: Mm

Jason: the thing to point out in those situations are most of the time when a huge fundraise is announced, like $256 million, I just looked up a, deal like that where 250 of it was debt. It's usually in lending businesses, so businesses where part of the company or the strategy, Revenue generation is making loans, and so they raise $250 million dollars as their like book of loans that they can give out.

So it's a little bit different. It's.

Olivia: that. Sorry, I'm just trying to think about, what that could look like. obviously when you say it's a company who part of their business is handing out loans, I think of like strictly financial companies. Um, but also are you talking about companies like, [00:46:00] let's say Peloton, where so many of the bikes that are bought are bought on, like, what would you call it?

Like a layaway pay

Jason: now pay.

Olivia: this number of months. so are you talking about like, do actually lots of companies fall into that category?

Jason: Well, Peloton is, the creator of the bikes, but they're actually startups. The whole business is enabling companies like Peloton to offer Buy now paid later, or layaway services. And those startups need to raise hundreds of of dollars to give those loans away. And that's like a different type of investment than an equity investment.

So the . First thing to pull out is that when we're talking about those businesses, 95% of it is not comparable to, you know, The 5% of equity fundraising that generally we're comparing to. So 200 million, it's actually really, they raised 5 million. And then the second question you had was, you know, why don't more companies raise [00:47:00] just to get a loan?

And I think there are a couple of reasons. Um, first of all, Debt in general, when a bank gives anybody a person or a company a loan, they have to believe one of two things. That there are cash flows that they can predictably collect in order to pay back their loan because loans are not high risk.

Investments, they're less risky because they have to be less risky because they need to believe that there's an obvious way to pay themselves back. So it's either that they see cash flows,

Olivia: are no, angel loan investors or whatever, right.

Jason: right, exactly. So they either need to believe that there are cash flows coming in, or it needs to be securitized. Like a solid asset. So another great example of that is I loan you money to buy a house, but if you don't pay me back my money, I take the house. That's another loan that like, gives you a little bit of an asset back.

With equity [00:48:00] fundraising, it's high risk. A lot of times there's no revenue. there's no real assets. it's just people. And so if the company goes

Olivia: it a loan though? Sorry? Is fundraising like is it a loan? What happens? Like are you supposed to pay fundraising back eventually? I know you . Obviously are . Supposed to. The is you would pay, I think like more back, but do you. With repaying the initial investment.

Jason: So this is a nuanced question. Um, to simplify, I would say right now, the evolution of startup investing, there is almost no investment that now in today. Day and age is done as a loan. It's, either you, pay it and there is an exit. so you, you pay them or you start, you give a company money in return, you have a claim on some future windfall essentially.

And if [00:49:00] the company is able to sell, , then

Olivia: Mm.

Jason: get your money back, plus hopefully more in every other situation, it's worth nothing. The small distinction is that there used to be a more popular way of investing in, early stage companies called a convertible note, which technically was a, and there were ways to sort of pull back your money and get interest, like a standard, um, loan.

But that. not as popular in today's day and age.

Olivia: Okay, gotcha. I'm sorry I interrupted you a little bit though. I think you were saying, so your point is that , basically people, founders are not getting loans because like they would probably be denied that. Like, it's crazy though. We've talked about how hard it is to land, investment and like quality.

from quality investors. And it's just interesting though, it's like it's not necessarily a more certain, like your odds are not necessarily better. So I think that's interesting. But is it just that like people [00:50:00] like the terms of fundraising more, is it also that the bank, like say you do secure a loan, is it that there's like a lot more babysitting and checking.

Jason: Uh, it's, it's just what you expect. So with a bank . Loan, they are underwriting, as in they are evaluating their loan opportunity as. Expecting to get, you know, 10, 20% money back. So if I, lend you a hundred bucks, I expect to get $120 back. In startup investing, when you're investing in equity, you are underwriting as in like when you model out what you think it could be, you're like, I'm giving Olivia a hundred bucks and I think there's an opportunity for her to give me a hundred thousand dollars.

Like that is what you're playing for because with a hundred thousand dollars back, it may not get there. But if I can say there is a chance that Olivia could make this investment a hundred thousand dollars, that's what I'm betting on. [00:51:00] Because most of the time when I be on Olivia or a hundred other Olivia's, they will go to zero.

But the one Olivia that. A thousand x covers all my losses and then returns like a portfolio of returns that you know, is predictably in my business model.

Olivia: Okay. The other thing I wanted to talk about, and this is not a question, this is really, um, I was always in the slowest math class like. this, this felt like math. the whole, the lower the valuation. Like there's actually a strategy there and, Emmanuel kept saying it de-risked the business and like, I think he said it led to more runway maybe, or that, it made them more resilient in the possibility of like a market crash or something.

So why I don't understand the strategy here. Why is lower valuation strategic?

Jason: It. This is a very confusing conversation, [00:52:00] even for people that are experts or in the know. Um, But I'll do my best to at least point out a few things. At a high level, all early stage investing is very feel based. You know, there are so few metrics that are scientific of, of helping describe why a company is worth 10 million or 20 million or $30 million.

They're all not making that much money, if any, right? So it's like, why is it 10 or why is it 20? And so, at any stage of a fundraise, It's very momentum driven. It's like, ah, we have this great belief that Olivia's building a big company and we want to invest in it. And when you go taking money at the first round and you start building your company, when you go to the next round and you say, . Now I need to raise money again.

You go to the market and you say, ah, I've done so much. We were at 10 million. Now we've done three X as much. We believe

Olivia: Oh,

Jason: [00:53:00] $40

Olivia: oh wait, okay. Sorry. I'm gonna need constant check-ins. I'm sorry. Okay. But first revelation is that, it makes you look, you're being realistic.

Jason: Mm-hmm.

Olivia: you're setting your goals, you're setting yourself up for achievable goals. It basically is strategic for the next fundraise because you're actually able to improve upon that valuation.

Is that what you're saying?

Jason: Which, if you actually pick a part, doesn't make a ton of sense cuz that's all subjective feelings anyways. Um, so where people get stuck is they go out in a really hot market and they're like, we can. Investors to give us a hundred million valuation. You know, it's like they price the company at a hundred million on paper worth a hundred million dollars and we raise $10 . Million if they go and they have to go raise money again.

And it turns out like no one wants to give them a hundred million, 150 million valuation to go up 50% or even a hundred [00:54:00] million dollar valuation there. Like you're not worth a hundred million . Dollars. There are pragmatists or, people that are just purely logical being like, why is that a problem?

Just the next person come in and value it, whatever they think it's worth. Like say it's worth $50 million. But the truth of the matter is, one, the perception of a company that was going like this, going like this, hit a hundred million dollars. and then now as for some reason we're 50 million, we are already trying to decide why this company is worth a hundred million dollars and using very subjective feelings around the growth of the numbers and the momentum as a reason to be at a hundred.

If all of a sudden we're like, Wow, it's not worth that. It's actually worth

50.

Olivia: Oh,

Jason: into question everything we talked about with the company in general. So it makes it hard for us to get excited about a company and for a deal to come together. That's one, that's the feelings part,

Olivia: is the relevance of a quote market crash here? Is that in, you know, [00:55:00] I mean, lots of people have been saying we're. Uh, you know, a recession is on the horizon. So is the market crash part that like, the valuation, oh no, I lost

Jason: No, no. Let me, let me help you. Let me help you. You're,

Olivia: just continue with

Jason: you're, you're right on it. I mean, I, I think what, um, and I'll get to my second point, but what I think What's triggering your spy sense is that in a really strong market, people are like coming up with valuations that are relative to a strong market.

And if you took the highest possible valuation at the highest part of the market, that means like you're like, okay, everyone's valuing companies at my stage, at this band, at the top of the band, but two years later, if the market crashes and then all of a sudden. The expectations for a company are very different.

Even if you're at the top band of the new market crash, you don't even get . To the valuations that were applied to startups, with less progress two years prior. And so [00:56:00] then,

Olivia: there's like nothing but up. There's like nothing but room to grow basically

Jason: where you. That's exactly right with a, more reasonable and sober valuation. And I think the more technical, challenge with having to go to a lower valuation is that you hired a lot of people with equity, that they believe was worth something. and when you go raise. money at a lower valuation and start like diluting them and their equity

Olivia: would be a revolt.

Jason: would be a little bit of impact of the motivation of your team. And at the end of the day, there are a lot of opportunities to invest. and it requires an investor to be an asshole in order. Reprice a deal. So if Olivia, you had done your last round at a hundred million dollars and you're like, look, I know the market is bad right now and we can't raise at a higher valuation.

So Jason, as an investor, look, we, um, we understand you're gonna have to [00:57:00] price it wherever you think is it's fair. And I come in, I'm like, you know, you were at a hundred million Olivia. Um, I think you're worth. You're gonna be like, what the hell? Like 10. I was at a hundred and the investor has to be the person that is the asshole and crams everyone down and puts you at a lower valuation, and that ends up impacting my, my

Olivia: if you need to take a lower valuation, investors don't even wanna be the ones to tell you, Olivia, you're worth less than you.

Jason: Two years prior. Because even if . That's fair, it starts impacting the investor's reputation where it can feel like you're taking advantage of founders and like people start whispering, oh, Jason yay is that investor that went to that awesome founder Olivia, and like took her company and like invested such a low valuation.

And he's such

Olivia: I just ask? are there investors who are like legendary for this? And like, you don't [00:58:00] have to name names, but are there investors where like they really like that's their thing. They're like an a-hole investor who's known for this?

Jason: I mean, there are definitely, there aren't any investors who are known for that. I don't think, like very few, I don't think any funds really had this strategy of

Olivia: Oh,

Jason: trying to take away,

Olivia: people don't do

Jason: people don't do it.

Olivia: repeat offenders.

Jason: Right, cuz it's such a bad look. But I will say there are investors who are known to be tight on valuations.

Okay. Gosh. But wait, you were, you were getting momentum there. so that's good though that the, culture or whatever it is of,

Yeah. No, I, it is good except for founders run into the problem of. not being like Emanuel and not understanding the dynamics of being overvalued. And so they will always, a lot of them try to press for the highest valuation they can get in any in particular round when really trying to get the highest possible valuation you can get [00:59:00] sometimes can lead to shooting yourself in the foot in the next round because of the culture that you were just describing, which is that no investor really wants to be the investor to come in and reprice your.

Olivia: Can I just say though, after raising a hundred million dollars, like I love this man's psyche because on the one hand he's like not motivated by money, you tell me, but I feel like it takes someone who's not motivated by money. Or their number one priority isn't money, to play the card of a lower valuation, a, such a power move.

b, I cannot believe. So now that you have taught me about this, I'm realizing his game is all about the next fundraise. And can I just say, I love this man's ambition after raising a hundred million. Like the a hundred million raise was in some ways about gearing up for the next raise. No,

Jason: I mean, you kind of,

Olivia: that there's gonna [01:00:00] be

Jason: you've hit the nail on the head with. Venture capital startups overall, and the fact of the matter is that a lot of founders don't have that mindset and don't realize that by jumping on the venture capital treadmill, you are signing up to raise money two, three times.

So strategically setting your company up to make the next round easy to fundraise for is incredibly.

Olivia: I feel like I should have considered this, like growing up when I asked my parents for like, Money. Like I should have been like, no, it's all about the second, the

next

Jason: Right

Olivia: it's all about .

the long

term

Jason: The next time I have to ask my mom for money, will I have set it up from the last time where she feels comfortable giving me money again.

Olivia: No, that's true. That's true. Sometimes yes. Be modest in your ask.

Jason: so that you can be more aggressive the next time.

Olivia: Exactly. . Um, okay, cool. I think that's, yeah. That's [01:01:00] awesome.

Emmanuel:

I asked Emmanuel what the craziest app someone's ever created on bubble is. I was expecting to hear about a lemonade stand finder or the Uber eats of just brownie Sundays. But he took it in an unexpectedly heartfelt direction.

Emmanuel: the things that touched me the most. And the thing that got me going for this year is actually the people that are not necessarily people raising money, actually, because as soon as you raise money, we could imagine you could find engineers is really people trying to build something for a problem that is not fundable.

And that's at some point, I mean, of course I can see Sony I'll go because you would say, no, I'm not going to build a successful business for that, but it's really the true point why we're doing this, we're trying to make technology accessible and cheap so that you don't, so that technology is not only used for problems that are massive opportunities.

Thanks a bunch for listening. If you have any questions about today's show or maybe you're raising money [01:02:00] yourself. And want some help problem solving. If so, find me on social. I'm at that's J a Y Y E H. Or shoot me an email@jasonatfundedpod.com. I'd love to hear from you. This episode was produced by Olivia Rheingold.

Thanks also to angel Adriano from adamant. And thanks to Emmanuel co-founder of bubble. I couldn't have been more clueless when he pitched me the idea back at Harvard business school. Is it too late to get into the series B now? You know how to reach me Emmanuel.

Emmanuel:

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