How Curtis Northcutt Closed a $25M Series A for Cleanlab (Curtis Northcutt / Cleanlab)

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Curtis Northcutt: You have to have customers and you have to prove that those customers are getting real value and that it's something that's repeatable and leverageable and that if you were to sort of triple or double the size of your company, then you should be able to triple or double, or ideally 10X

the value of that company.

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Jason Yeh: What separates a winning startup from the hundreds of others competing to get funded. Isn't just a brilliant idea. It's also a timing. Building strong relationships and the ability to plan ahead.

And for today's guest, he's been doing exactly that his entire life from growing up in a rural Kentucky with big dreams to earning a PhD from MIT, working with giants like Google, Facebook. And Amazon and [00:01:00] finally launching a startup of his own. He's been laying the groundwork for success every step of the way.

Today, I'm speaking with Curtis Northcott, founder and CEO of clean lab.

One of the fastest growing AI startups in the market. Curtis recently closed a massive $25 million series a co-lead by Menlo ventures in TQ Ventures . And today we're taking a closer look to hear about the preparation strategy and conversations that made it happen. But before we get into the fundraising playbook, I wanted to rewind the clock a bit to the early days when Curtis was just a kid in a rural Kentucky with big ambitions, figuring out how to turn frustration into fuel for something bigger.

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Curtis Northcutt: Yeah. A cool question.

So I'm from Kentucky. And I have not met a lot of people who did their PhDs at MIT, uh, who are running companies in the Bay area, uh, who have [00:02:00] fortune 500 customer companies, uh, who are from Kentucky. And if they are, they're not from rural Kentucky. Um, and so I, I, to be honest, I, I was pretty lonely as a kid.

And I, and that's kind of true today. I have great friends. I've met great people in my life, but there's some loneliness to that journey. And I think a lot of, uh, young entrepreneurs, uh, will, it's good to know that you're not alone in the loneliness of the, but it, but that is definitely, so how I felt, I felt, um, I felt pretty frustrated as a kid, to be honest, like there's the happy story we tell.

And then the reality is I was a pretty frustrated kid.

Jason Yeh: Well, it's, it's interesting that you say not only from Kentucky, but hinted at being from rural Kentucky. I don't hear even a slight bit of affectation from, from rural Kentucky. So there's a, there's a bit of an evolution that happened. I wonder, You know, you ended up in a PhD [00:03:00] program at MIT and, and raising millions of dollars, and now you're in San Francisco.

Um, were there role models even around you, you know, in rural Kentucky that sort of drove you in this direction? Can you talk about what your parents did growing up or anything like that?

Curtis Northcutt: yeah. Um, maybe, maybe two things. One is I should finish on the first thing, which is. I felt like I said I was frustrated and I didn't say why.

I should say I was frustrated because there's a tremendous lack of opportunity in rural Kentucky if you want to do great things that change the world and you just don't have access to a lot of resources.

So the people who, and my dad was a mailman. My mom works in a call center still today. Um, and they didn't get along very well either. Um, so, very much a home that wasn't too happy to be, to be honest. And, uh, and it was tough, and we were hungry, and we didn't have a lot of food, and it was the real deal.

Like, stone shack [00:04:00] with, like, hole in the ceiling in rural Kentucky. Not a farm, not, like, horses, you know, none of that. Like, random chickens from the farm next door flying into our yard kind of thing. Um, and, uh, So, so it's very frustrating when you're somebody, and I, and who I was, was somebody who I, I would go to school and I would learn mathematics from, from a teacher who just needed to get a paycheck and had a tough life, and she would do her best or whatever, but I knew it could be taught better, and I would spend my own time at home.

Learning how it actually worked. And then, but there's nothing I could do about it. Like how frustrating was that for me? And then I would just watch the next year all the students learn the same bad book that I had to read. From the same materials that everyone else and I was like, we're all stuck. Like I'm surrounded by a bunch of people who are stuck.

Who can't change their life because these are the resources they're getting. So I want to write a textbook and so I said I had this idea in my mind, I'm going to write a textbook. [00:05:00] And I'm going to change the world, you know? And then I realized, wait a minute, I am a poor kid in rural Kentucky with no resources, the son of a mailman.

I don't know anyone and no one, there's no way that I can write a textbook with the resources I have.

So the, the people who, who I was very attracted to and who I saw as role models at that time in my life, were people who transcended where they were from, but also Who just were very curious and sought discovery and where that led them.

And it didn't have anything to do with where they're from. It had to do with their mind and what they could do with their mind. So my role

Jason Yeh: any of those? Yeah. Do you remember who those were like at

Curtis Northcutt: Yeah, Einstein was a huge role model for me. Um, a huge one. I loved really ambitious people like Michael Jordan. I think a lot of kids, you know, young boys like Michael Jordan, but I liked his ambition.

That's what I liked about him. I liked that he decided I'm going to be the best no matter what holds me back. Um, [00:06:00] I liked people like Eminem, you know, I know that's not the typical answer you get from a founder. It's like Bill Gates or Bezos, whatever. But I like the idea of coming from a broken home, having a tough family, a tough home, but having dreams that you're going to change the world through something, in his case, through music, and that he, he was so hungry and worked so hard that he pulled it off.

And I love stories like that. I

Jason Yeh: Uh, really unique origin story. And we've, and we've had some amazing founders who do have, Um, various backgrounds, various interest sets. Um, there, there is this chip on your shoulder. There's a bit of like an energy behind you where, you know, it seemed like from an early age you wanted to do something. And, um, your reference to math class and thinking that you should, Learn it better.

And then the fact that you did study computer science, it seems to me like you had a certain idea in your head when you were, say, going through high school. You probably [00:07:00] were close to top of your class. It sounds like because of where you were able to go, do you, do you know what vector you were pointed in?

Like, was that, I want to be a scientist. Was that, I want to be, um, an academic or did you have entrepreneurial dreams, In the early days back in Kentucky. Well,

Curtis Northcutt: never wanted to start a business in school. In fact, even today, if I knew anyone in the world, and I mean this, this isn't like some thing you just say to be cool. If I knew anyone in the world who could be the CEO of CleanLab better than I could, then I would hire them. Like I, but I, I invented the field behind it, right?

I did my PhD in it, I spent 10 years studying and, and building all the framework that we use. I just don't, nobody else did that, and so it, uh, I've just spent too long, like, getting good at this one thing, and so I have to do it. But if I knew someone else who could do it, I would hire them to do it. Um, I, you know, that's the, that's what you should do.

Cause I care about the dream and I care about the vision of what we're trying to do in the world [00:08:00] much more than I do about the position I have to do to get it done. I'll do whatever it takes to get it done if I believe it's a good thing, but I just have to constantly check myself to make sure I'm doing a good thing.

Jason Yeh: that is a, that is a great segue into maybe a spending, you know, 30 seconds on what the dream is. What, what is the thing that you spent? You know, 10 years, a decade working on and are now building towards. And, and by the way, this is something that I'm sure you'll have many opportunities to describe and interviews, podcasts, et cetera.

We're only going to spend a second on this and then transition over to a different part of your journey.

Curtis Northcutt: Cool. Yeah.

The biggest problem I saw over and over, I worked at Microsoft, Google, Amazon. I spent two and a half years at Oculus. I worked at Facebook AI Research. Back when it was small, and Yann LeCun ran it with like 10 people in New York. Um, they all had the same problem. They were all trying to use data to do stuff, like train AI models, change the world, make the world a better place, and the data being fed in was [00:09:00] bad, and I was like, okay, we're spending tons and tons of money and time in order to get these things to work properly.

But a lot of the work we're doing is like manual sifting through data and writing Jupyter notebooks and writing a bunch of Python code to check each data. This is something every enterprise faces. I've now seen it at every major enterprise that's like in your thing. You know, top five and I think we can automate it.

And so I spent 10 years or so building out a theory, a set of theory and algorithms called Confident Learning. Uh, that was my PhD and I did that with Isaac Chuang who invented the quantum computer. And I took a bunch of the ideas from quantum computing and information theory. I love math and physics and science.

And so it was, it was fun for me to do that. But at the same time, it was really cool because it turned out that some of the key ideas that you use. To understand the ambiguity and the uncertainty in a quantum computer in order to estimate what it's actually doing so that you can do like real world analytics and computation on a quantum [00:10:00] computer, those algorithms were generalizable to AI.

And so that was my PhD and we built this whole field and all we ended up really doing actually is one thing. We just do it really well, but it's actually like one thing that's kind of simple. We add trust and reliability to every single data point that goes into data driven models. And out of data driven models.

So product catalogs, data warehouses, AI models, LLMs, we check every output, tell you hallucination or not, trustworthy or not, and we check every input. This is, this product, product catalog has an error. This Amazon thing is not the right, it's a banana, but it's actually a hammock. This insurance thing is labeled fraud, but it's not.

And we just are the people behind the scenes that are saying, you can actually trust this now and you can make real revenue off of it without having to deal with huge, massive thousand data science team checking everything.

Jason Yeh: Amazing. Okay. So the lead into that for CleanLab, um, was a long, History and, and sort of [00:11:00] set of experiences.

Um, and this is where I want to transition to asking you a little bit about starting CleanLab and the idea of, would this be a venture backed company? Venture backed companies need money. I assume with the vision and the type of talent that you would need working on this problem, that you knew when you got out, uh, when you started this, that you would raise money immediately, but I'll let you, I'll let you correct me or, or tell me how you thought about the starting the company.

And in particular,

Curtis Northcutt: When, when you decided that this was going to be a formal company, that you, you, um, you sort of mobilized against this problem, was it, well, I'm just going to capitalize it around me and then get back to work by myself, or was it immediately, here's the big vision, we can't do this on our own? Which two, which of those two did it sound like

It was more of the second one because the sick, think about it. Like I've, I've worked at all these places. I've been at Google, I've been at Facebook. [00:12:00] I've seen the problem in big tech. And then the reason I built this in the first place was not just because I thought it was cool. I did think it was cool.

I love the idea of just AI doing everything that's hard. When humans want to solve a problem, they can push a button and something helps them solve it. Like, I love that idea. That's cool. But I also, it's very personal for me.

Jason Yeh: Right. Right.

And, and when we, when we look about capitalizing it, I'll tell you this, I just pulled up the information that is publicly available on Crunchbase, but likely not super accurate in terms of when these fundraisers happen. What it says online is that you raised a 5 million seed from Bain Cap Ventures in July of 2020.

Uh, 23. And then series A from Menlo in October the same year. There's usually some sort of delay which means I would guess that seed round were done maybe more like at the end of 2022. Could you clarify that if you're comfortable? Uh, and then I have a follow up [00:13:00] question around that.

Curtis Northcutt: Yeah. And this is just general advice. Like if you're a founder and you're going to raise a round. When you announce the round is up to you. Like, it's an announcement. You don't, the world doesn't force you to announce things. Like, if I want to tell the world my middle name is George, which it is, I wouldn't, I don't have to announce that right now because the world wants me to.

I can do it next year. And, and so it's up to you. What we did is we raised our round at the end of 2021, and we waited until we were getting close to Series A before we announced. And anyone can do that. It's a very reasonable thing to do. And the reason you might do that is because if you're building a very tech complicated product, like if you're building a wrapper around chat GPT or a wrapper around, you know, some stable diffusion, which a lot of companies are like people laugh about it, but you can make a lot of good money and solve cool problems.

Fine. You can announce right away. Cause it's gonna, it's your engineering time is like half a year. If you're decently fast and you can even do three months. But if you're building hard [00:14:00] tech, if you're inventing something, you're building the world's first no code data curation platform. That's hard. It's the first time.

You're defining a market. You need some time. Give yourself some time. So we took a year and a half to just build, and then we started working with customers privately. We started working with users privately. We opened it up in a very pre launch beta. We didn't make a big announcement though. We shared with some of the places that we had worked.

We shared through our open source. We have a very big open source user base. Our open source solves like a very tiny problem. It doesn't work as well, but it's free. So people like to use it and we're very good to them. We treat our, our fan, our sort of base very well. Um, and so we got a lot of natural, organic inbound that continues to actually grow and we still invest in our open source community.

So we get a lot of, most of our inbound is natural. And from that, you just listen. And when you think the product is actually good enough for enterprises. That's a good time to announce the round and that's what we did. And then we raised [00:15:00] our A like three months after that and announced that one immediately to keep the momentum going.

Jason Yeh: Yeah. So, so I'll pause right there cause you, you yada, yada, yada over maybe the part that we'll jump into. Um, you have, you have two fundraisers that we could possibly jump into, but you know, I don't have, you're a, you're a busy guy, right? As we jumped in, you had a team of executives and I won't say the company name, but you know, you had a team of executives, uh, listening to you before.

Um, being gracious enough to join me. So I would love to go through all your fundraisers, but knowing we don't have a lot of time, I'm going to spend more time on the second one because of the timing that you just described to me. So you raised your initial tranche of capital. In maybe the hottest, uh, market ever to raise capital.

Um, and you're no slouch yourself. I mean, you, you have humble beginnings, but certainly you have every logo under the sun and all the credibility in the world, uh, to start a [00:16:00] company. Um, and certainly the network, I would, I would imagine the network to make a couple of calls and start. The momentum in the hottest time to raise capital.

When you went out to raise the next round, um, not as good of a market, right? And, um, you had, you had a lot of smart, strategic communications under your belt. Like what you just said, you didn't have to announce your initial round. You knew that you could use it as a marketing tool. And then sort of build momentum around the next thing.

So maybe we, maybe we fast forward to 2023.

If you'll remember in Q1 of 23, uh, the largest, the largest bank for technology and startups. So we're not in the best market, um, for, for venture capital at the time. Do you remember what's going through your head in terms of where the company is, what you're driving towards and, [00:17:00] and if fund, where fundraising was in that sort of stack rank of priorities for you?

Curtis Northcutt: Yeah.

I mean, well, it's my job to be ahead of the curve. So I was, I was already planning for this like six months before Silicon, you know, Silicon Valley bank went under and shortly after that first Republic bank went down. Um, I think. Sort of the pieces were acquired by JPMorgan Chase. But if you were a shareholder, you lost everything.

Um, so six months prior to that, before that happened, I chatted with people I trust and people I trust who are very close to the markets. And it's not, you know, I'm from rural Kentucky. I'm not born with these people I trust. What you do though, is you, you treat people well, like treat your people well. I really care about people.

Like you have to care about humanity in the world, but you also have to care about the people you work with. And investors, you always hear investors say like, it's our relationship. You'll hear all these things. And founders [00:18:00] sometimes laugh it off. And I think they're misplaced. I don't think they should laugh it off.

I think they should listen when investors are saying it's about friendship. Because your investors are investors. They know the market. Like if they, if they don't work with a better investor, but they know the markets, you should be able to leverage your relationships to get a little bit of foresight if the market is going to go badly.

And so I did, and I have good investors, good people who I work with, I've talked to, and I try to maintain really good relationships with them. And they gave me a heads up and they said, look, we think the market's going to go, go badly. And obviously they don't, they could never predict like a bank is going to go under, but they, they're just talking and getting, you know, talking to a lot of people.

And I don't have time to talk to as many people as they do in that area, but I can talk to them. And so once they gave us a heads up, uh, I, we had a plan originally when we started the company that we were just going to grow the open source and sort of, uh, Three, four months into the start of the company, [00:19:00] I chatted with my co founders, very, very smart people.

I trust them very much. And, uh, we all did our PhDs together. So these are their old friends. And we all sat together and we said, look, we could just build an open source company like Hugging Face and all these other companies that have done very well that way. Or we could split our bet and actually start the SaaS product now.

And so we put 50 percent of our resources into hardening. The open source and providing a very tremendously valuable product. We believe, um, that became the number one most used data centric AI open source platform. And that was great, but simultaneously what we were actually spending a lot of our money on was building the SAS product.

When the market went down, we were already ready. So we already had a SAS product that we could deliver. And so what we did was we knew that investing in just open source at that time was no longer going to be a viable route forward. You have to have customers and you have to prove that those customers [00:20:00] are getting real value and that it's something that's repeatable and leverageable and that if you were to sort of triple or double the size of your company, then you should be able to triple or double, or ideally 10X.

The value of that company. And if you're not thinking that way six months before these things, you're, it's going to be a tough way to react. So we actually didn't have to react. We had already built the product and what we had been spending 2022 on was customer acquisition, getting some good ones. So when we went into the Series A, we had already closed and we were working with FANG companies, top major enterprise companies that were already using CleanLab and paying us for it over half million dollar deals, big enterprise deals.

So when we went into the Series A round, it wasn't, um, it was a very different situation than a lot of other companies at that time because we had strong proof points with some of the bigger companies in the world that were using our stuff and getting value from it. But we, we were, you hear the outcome and you're like, Oh, [00:21:00] okay.

But we planned for this. Like we were planning for it every step of the way and watching the market and putting more investment in the SaaS product and in closing customer deals. As the market went down, we increased the amount of effort we put into focusing on that while still maintaining a couple engineers to maintain the open source community and support them.

Jason Yeh: super impressive.

And before we move on, I'll just say, I'm Curtis. I'm like, really glad that you pointed out this, the relationship that you have with your investors. Uh, I think it is, it is too easy for. Founders to get swept up in the, the narrative of an adversarial relationship between founders and VCs and how we're, you know, two opposing forces.

And I, and a guy like me who was a venture capitalist and then became a founder, I often talk about this idea of like jumping over to the other side. Um, but you know, if we're just really talking about what's right in the relation, the sort of human relationship [00:22:00] element of this whole thing, um, it's important to hear that, That voice from a founder who's doing well, who has a company behind it that you, you value your VCs, you value your investors as, as advisors, right?

Not just sort of sources of capital, but, um, additional sources of value. And, and I think the best companies, Do get built alongside really strong partnerships, right? Strong partnerships with your actual team, your internal team, your co founders, but, um, your investors, if you're not treating them as partners and like really teammates, then you are kind of missing out on a ton of value.

So I'm, I'm glad you sent that message out. Um,

Curtis Northcutt: Can I add? I add two points to that. I think it'll really amplify. One is, don't, like, if you're running a company, you're probably pretty good at something that makes you the right person to do that, but don't think about that and become blind. Like, if you're like, Oh, I'm, I [00:23:00] know what I'm doing, or I'm the best one to do this.

That's why I do it. That is a very ignorant and blinding thought. Like it might be true, but what the ignorance is that you end up thinking that you're right all the time. That's just not going to lead to a good outcome. You're not going to stop learning. So, so I bring that up because when you hear founders talk about investors, it's like, Oh, I did a round with them.

I could get, I could sell out my company for a hundred million and we still don't get anything, you know, and they get everything. Well, that's their job. Like you need to be respectful. Like you're doing your job and they're doing theirs. You signed up for this. Like. That's what you're doing. You knew that going in and then you do the deal and then you complain and, or you hear the stories of like, I got nothing.

The investors robbed me. You did that deal and these people are working with you and they obviously wanted to make more. Like they have ownership. They didn't want to just break even. They would have loved for you to have been more successful. So that's one. A second thing is you [00:24:00] have to recognize that you have to let go of that ego and you have to recognize they.

They're chatting with hundreds to thousands of founders. How many founders are you chatting with? You know, like, maybe you go to a party, maybe you have a couple founders who end up being customers, but most of your target audience is going to be established executives in the B2B, or it's going to be users.

It's not going to be, you're not surrounded by founders all day with book to book calendars, getting to understand them. So if you think that you know the founder life, like generally across all founders, better than it, than they do, then just like consider that might not be true. And in that sense, they are actually an advisor.

And the third point of feedback, and the most succinct I would give is advisors should be asked for advice.

Jason Yeh: Right.

Curtis Northcutt: You don't have to, like, do what they say, but if you don't ask advisors for advice, then why are they your advisors? Like, you know, [00:25:00] and they're called partners for a reason, because they partner with founders.

Like, there's reasons behind all this stuff that I just think people get, they get caught up in the numbers and they miss, and the relationships are really important to success.

Jason Yeh: Yeah. I think the last thing I'll, I'll leave on this point before moving on, which is so important. It's something that I stress so much with founders because most skip over this step is, In order to fundraise well and in order to interact with investors well, whether it is on the fundraising trail or working as partners once they're on your cap table, you probably should better understand what their business is because the things that you just described, I don't think the vast majority of founders really understand or they didn't care to sort of double click into it because this idea of VCs being pirates and just coming in and taking your company and, and, you know, Taking all the money off the table when you get none, that's not their MO.

And, you know, and these [00:26:00] people are trying to make money as well. And they, they take on a ton of risk. They have bosses themselves, right? Their money is generally not theirs. And so we won't go in this conversation into illuminating everyone around this, but those are the dynamics that are really important so that you have a little bit more, um, of a understanding and empathy towards the people that you work with.

So, um, Curtis, uh, I want to very specifically ask you about the Series A led by Menlo.

Were the partners at Menlo, uh, people that you had met maybe in 2023? Are there, are they people that you had met, um, in prior years? Like when did that relationship building process start for you?

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Some of, you might have wanted to roll your eyes or even skip over our discussion around understanding investors.

But I hope you didn't.

And I hope that you heard what Curtis was saying, because if there's one thing that I see holding founders back from raising, it's their lack of [00:27:00] understanding and what a venture capitalist actually does. And what their job actually is.

When we come back, we're talking about clean labs, $25 million series a around, which you definitely don't want to miss.

So you, after the break,

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Curtis Northcutt: [00:28:00] that's funny.

So we did, we actually were co led, but the other firm that we co led with is not as well known. Menlo is super well known. You know, they, they led the round for Anthropic and like all the big companies. So a lot of people know Menlo and they've had a very good last few years. Like if you look back 30 years ago, they're the top.

You know, BC and Silicon Valley. And then they, they got older and the young ones came in and the Andreessen Horwitz came in and all these big ones, you know, and everyone was in that light speed and all the big, and you kind of Menlo kind of went off the radar a little bit. Then they came back and they actually ended up doing [00:29:00] very well recently.

And that's, that's part of the reason I wanted to work with them. I love the underdog who used to be. The Top Dog, who then comes back. That's a beautiful

Jason Yeh: Can you mention, can you mention the partner that you work with over at Menlo?

Curtis Northcutt: I work with Matt Murphy and there's nobody else there I would rather work with as much. It's a great team, I love all of them, but that guy is stalwart and it's an honor to work with him.

Truly, if you get to, if you get to meet Matt Murphy, he's a good guy.

Jason Yeh: Love that. You were about to mention the second, um, less well known firm.

Curtis Northcutt: Yeah, so the less well known firm is TQ. They don't do any marketing, they don't have apparel, you know, you will never, you won't see a hat. Maybe they'll change this one day, but as far as I know,

Jason Yeh: Based on this interview, maybe.

Curtis Northcutt: what, what makes them special is they're different. They, so Menlo is the big West Coast firm.

They have the classical customer intros. Um, they have, it's like going to be tech companies, West Coast companies, in person meetings. Um, they've got a hiring firm that like helps you find talent. And it doesn't always work out. [00:30:00] Sometimes you gotta, you know, find other ways, but sometimes they'll help you.

They do their best. They really do try. And I'd say that the value out is very high. Um, The other firm, the value I'll add is equally high, but it's very different. They're about relationship building and they are more of a strong, warm intro with one person. Um, they are East Coast. They're based in New York.

Um, it's led by Schuster Tanger and Andrew Marks, and they have a lot of connections through a lot of financial firms and business firms. That I thought were particularly relevant to fixing and improving data where the, the revenue models of those companies were directly related to trust on the data.

And this was, it's just a, it's just the right type of people. But the number one reason I ended up working with them was not, not those things. It was because.

There's a nice balance of the East Coast, West Coast, and also the big firm and the small, like, friendly investor firm.

And [00:31:00] if you're a founder and you're setting up your team, you, if you have all bulldogs and all type A in every single seat, and nobody's like, kind of a friend, you could just give a call who has like, very reasonable mind and, and who like, helps you be a better leader and is like, helps you with the EQ side.

Um, it's tough and they, they serve that purpose. They're good people. They, they're kind. Um, and they're, they're friends, I would say, which is, uh, I didn't expect to say that on a podcast, but I feel comfortable saying that.

Jason Yeh: That's great.

Well, well, take us back a little bit. Um, you know, when did you meet Matt Murphy, um, during

Curtis Northcutt: Yeah, right. So

Jason Yeh: Go ahead.

Curtis Northcutt: no, thank you.

Um, yeah, so I, I met, I actually met both of them in 2023, which is funny because I built the relationships like you're supposed to with other firms over the course of years.

Jason Yeh: Mm hmm.

Curtis Northcutt: The way it worked out is.

Once we, I just did a couple pitches and then, [00:32:00] uh, we just had closed a couple of really good customers and they were real use cases that have repeatability to them and at least at minimum prove significant viability that our stuff does work and people do want to pay for it.

And it's industry relevant and it's solving a major problem, which is, can you trust data? Um, and once people knew that, and they've heard, you know, They've heard what's on the market and they knew that. I think it, it was just, I mean, I, I don't know how else to put this, but I think we're solving a really important problem, potentially the biggest problem for AI, and I sound like such a founder saying that, but like, what is any learning without the data you learn from?

And if you can't trust the inputs going in, then how could you possibly trust the outputs going out? So trust on data is trust on AI. And so it was very fast.

So the people who knew what we did and they understood what we did, I met with them and if it was very clear that they had been watching us and putting a lot of [00:33:00] effort into really understanding us.

from day one, uh, their day one being in 2023. And they already knew this much about us. And I hadn't even gotten to meet them yet. I knew how much they cared, how much they wanted to support us, how much they understood our problem. And both of them did. And so it moved extremely quickly. And we ended up closing the round in a couple of weeks versus your typical like multi month cycle.

Jason Yeh: Yeah.

And so when you, when you went out to meet them in 23, was it part of a, uh, an official sort of formal launch of your fundraise? Were you like, did you talk to your co founders, your existing investors and say, I think we need to start talking to investors. And obviously you had a list of the firms that you had been building relationships along the way.

And then these couple additional ones, like walk us through some of those details.

Curtis Northcutt: Yeah, uh, step by step.

So first thing I did is talk to my seed investors who are very good. It's, it's Bain Capital Ventures. Uh, my [00:34:00] lead there is RF Hillily and very much respect him. Very smart guy. Um, he did prior to being an investor, he raised two companies as founder from scratch. Uh, and I know at least one of them sold for over a hundred million.

He's the real deal. Like he, he, he's a lot of people have done it like, Oh, I did a seed round or a company one time, but he like sold big companies like for hundreds of millions. He's, he's the real deal. And then he did, he was a Sequoia investor partner. Uh, for a long time, maybe seven years or so. And then very quickly became, uh, pretty high up at, at Bain Capital Ventures.

And he's a good guy. And it took some time for me to realize just how, uh, how valuable of a resource he is, and I needed to learn that honestly. Cause I, I, I just like you mentioned, like I'm from MIT, the hacker vibe, the hacker mindset. You know, what are these fancy business people doing? That was kind of what I thought five years ago.[00:35:00]

And so when I first met him, I was like, cool, thanks for the money. Like we're going to build great things, you know, and, and, and we didn't interact as much in the beginning.

And then over time, as we, as he started to realize we're serious and we're here to go big, like we don't want anything less than a billion dollar company.

But I'd like to go even bigger than that. And I started to realize he's serious. Like he wants to help us. He's the real deal and he knows what he's talking about. Uh, that, that actually built into a beautiful partnership and friendship. Um, so that, so I asked Arif and so here's the step by step.

I, once I wanted to do the raise, I reached out to him directly.

I said, let's chat. He had a lot of help. He helped me. He was like, I think you should talk about this. I think this is going well in the market. He was supportive. He advised. He coached. I asked questions. I listened. I changed my pitch based on what he told me. I took him very seriously. I made a pitch deck from scratch.

I paid nobody. I paid no marketing firm. We didn't get fancy images. It was just real [00:36:00] content, real numbers, real stuff. I made it in Google Slides myself. I didn't have, like, an EA make it. I just put it together, stayed up late, worked hard on it, presented it to a couple firms that were sort of friends of, of friends type things, where I didn't know them before, but somebody else, like, was like, they're, they're a good firm, got some feedback, heard what they thought.

presented to a few firms that I thought might end up being a little bit smaller than the round we wanted to raise ultimately, but they could give me feedback on pricing. I then asked the, a couple firms like, do you think I've got the price right? You think I'm raising enough to get done what we're going to do?

Um, and I kept getting feedback. It's too low. It's too low. What you guys are trying to get done this big of a, of a solution enterprises, you got to raise more. You got to raise more. And I was like, it's a down market. I don't know. And they're like, I would like to invest more. And so then we ended up meeting with Menlo and TQ and they were tremendously fast.

So as soon as we had the first [00:37:00] meeting, they came back with second meeting the next day, diligence the next day, and they turned it around in a week. And so I was meeting with other people. I really liked like good people at Lightspeed, at Andresen, at Bessemer. Really, I mean, genuinely, good people there.

But the speed of the firms that I ended up raising with was like, 3x. And it showed me that their ferocity of interest was, it just, it defined the relationship from the start. Because I knew we weren't going to just be another company. We were going to be Clean Lab to them, and that was tremendously important to them.

And I loved that, and I wanted to be surrounded by people who believed in us at that level. And I think we did that, and I'm proud of the team we built.

Jason Yeh: Awesome.

Curtis, I'm going to give you a different perspective on what you just described and try to generalize this for, for other people, because I'll tell you, it can be hard for a founder who is not in the seat yet, um, who doesn't have the company that you had or the product you had to hear what you had to [00:38:00] just share right there and apply it to themselves.

And I'll try to pull out. The things that I think people should take away from this. So there, there is a, um, so first of all, you were preparing in advance, right? You talk to the expert on your team, which is ARIF and you know, bank cap ventures to really give you an insight that you didn't have. Like you're extremely smart guy, but you.

You know, you don't know the markets and you have someone on your team that does. I think that's super important for everyone to take into account, which is, I always tell people founders are way too close to their business to have a great perspective on how to package what they're doing to the, to the outside world because you know, You understand things that other people don't understand, and you think things are extremely important, small details that maybe aren't as important to the market, and it's nice to have those experts to help you with that.

So, first thing. And, and you're preparing for it, right? You're getting ready to do something important and you're not [00:39:00] just kind of pushing it to the side. You're actually putting real effort into it. And then the second thing that is important is you started having these conversations, um, with firms. It seems like to do an information gathering session or, or just to get smarter about what you thought you were about.

And, um, what you might not, maybe you did it by design, maybe not, but there is something that exudes confidence in a founder. That's like, well, we know we have something awesome. I'm just going to talk to you because I'm, I want your feedback, right? Like, I actually want to know about pricing. And by the way, are we raising enough money, um, A lot of times founders will get this advice, right?

To go talk to investors first, not fully raising. I'm not technically raising. I'm just learning. Um, but it is when you, when you do it right, you're doing it in a very. honest, [00:40:00] incredible way like you were doing it, right? You, you actually were like, we know we're awesome. We know what we're doing is going to change the world.

And I need to get some information before I do this. And so when you talk to Menlo Ventures in, in that sort of approach, they, they read what was going on. They saw you, they saw the confidence and they were like, we don't care if he's technically not raising, we're going to do this. Like, we got to get this deal before it goes out to market.

So, anyways, I, I think that's an amazing story to hear and I just wanted to make sure there's that translation there.

Curtis Northcutt: well, I, I feel free to feel free to continue. I just wanted to interject. Don't ask a question. This is just advice I believe in. Don't ask a question you don't care about the answer to.

Jason Yeh: Right.

Curtis Northcutt: Like if somebody gives you advice to go to, to go, to go ask questions before you raise, make sure you really genuinely care about the answer to those questions.

Otherwise you're not having a conversation. You're toying with people

Jason Yeh: You're

Curtis Northcutt: just no way to do business.

Jason Yeh: Yeah, it's bad.

Curtis Northcutt: Don't toy with people. Like you [00:41:00] need to, you need to really care about the answer. So that's one. The second one is I'm sure everyone's heard like. Ask for money, get advice. Ask for advice, get money.

But there's some reason to that. It's because you you're in a position to ask for advice. It's not just like you do that arbitrarily. It's that you, you actually have something here and you're trying to figure out how to make it even bigger. And that's a good place to be. The last thing is I think just a general communication thing that I have to remind myself of, because I tend to be verbose and time is the most limiting thing I have in my life.

So I need to work on this. And that thing is the following. When you're going to say something, especially talking to investors, there's three steps. in every single thing you say, everything you write, and it's pretty simple. One is think about what you're going to say. Two is say it. And three is stop. And I think it's really easy for people to forget to think about it.

They just sort of jump in. Two, [00:42:00] they don't say it. They say something else. And then three is after they've said it, they keep talking. Just stop and let the person respond.

Jason Yeh: Curtis, um, you know, we've talked a little bit about this story of raising a couple rounds. Amazing backers and you are solving a real problem at a big scale. And so, so much of this sounds easy. Every conversation I've had with founders who have, who have a story like this, like there's always something that still hurt, right?

Like fundraising is not fun usually for, for anyone. Is there, is there anything around your story that you remember of like rejection or hard nights or, or long. Um, Long, more difficult work sessions related to this process of, of talking to investors and raising capital.

Curtis Northcutt: I mean, there's hard things like there's the classic stories that everybody experiences where you, you pitch to a firm and they don't tell you they're invested in a [00:43:00] competitor and you give them everything and you share your slide deck. And I don't think they mean to be like that. I don't think they're trying to, but it just does.

It feels bad afterward when you find out you've just shared everything with them. And it's like, do you not even know your, who you're invested in? And then you find out they're like, we're not going to move forward because, and you're just like, I really wish I hadn't just shared every bit of our financials and business plan with, with the people who are on the board of a competitor or something, you know, like, and that doesn't feel good.

Um, but I think the most professional people really try to avoid that, but sometimes hairs get crossed and they don't realize who's in what meeting and mistakes get made. Um, I think another thing that was really hard was It's difficult to get everybody you want in a round and not dilute too much.

Um, so like [00:44:00] we, we raised 25 million at a hundred million valuation in the A round.

That's 25 percent dilution. You know, that's okay, but you don't want to go over that. And a lot of founders wouldn't go that high. A lot of founders would say, let's keep it to 20 percent max. 15 would be ideal. The only reason I made, and that was a hard decision, like I just want to be clear, it wasn't easy to make that decision.

The reason I did it is because I believed in the team so strongly that we were building, and I believed that we put together a very balanced, and coordinated board that will allow us to attack this one problem globally very effectively. If I did not have strong conviction behind that statement, I would never have taken such an equity cut.

Those are the two sort of hardest things.

Jason Yeh: Well, uh, I actually like this. I mean, this, let me, let's go into this one thing and double click on it.

Curtis Northcutt: Uh, this has just been a, a fascinating conversation and I love how [00:45:00] transparent you're being.

Jason Yeh: U

m, we're gonna, you know, I asked you about like tough things and this will sound like a rich person problem, but I, but this is something that we haven't discussed on Funded yet and you only lightly referenced it just now, which is you were going and raising around. It sounded like you probably were.

More in line with doing like a 20 million round, but there are people around the table who like want to invest in your company. And there is a, there's a tough conversation here. It's, it's almost like at your wedding, you can't invite every person you ever met. And so some people might be hurt. By the fact that they didn't get invited to the party, can you lightly talk about the idea of like that, that challenging decision to make?

And, and, you know, why was it challenging? What were the feelings that went behind that?

Curtis Northcutt: Yeah, no problem. And this, this can be done. You know, if, if I was a listener, I'd be like, Oh no, like, is he about to embarrass himself or [00:46:00] like do something very, and the reason most founders don't want to talk about this is because it's sensitive, right? Dilution will always be sensitive. People have ownership, a company is doing well, they want to make as much money as possible.

So dilution and talking about numbers is sensitive, but this is public information. Like people can just see it's you. There's a Forbes article out. It says we raised 25 million at a hundred million. Anyone can do the math. That's a 25 percent diluted round. And so there's nothing to hide here, and that's why I'm comfortable talking about it.

The way it worked was I had a 20 million at 100 million term sheet, and I had that on the table. And I had two people who were moving very fast, who balanced each other and brought in very different strengths. That I believe together would be better than any one of them alone in terms of what they would do, the types of customer intros, the amount of reach we would get and what we could do long term.

Uh, I believe that I still believe that after working with them, I believe it [00:47:00] more and at the time, what I was trying to decide is one simple thing. What's best for CleanLab. It's really not that complicated. If you're a founder, you have a fiduciary duty to make your company successful. It's so just do your job.

And my job was to raise the round that would be best for the success of clean lab to the best of my ability, knowing that I'm imperfect and there's lots of stuff I don't know, but educate myself, get advice and run the round professionally and actually run like a process behind the round, make sure that you know what you're doing.

Um, and so in that regard, I just thought, look, I can dilute 20%, which gives more ownership. Of the people who are the engineers and the founders who are most invested. And that's good, but we have less access to the resources that we would get with that co lead round. And so I, I went for that. The thing to note though, is when you do a co lead round, now the two leads [00:48:00] have less ownership because they have to split it.

So the only way to pull that off is to dilute a little bit more. And the tricky part was, how do you find that balance? of giving them both enough so they're going to give you the full blown, like, support that someone who leads a round gives, but not dilute so much that the people who are originally in the seed round or whatever previous rounds lose interest and motivation, and you have to strike that balance very closely.

Jason Yeh: Well, last thing, Curtis, we've talked a lot about advice, right? Advice you got along the way, how important it is to get good advice. Um, and now that you've, I've been doing this for a few years and gotten a bunch of different pieces of advice. Is there, is there advice that you like giving to founders as they're getting ready to think about raising capital or startups in general, but you know what the podcast is about.

So is there, is there a favorite piece of advice that you've been giving to founders who are raising capital?

Curtis Northcutt: [00:49:00] Um, there's not a favorite piece. I tell people that, especially in the early days, like in a seed round, the real advice I say, because if you're Yeah, I mean, I won't give the context, but the advice I find myself giving that people tell me they haven't heard before is when you're choosing your initial investors, don't, if you want to build, some people want to build a web three Bitcoin thing that they're just going to pump and dump.

And if you're doing that, then I, I just don't know what to tell you. Cause I, I don't know that concept. I'm not interested in that. It's not at all what I'm doing. I don't have good advice for you, frankly. Um, but if you're trying to build a big company that's going to be around for a long time, you want to make real impact.

You want to change the world. You want to change businesses. Then what I don't, I don't think you should get the person who's going to, if you're a seat doing a seed round, I don't think you should get the person who's going to give you your first customers and, and help you hire your first team [00:50:00] and, and all this stuff.

I don't think that's in your best interest actually. I think that if you can't figure out how to do most of that at seed round, when you actually are like, have a lot of freedom and you don't have any customers, so you're not like under a lot of pressure. You, your product can be full of bugs, but you don't have customers yet for the most part, not big paying ones.

So like you can, you can get away with it, you know the problem better than they do and you have a lot of friends ideally who have followed you. You're, you're a leader. You're going to lead a whole company, so ideally you have some people who want to follow you. I think it's a good time to prove to yourself that you can actually hire some people and get some customers.

And the type of investor that you should find is not someone who just lands all that for you. It's not a growth round, it's a seed round. Don't, they're not, they shouldn't help you grow. The people that you want are the people who can advise you well on how to do a good Series A and who can help you grow if you can prove that you can do a little hiring and get some customers and [00:51:00] build a good product.

And if you optimize for that, I think you'll end up in the long term in a much better position where you have someone on your board who's going to help you build a great company instead of someone on your board who's going to help you have a great seed round. And a lot of people are optimizing for a great seed round when they should be optimizing for building a great company.

And I think it's a serious mistake a lot of people make.

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That was my episode with Curtis Northcott. Founder and CEO of clean lab, adding trust to every input and output of AI systems. Curtis was extremely generous with the information that he shared in our conversation. If I were you, I'd go back and listen again and take notes.

I hope this episode helped you gain a new perspective around venture capital. And what it takes to get funded. When we come back, we'll see what questions my producer page is bringing to the table.

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Paige Randall: [00:52:00] [00:53:00] Hi, Jason.

Jason Yeh: Hey P, what's up?

Paige Randall: You're in a new location, huh?

Jason Yeh: I am so not in my fancy studio anymore. Uh, I am in Sao Paulo, Brazil.

Paige Randall: Very nice. I'm really, really excited about this episode today because, um, I was listening to it and I continuously had thoughts come up around why I think that he had so much success around his seed and his Series A. And I kind of wanted to talk about those things, um, and then get your feedback or your opinions on if you think I'm right or I'm wrong around my assumptions. So,

Jason Yeh: I, you know, I love testing how much progress you've made in your understanding of venture and raising capital after all these

Paige Randall: well, I, it seems

like we're about to find out. So let's get started. Let's

Jason Yeh: right, let's

Paige Randall: fingers crossed. So, as I was listening to this episode, first off, Curtis is, you know, amazing. He's, he, he didn't

start off in [00:54:00] a place that you would think he started off at, looking at where he is now. He just, he, I'm sure everyone heard, but he grew up in Kentucky, very poor family, didn't have good schooling, and somehow managed to find his way to get a PhD, work at some of the biggest companies, In the world, or in the US at least, like Google, Facebook, Amazon. Um, and, but, and all of that was impressive, right? But the things that stuck out to me the most was actually like his demeanor and certain topics that he touched on that made me realize This is why investors were pulled him so heavily. So the first thing that I want to talk about is that when he was getting ready for his fundraise for his series a, he, before he really did anything, he started reaching out to certain people in his network that were in, um, you know, the VC realm kind of, at least, and he literally just set up meetings. To get feedback with [00:55:00] investors who were outside of his industry. Like they were never going to raise in him anyways, just to get feedback and insights around, you know, is he hitting on the problem? Right. Is he like, is he making any sense? Where is he confusing people? Whatever. And he took the time to do that, which I thought was really impressive. Another thing that he did, and he mentioned multiple times throughout the episode is that even though he's the best one to, or even though he runs his company, it doesn't mean he knows everything. So, and that's like a small thing for me to say, but it's important because there was a pattern throughout this episode of him continuously saying he was learning, listening to people, listening to investors around him, had a ton of respect for everyone. And there was even a segment in the, in the podcast where he was just talking about how much respect he had for investors because he understood what their job was and how through that understanding, he has built so many [00:56:00] connections with investors and people in that world of people who really trust him. And another thing I wanted to call out before I kind of get your opinion on this is He was talking about, um, how he was prepping before SVB crashed. Um, and this was like six months before SVB crashed. Um, and he, he called out in the episode that it's his job to be ahead of the curve, which I thought was badass. And that, Six months before SVB crashed, he ended up chatting with people that he trusted, um, before SVB, SVB went under. He was talking to some investors, some VCs that he'd known in his network, and they were telling him, they're like, Listen, I think that this market is gonna, like, something's gonna happen.

Something bad is gonna happen. And then he devoted the next six months to building out this, Uh, I'm not, I'm going to butcher the words, but this open service of his product, um, while also hardening this SaaS product and getting ready for the crash to [00:57:00] essentially happen so that when that happened, he would be ready, uh, to raise, uh, 1, 000. I don't know. I feel like I'm butchering this a little bit, but there was a bunch of things in the episode that just showed me that he was constantly thinking about the relationships that he was building and the momentum that he was building that made it just be like, check, check, check, check, check. Of course, we're gonna, we're gonna, uh, raise a really, really great round.

Jason Yeh: Yeah, and you, you hit on all the checks that I would have thought of as well, so good job. Passing grade. Flying colors. Um, I think what's important to note is that you could interpret what he was doing as VC fundraising gamesmanship, but it's, it's not really. It's, it's the markers of a founder that really knows what they're doing, has a really strong vision.

happens to play into what VCs want to see and hear and stuff like that. So you could think about it [00:58:00] in the direction of like, Oh, he's playing the game perfectly, but really, you know, he's trying to be as prepared, as smart as possible. And, you know, one of the things that I think worked so well for him, both in how he deals with investors, but also, um, the people that he recruits.

People that want to work with him is that he has a really good balance of extreme confidence in what he knows, while also carrying a significant amount of humility, right? The thing, identifying the things that he doesn't know, and he tries to ask questions and tries to understand things in order to just fit in better, move faster, do the right thing.

Um, and so I, I thought that that was an amazing combination. And you know, that first thing that you said about, you know, Uh, arranging meetings with VCs that wouldn't necessarily look at his deal. And that, that may be as a luxury that not everyone has, but everyone can do a version of [00:59:00] what he did, which is try to figure out what other people think of your company and your pitch, right?

I'm fond of saying founders are too close to their business to be really good at describing their stuff, um, as clearly as possible because they know too much. They think. Certain things are important when they're not. They assume people know certain things when people usually don't know them. And so like their stories are just convoluted and he did the right thing.

He looked for outside feedback to improve his pitch. So yeah, I mean, I love the way he approached it and then, you know, it takes a lot of confidence in what you're doing to listen to warning signals and plan for the future the way he did. So, thought he was great, would love to spend more time with him, uh, and I'm glad you picked up on the things that he did so well.

Paige Randall: Yeah, I hope I did an okay job describing them. But as I was going through the episode, I was just like, I could see how if I was an [01:00:00] investor and I was having a conversation with him that I could just, like, I would just have my trust in him because I've already seen him prep and prepare in all these different ways to make sure that it's not just about. Like him doing a good job. He genuinely just wanted the company to succeed, whether that was with him or, you know, with something else. Like, he's just always like open, open to that, which I, yeah.

Jason Yeh: You know, one thing too though, it's not as easy as just being open to what people say, cause you can go too far in one direction. VCs have a really great perspective on the industries that they're investing in because they get to see a lot of startups, a lot of founders, a lot of companies go through and they get a chance to use pattern recognition. And describe what they think might happen or give advice on what could work, but they're not operators.

And a lot of them have never operated and they certainly haven't operated your specific business. And so one thing that I [01:01:00] think he has done really well is Open his mind to feedback and suggestions from people that have context and have experience that's worth listening to. But he also has to be a good judgment of what to follow and what not to follow.

Like, um, it isn't as simple as saying, well, be open minded, listen to VCs. The, the last sentence of that direction is not do everything exactly how they tell you to. It is listen to it. Take it as a perspective, integrate it into what you understand and the framework that is based around your deep understanding of your company, and then make a smart decision from there.

And I think Curtis has done that incredibly well. Obviously he was running his company and raising through very tumultuous times, right? Which requires a lot of difficult decision making and at least up until now, um, has done quite well. So very, very impressive founder, very impressive conversation. [01:02:00] I think that's where we ended.

Paige Randall: I think that, that put a beautiful bow on top.

Jason Yeh: That's the debrief.

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