The Story Behind Incognia's Pivot & How it Led Them to Raise $45.6M

[00:00:00]

So in March 2020, our revenues dropped by 95%. And we were like, okay, what, what do we do now?​

Jason Yeh: I think we can all agree that life has a tendency to throw you curve balls. Things will be good, maybe even really good.

And then all of a sudden fall apart. When life throws you tough times, you only have two options to give up or find a solution. Today's guest felt slightly differently when they ran into some truly unexpected situations. They decided there was actually only one option. Find a solution and move forward.

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Jason Yeh: My guest for this episode is Andre Fayez co-founder and CEO [00:01:00] of incognita. Uh, fast-growing leader in the online fraud prevention space. But the crazy thing is along with not always growing like crazy. And they also, weren't always focused on fraud prevention. It's been quite a ride. Over the past decade in Cognium has had its fair share of ups and downs and even pivots, ultimately leading them to find the product market fit that landed them $45 million in venture funding in under three years. Andre's story is wild and super inspiring.

And I can't wait for you guys to hear it. But first. Speaking of wild. I want to start back at Andrea's childhood.

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Andre Ferraz: Um, I was not an easy kid. I, I actually got kicked out of like school when, when I was very young. Um, was, was like a bit of a mess. very agitated, very, very agitated. [00:02:00] and, and during one of those phases, where like I, I was grounded. I actually started developing an interest on hacking.

And, again, like I was a bit of a troublemaker. Uh, so hacking was, was a way to do that while I was grounded. and I became like fascinated by, how easy it was to do that. and I was like, just, you know, Playing some pranks on my friends when I wasn't home, et cetera. Um, invading their accounts on like gaming platforms and things like that.

And it was a lot of fun. And, and the other big influence I'd say for, for what I'm doing today was that my, my dad is a computer science professor. Um, so he, he taught me a lot of stuff, even before I went to college, uh, and, and started, um, computer science. So, so yeah, I, I'd say these two things were.

[00:03:00] Very important to influence me to, to like get into the cyber security slash like fraud prevention industry. besides this, as a, as a kid, I also was greatly influenced by my mom. my mom like came from a very, um, I'd say humble background. Just to give you an idea, like, my, my grandma had, um, 17 babies, and, uh, at the time, like, she, they, they were from a region in, in northeast of Brazil where the child mortality rate was around 50%, so out of the 17, like, uh, she, she lost 8.

Due to many, many different causes. But anyways, that, that was my mom's background. and she was able to, like completely change her life and her family's life, like study a lot, um, came to the city. got a good job, met my dad. Like they [00:04:00] really impressive trajectory because, uh, she started working when she was like 12 years old, and, and was able to, to, to, to create a much better life for herself and, and, and for me.

so that kind of created on me kind of this.

Thought that if you work a lot, you will be able to achieve whatever you want. and, and that was mostly inspired by my mom. So, so yeah, that, those were my main influences as a child, but it was not easy.

Jason Yeh: you mentioned something, you mentioned something briefly, and I don't know if everyone can tell because your, your accent isn't like exactly noticeable, but you grew up in Brazil.

Andre Ferraz: Yes. I moved here to the U. S. four years ago.

Jason Yeh: Wow. Uh, tell me a little bit more about life in Brazil and, and sort of how you took those early days of hacking, learning from Your dad was a computer science, your science professor, and your mom, who's a hard [00:05:00] worker, where did you think you were headed towards when it comes to a professional life or career, you know, being in Brazil, did you have entrepreneurial, Inspiration or was this something that developed later?

Andre Ferraz: Uh, that, that developed later, um, but, but I think it was mostly because, I, I didn't even know what, uh, an entrepreneur was. But when I was a kid, I always wanted to be a scientist. Like that, that was my goal, um, because I was interested in like building new technologies. When I got into college was the moment in which, um, I started hearing about like entrepreneurship and all of that.

And it was like, maybe the way to do what I wanted to do is not really becoming a scientist, but actually becoming an entrepreneur. So that, that was the phase in my life in which I started thinking about that. But until then, I I just wanted to like build new technologies. That was all.

Jason Yeh: Yeah. And that's pretty interesting because [00:06:00] there's a different path that I want to have this conversation go down. I'm sure you've had a lot of opportunities to talk about the start of Incognia in the business, but we're going to be talking a little bit about Your success as a fundraiser and your ability to attract capital from the best investors in the world.

And part of my questioning about you as a child would be to say, or to ask, were you outgoing? You know, a lot of people who are scientists, who are hackers, who are, you know, learned from their dad, who was a professor, um, don't exhibit The sort of personality traits that some people think they, they know about fundraisers about loud and stuff.

But so tell me a little bit about your personality.

Andre Ferraz: Yeah. Well, certainly not outgoing. I was the type of kid where people were, were, were going to ask like, Oh, is he upset about something? Like he's not talking to anybody. So I was that kind of kid. Um, and, [00:07:00] and like. Even, even today, to be honest, like I hate networking events and that this kind of stuff, um, I'm really excited about like talking about this stuff I'm, I'm working on, but I'm certainly not an outgoing person.

Jason Yeh: got it. And then last small question, but tell me about your relationship with, with money and this idea of like, was it, was it something you grew up with in terms of like, Your comfort level asking for money or, um, how did that, what was that culturally like for you as a kid? Um, because obviously once you grew up, you were, you were asking people for. Not just like thousands of dollars and not just millions of dollars, but tens of millions of dollars. So, um, I'm, I'm always curious to hear what people. Or like as a kid when it came to money.

Andre Ferraz: Yeah, well, never, never had like a lot of money. Um, and, and I think my [00:08:00] parents did a good job at like teaching me, um, the value of it in terms of like, doing some like small gigs, you know, um, or some like tasks at home, uh, to earn, uh, something like, uh, I think they did a very good job there. Um, in terms of like the.

Comfort level with, with fundraising. I'd say it, it was very tough in the beginning, um, like asking for money. But on the other hand, like I, I always had a very pragmatic feel in which it was like, to get here, I'll need to get funded. Uh, there's no way to To build this without, additional cash. so I'm going to do what, what I need to do, you know, uh, that was kind of

it.

Like it.

wasn't comfortable with, um, I knew it, it had to be done.

Jason Yeh: All right. That, that's a great baseline for where I'm going to take the conversation. Guy that grew up not even in the United [00:09:00] States, um, son of a computer science professor, self declared introvert, someone that doesn't really like networking and didn't grow up with money. Right. Um, but just felt like you had to do what you had to do. Um, There are a lot of different bumps and stops along the way to incognia. Um, and we can touch on some of them, but I want to set the groundwork for where I think is going to be the most interesting part of the conversation,

Incognia wasn't actually the company, right? That, that wasn't the company that you started with, or the company that you're raising money for now that you've been very successful around. It's actually not where this started. So I wonder if you could tell the actual origin story of your company, and then we'll get into what happened where you were raising capital for what is now Incognia.

Andre Ferraz: Yeah, sure. So, the, the origin was, was actually over 12 years ago. Um, I was in college, and, and [00:10:00] like working with my co founders and, and it was like, 2011 or so. Um, so like smartphones were still like a new thing and the app store, et cetera. But we had this idea that, we could utilize the location information from these mobile devices to identify the context of the user and alternate.

A lot of stuff they would, they would do on their, their device. So for example, if you entered, let's say a restaurant, uh, your mobile phone would recognize that and would open up the menu on your phone automatically. Uh, or if you entered, let's say an airport. Uh, it would open up the, the map of that airport and guide you to whatever you, you needed to go, let's say, to the check in area of your airline or, or whatever.

So, it was basically a way to, like, identify where you were and to automate, uh, [00:11:00] whatever tasks you, you needed to do in that, in that physical location. Um, and that idea, over time, evolved. To, to be more of a, a way to authenticate you to these apps by recognizing if you were, let's say in a trusted location, um, and things like that.

So that was the original idea, but.

Jason Yeh: And this was a company that you raised money for.

Andre Ferraz: Yeah, yeah. So this back in like 2011, right? So, uh, the, the, the thing was we came with this idea. We raised our, uh, initial round, like back in the day, uh, from a corporate investor, which, uh, ended up being a pretty terrible round for today's standards. Uh, we, we sold like.

Over, uh, 50%, like it was 51 percent of the company for around like 500k, uh, so a 1, 000, 000 valuation, and we lost control of the company right in the first round. So it was a mess. [00:12:00] Um, Made

Jason Yeh: every mistake. Right.

Andre Ferraz: Every single mistake you can make, uh, we, we, we made it. so that's how we started, uh, raise capital for that company.

Eventually realized that it was too early to build that product. So we ended up using the location technology we were building to achieve that. Uh, we, we decided to use that same technology in a very different business. And we started building a business around location based advertising. So we were going to use like very precise location information, like better than the GPS, um, to, to target like mobile ads to, uh, consumers in a more efficient way.

And then to track like how many of these, uh, consumers went into the physical stores of the advertisers, right? So it was primarily focused on physical retailers. Launched that product in 2014 and the business started growing tremendously fast and in Brazil, like in, in two years, we were generating over, [00:13:00] uh, 5 million in, in ARR, uh, third year, uh, like 10 million plus and, and continued growing, uh, we became profitable, growing super fast, um, became a like 200 people company.

Everything was going super well until 2020. Right after we raised the series B for that business. And in the two big problems happened there. Uh, the first one was that Google and Facebook launched almost simultaneously, uh, very similar products. And we started seeing like customer shifting to that because they already had like very large commitments with these companies and these companies were simply saying like, Hey, if you, if you come to me, like I give you more discounts here, um, et cetera.

And the second thing was that. COVID started and we were literally like driving foot traffic to physical stores and all of these physical stores had to shut down. So in March 2020, our revenues dropped by 95%. [00:14:00] And we were like, okay, what, what do we do now? Um,

Jason Yeh: Perfect.

Andre Ferraz: and, and, and then at that moment, it was like, okay, we need to pivot.

There's no option to continue. Like with this product. So, uh, the things we, we did right after that was first we downsized, we had to reduce the size of the team. Like it was over 70 percent of the company we had to let go. So it was like terrible moment, very difficult, like right in the beginning of the pandemic.

Um, but if we didn't do that with the loss of revenue, we, we saw, uh, the company would last for like just a few weeks, I think it was like. 10 to 12 weeks. So it was really bad situation from a financial standpoint. Uh, the second thing was, uh, we, we had to decide on like, what is our next product? We need to find a way to, uh, build something very quickly so that we can like start generating revenues again.

And then the third thing was we need to extend our runway. And we decided to sell all of the assets we have from the [00:15:00] previous business. So we, we basically sold that to our biggest customer at the time. And they decided to internalize the solution, uh, on, on their side. So with that, we we've extended runway.

Um, but there was still the, the challenge, around the new product. And what we decided to

do is

Go ahead.

Jason Yeh: Yeah, well, Andre, let me, let me pause there because the company is called Funded. We talk about fundraising, but, but really it's about capitalizing a company. Right. And it's these decisions on how do you capitalize a company and how do you make these decisions? I wonder if you can. Maybe just reminisce.

That's, that's a positive spin on it, but take us back into like where your mind was going when week over week you're seeing just revenue evaporate. And, uh, all of a sudden it's like, how do we keep the company alive? It's not even, you know, it's not the push to grow and it's not the push to slow down the decline of [00:16:00] revenue.

It's like, like you said, two months of runway, two to three months of runway. Um, What was, what were you and the board saying around what was possible here? Is it like, there had to have been dissenting voices out there being like, well, there's an ad tech stack. You could go in this direction. Like, I feel like you glazed over a really complicated decision point that I just want to hear a few more thoughts around.

Andre Ferraz: Sure. Um, well, we didn't know how long the pandemic was going to last. And, and that was the, the main thing that made us decide to, to sell, uh, the assets from the, the legacy business, uh, ended up being the right decision because. It lasted for too long. Like we were not going to survive with that product.

Um, so, so that was one of the key things. Uh, the second was even though it felt like a very desperate moment, um, internally, we had a lot of [00:17:00] conviction on the new product that we were. Thinking about building because like the first product depended on physical retail completely. The second product was related to online fraud prevention, right?

Which depended on online businesses, which were thriving, right? They were growing very, very quickly during that moment. And, and the other thing was that criminal activity also transitioned. Like people that were in the streets. They, they didn't have anyone to go like mug, right. Uh, during that, that phase.

So they were like, okay, I need to pivot too. And these people started like applying scams online. And this is why we saw so many new scams and like fraud losses in 2020, 2021. Um, so, so we, we had a lot of conviction that the market was going to turn in that direction. And that online fraud prevention was going to become increasingly important.

So, um, those, those were the key elements. around that decision. And then the [00:18:00] final thing, which for me was the biggest point, was that Intuitively using precise location information to identify and prevent fraud made a lot of sense, for, not only for me, but, but also for the team. So we were very excited about the new product.

And I think in the end, that was the main thing that kept everybody together, uh, because like, even after like this chaos, very few people decided to leave the company. And 2020 was a year where. A lot of engineers were receiving like very good offers from pretty much every company on the planet. Um, our engineering team was in Brazil, right?

So, uh, they were receiving offers to, to start working remotely, uh, to like U. S. based companies that were paying in a different currency that is like five times, you know, More valuable than the Brazilian Real, so like there were so many things that would push them out of the company and they decided to stay that [00:19:00] I think it was primarily the conviction on the new product

Jason Yeh: That's amazing. Um, very cool to hear that transition happen. I mean, I'll seamlessly, obviously not seamlessly, but as seamlessly as it

Andre Ferraz: as a

Jason Yeh: um,

Andre Ferraz: Yeah.

Jason Yeh: Right, right. And I think this is where we are able to lead into the very interesting and juicy fundraising conversations because you had so you have a lot of elements that are curveballs are variables are non standard components to a fundraise, which makes fundraising difficult.

And I want to lay out some of the things that I think. We're out there and you, you correct me if I'm wrong. And you add if I've missed anything, um, because I can only do this by hearing your story, looking on CrunchBase, but you raised, I mean, I didn't even know this really, but you raised 500, 000. You sold over half of your company. Um, In like 2011, [00:20:00] 2012. So very interesting cap table where the founders probably don't own that much money. I'm sure you sold an asset to get a little bit of capital, but it's not going to be that much. And now you're essentially pivoting, like hard pivoting, you know, like running an advertising company and then going to cybersecurity. Um, my guess. Is that you're, you're able to extend runway enough to build product, maybe start talking to initial customers, uh, POCs, proof of concepts. I'm not sure you, I mean, with any sort of new technology, there's, there's build that needs to happen before you can get to significant revenue. Um, so. When you need to go raise capital for this new direction, what is the, what's the state of the business?

How much, how much runway do you have? What does your cap table look like? Um, you know, what, what were the, what were the things that you were working with before you had to go out and really start talking to investors?

Andre Ferraz: [00:21:00] Yeah. Well, there were a lot of bad things that we needed to address, but I'd say like we were able to extend runway. Enough to get us to, meaningful revenue. Uh, so, so that was, that was really good. Uh, we were able to launch the product very quickly, like in, in six months, we were already generating revenue from, from, from big clients, But it all happened because we took a very big risk when we were pivoting, which was to maintain a very large engineering organization.

So, we had like, when we started Incognia, we had around 50 software engineers at the company and no revenue. So it was a very crazy move. but that enabled us to ship the product very quickly. So in six months, as I mentioned, we, we were already generating revenues from, from our first customer.

And, the momentum was [00:22:00] fantastic. Like in, in less than a year, we got to, 1 million in ARR. And, six months later, we were already at 2.5 million. So this, this was exactly the moments where. we, we decided to raise. So, from a growth standpoint, we were doing really well. the margins were very healthy.

retention was really, really good. but when you looked at other things. it, it, it was scary. For example, the cap table, the cap table was a mess. So we, we had to address it. And the way we did that was in our series A, uh, for incognito, we have completely restructured the cap table. So we've issued like a very large stock option pool.

So we could like recapitalize the founders, the key employees. Um, that was, uh, A very important negotiation that we could only get done, uh, by putting even more skin in the game. So basically what we did [00:23:00] was, if we go from where we are now, which was, 2.5 million in ARR to about 10 in the next 12 months.

We're going to get the stock auction pool. It seemed

Jason Yeh: Woah,

Andre Ferraz: Yeah, it seemed crazy.

Jason Yeh: that's like an Elon Musk level like, negotiation in a gallery, betting it all on yourself.

Andre Ferraz: Yeah. And, and we made it. So in, May, 2023, we, we got to that target, and we were able to restructure the cap table. So, that was a big, risk we, we decided to take, but, um, it was worth it because, in the end, I think it became a very strong motivation for everybody to keep, keep pushing it.

but also, we were able to restructure the cap table and eliminate the objection we, we've heard all the time, which was like, the business is great. The business is growing very well. The story is nice, but your cap table is, is a [00:24:00] mess. So we needed to fix that.

Jason Yeh: Yeah, I wanna, I wanna like dwell on that a little bit more because, uh, 1 million in, in what, 6 to 12 months and then 2 and a half million in 18 months. Those are, Insane enterprise growth numbers, right? That is, that's the type of dream company you want to find. And a lot of people that come from outside the venture capital and fundraising world, they'd be like, this is an obvious bet, right?

This is an obvious bet. But people don't realize how impactful a messed up cap table can be, right? And I'm not sure you probably even realized what that was like until you had to start talking to investors. What were, what were some of those conversations like? Like, do you remember some of the sent, the words or the, or the conversations that these VCs were telling you?

Like, what, what was their big holdup? I want to use this as a teaching moment for everyone about [00:25:00] why, um, Why keeping track of a clean cap table is important to founders and is important to VCs.

being proactive is everything. When it comes to running a company, same goes for fundraising. Andre could have tried to keep pushing investors to move past the messy cap table he had, but instead he took the harder path of cleaning it up. To show exactly the type of founder that he is. When we come back, Andre touches on his series a with point 72 and how fixing his cap table and communication strategy. Changed everything for him.

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[00:26:00]

Andre Ferraz: Yeah, well, the first few conversations that I've had when raising this, this series A, uh, were, were pretty bad. because like the initial conversation was fantastic. Then they would ask like, okay, let, let me see your data room. [00:27:00] Uh, and, and then they, they looked at the cap table and they were like, no, we're, we're passing.

Um, so I, I then decided to be more upfront about it and started like bringing this as, like an issue we needed to solve right in the initial pitch. and, and then stating like, what was the plan, right? So the plan is we, we need to agree on, as part of this round, we're going to issue it like large.

Stock option pool so that we can, fix this, et cetera, et cetera. So, so then the conversation started to, to, to be more. I'd say healthier, uh, because I think the surprise element was really what, um, brought these, these other investors down, right? So they would see, Oh, the company is doing amazing.

They looked at the cap table, and the data room after reaching that conclusion, they were like, no, this is, this is a mess. I don't want it. Right. So, started being more upfront and then it started working and also showing that we had a plan to fix it. Was, was very important. [00:28:00] so. yeah, I think that was the main learning.

Like if you have something that doesn't look good, be upfront about it. Don't, don't wait until investors see on your data room after a great initial meeting.

Jason Yeh: Yeah, that's a, that's a good lesson to share with people because not all of all of it is, is fully rational, but some of the thoughts that can go through an investor's mind are like, Well, if this was one thing that we didn't see, what are the other things that

we don't know about? Like where are the dead bodies hidden, you know, and I think what people don't realize is like some of the best VCs think about venture capital and investing as like, it's kind of like a, it's your, it's a bus stop, right? Junior VCs, people who are new to the industry can feel like, Oh my God, they see a good deal and they've only been in the industry for six months, or maybe they've only been in the industry. For four years, right? Like that, that might seem like a long time. It's not a long time. The best VCs are kind of [00:29:00] like, yes, there, this is a good deal.

That looks like a good deal. That looks like a good deal, but you know what? If I stay in this bus bus stop long enough, another good deal will come. And when they start seeing deals that are left, you know, are non standard and there's hair on the deal and there's stuff that is just strange. And does, does the founder have enough incentive to keep pushing, even though there is growth, like all these things. Conjure up memories of headaches that they've had to go through, things that killed companies in the past. And you know what? They're like, a great part of this, but I don't know if I want to go through this headache. And the thing that, and this is 0. 72, right? Your, your series A lead

that did this with you.

I think the thing that people need to understand about what 0. 72 did was they, Took on a lot of risk around like being unsure of what was possible in this deal. And then they also [00:30:00] took on the headache of leading this restructuring, which is kind of like them raising their hand and saying, you know what, we're going to be the bad, we're going to be the bad guys here.

We're going to come in here and we're going to like do these things, squash some of the existing investors, have to have difficult conversations. It's like, you're just signing up for stuff that. Honestly, they could just say, you know what, we're going to wait for the next bus, right? So, I, I just wanted to call that out that, I mean, being able to raise that round from such a quality investor means that you guys were doing something really, really transformative. You were running a great fundraising process, which made them feel like they had to do this and you got through that right

Andre Ferraz: yeah, now. I think like the, the thing to go to next is tell, tell me again, what year was that, that you raised from 0. 7

That was 22,

Jason Yeh: 22,

Andre Ferraz: uh, mid 22, just before [00:31:00] like the whole crash of the industry.

Jason Yeh: Right. So the timing in some ways, the timing was amazing, right. Before the crash of the industry. But for a lot of your peers, when I say peers, I mean, founders who are raising in a similar vintage a year. It was a, it was a, um, it was something that looked like a huge opportunity, but for many people turned out to be something terrible, which was the ability to raise, at the highest valuations, at crazy multiples, right? Um, that, that has turned out to be a kiss of death for a lot of founders. And so where we're going to talk a little bit about is like, you raise this capital, you're kind of setting yourself for, up for huge expectations that you need to meet in order to raise, not only to raise the next round, but actually to also, now that I'm learning, you know, Unlock the option pool and the actual restructuring [00:32:00] that will get the team aligned with the future growth of the company. So maybe you can tell us a little bit about how 2022 all the way through 23 went, because you just announced a massive round in January from Bessemer, right? Um, one of the best enterprise investing firms out there. And you announced it in January, which kind of means The deal was done in somewhere in 23, I think. So we're talking maybe only a little bit more than a year before you guys decide to go out. And so what I want to know is, tell me about what was happening in the company that, um, triggered this, this feeling like we should go out now, right? Like, and when was that timeline?

Andre Ferraz: Yeah. Well, so, so basically the, the timeline was we, we closed this round with 0. 72. They took a big risk on like. [00:33:00] investing on, on this, this company that had to go through restructuring, just went through a pivot, et cetera. Um,

Jason Yeh: Now who was the partner, by the

Andre Ferraz: it was Adam Carson and, uh, he, he developed a lot of conviction very quickly on, on our business and, and it paid off, right?

Like six months later, I got back to him and I said, like, Hey, we, we are ready at, at, at 7, uh, million in ARR. Like we, And we had just closed, uh, when we were at 2. 5, right? So he was super excited. Um, so, so 12 months after the investment, the company was already four times bigger. Um, like, Continued to see very, very good metrics across the, the, the business.

And, and then when we got to this stage, like, okay, we're now over eight digit revenues. Margins are really good. The, the net dollar retention was over 200%. So most of the customers were not only staying, but they were also increasing the usage of the product [00:34:00] very quickly. Um, And all the other metrics were really, really good.

Um, but then one other thing that was important, and I think it was the main trigger for us to decide to go out and raise was that we started closing our first deals with like major us based companies, because most of the initial customers for this business were in Brazil and Latin America. Uh, but we always, um, pitched it and, and, and, and, Thought about it as a global business, right?

So closing deals with like, some S& P 500 companies, was, was the, the main thing that made us say like, okay, we're, we're ready for prime time. let's raise our, our series B, um, and, and let's try to find like the best investor, uh, in, in the market that really knows about. Fraud prevention and, and that can help us scale to the next stage.

So, so yeah, those, first like very large, uh, US based customers were, [00:35:00] were really the trigger.

Jason Yeh: And was it a runway thing as well? Did you, you know, did you see the end of your runway coming

Andre Ferraz: No, no, we, we still had over 12 months when, when we, we decided to actually, when we closed, when we decided to raise, we, we still had, I think, probably 15 months or so. Um, so, so we had plenty of runway. The company was, was healthy. It was mainly, uh, uh, like looking at where we were and thinking about like, we need to go to the next stage and, uh, to, to get to the next stage, we need to work on some, I'd say.

work on the scalability of the business. So basically, like, invest more in product, uh, build a more robust, like, tech infrastructure to support larger customers, uh, build a larger, um, like, customer success organization to, like, support these large enterprise deals. Um, So, so those were the main things. Um, and, and we didn't want to wait until like, we, [00:36:00] we had like, let's say six months of runway to, to do that.

We, we've run it to start right away. So even though the market wasn't great, uh, we, we felt like it was the right moment to do it because the market wasn't great, but the company was doing really well and we didn't want to, to lose momentum.

Jason Yeh: Yeah. And I'll just say like, this has been a common thread, um, that we've heard of from some of the later stage companies, companies that are raising series A's and series B's. the most, the strongest fundraisers have been done on a very like, um, on the offense, right? Like not because they see the end of runway, but with plenty of runway and just. Believing in the vision and wanting to run after it and capitalize the company more, bring on the best partners. So, uh, not surprised. It's cool to hear, but not surprised. where, where I'd like to hear you talk a little bit about is, How you thought about fundraising post closing point 72 and then going into your series B [00:37:00] because I'll say for someone who's an introvert, we're connected on LinkedIn. I've been able to follow you and you, you are a founder that I point to a lot about an example of creating really, really great awareness for who you are and who your company is. And, um, Transcription by CastingWords I have my own thoughts about it. I wonder if you could talk a little bit about, your own marketing of your company, your own marketing of maybe yourself, how that fits into your own strategy and whether or not there, there is intentionality behind what you did between 0.

72 and Bessemer, or if it's just a part of a flow that led you to the next round, you know, it could go in a bunch of different ways. And so I'm, I'm just curious to hear your thoughts.

Andre Ferraz: Yeah. Well, I think there are two things here. Uh, the first one is that we, we have a really good marketing team. And our, our team has been [00:38:00] able to basically like get some very unstructured thoughts that I have and produce really good content around it. So what we do is almost every week we have a like 30 minute call where we're recording and they just start asking a bunch of questions about like the industry and uh, the, the, the fraud issues that are happening and some of the trends in this area and like things like how Gen AI is impacting like online fraud and like deep fakes, et cetera.

And, and then I just start answering those questions in a very unstructured way and, and they. Usually like clip some, uh, snippets from, from these, um, answers and, and they produce content around it, either like they, they would post a video on my LinkedIn and the company's page, or, or they would like write, write something down and publish like a blog post or [00:39:00] LinkedIn posts and things like that.

Uh, so, so that, that was the way we found to like, um, produce content. Uh, For an introvert, basically, um, because I was like talking to my team. So I was, I was, um, less worried about like being recorded, et cetera. So it was easier. Um, the second thing is that on, on my end in particular, like I've been in the security space for so long and like, I started like just playing around and like exploring, but then got into it later on, like, As a professional, uh, that I, I have developed this ability to like identify, security vulnerabilities and systems.

Um, and, and, and basically because of this, I'm able to usually stay ahead in terms of like producing content about like, okay, the, this new big platform just launched this new feature. I can look at that and say [00:40:00] like, okay, here's the security vulnerability. Why don't we talk about that? And that's, that's how we have been producing content, but this is mostly to customers.

When it comes to fundraising, um, what we decided to do was kind of implement the same idea of like having some regular sessions in which I was talking about the company, the industry, et cetera, but, um, speaking a little bit more about our metrics because we knew our metrics were really good. And then we started producing a lot of content about like how well the company is doing.

Um, and that sparked a lot of interest from investors. So we actually received a lot of inbounds from investors because of that content. And because of have raised otter rounds in the past, already had like some connections on LinkedIn from the industry. So they started like probably sharing this, uh, with their peers.

And, and that drove to a lot of momentum in the fundraise for sure.

Jason Yeh: That's [00:41:00] awesome. I love that. Uh, first of all, I'll just say that that method of creating content, um, is much more standard for influencers and for, you know, consumer based companies. It's, it's what my team does too. It's like, they'll just interview me and have me talk about things. And so I love hearing that that's actually how it happens at Incognia. People really listen to this last like three minutes that you talked to talked about, because it is, it's a masterclass and how you should be thinking about preparing your company to fundraise. Because there's something that I always tell people, right? Like when I talk to founders. It is through the lens of how are you going to be best set up to raise capital? And what do venture capitalists expect? Or what, what can you do to help fit into, um, how a venture capitalist wants to do a deal or the things that they find exciting? And one of the things that I try to impart on founders is that [00:42:00] VCs want to see a certain amount of things and certain things will get them excited. And a lot of founders think like, Oh my God, these are just like, I don't know, random things or dances that we have to do for venture capitalists. Like one example I always talk about is this idea of, um, building a model, right? Building a model that a venture capitalist can look at to see how you're going to run your company. And a lot of founders are like, Oh God, I gotta create a model for a VC. And that's actually not what VCs are looking for. They're looking for companies that run their business based on the numbers that have a model that have projections. And so if you feel like you're doing it because the VC wants to see it, and that actually causes you to build a model and then like start thinking about your business, well then maybe that prep actually got your business into a better place.

But at the end of the day, like these VCs are actually looking for signals around what a good company looks

like. When I tell people about awareness [00:43:00] and like building awareness so that you can get on VCs radars, a lot of people think it's like, Oh, let's create content just for VCs. But it turns out VCs are looking at the landscape of who the companies are, who the founders are, what they're doing. And they're looking for companies that are going after clients, trying to track the best customers, trying to hire the best employees, the best talent out there. And how do you do that? Well, you do that by like putting out content and marketing. And so it's just very cool to see you build that muscle and realize that you're doing it for the business. And if we just did a little bit of tweaking here and there, it also helps stimulate the interest from the investor community. So.

Jason Yeh: Um, I've observed it from afar and just to hear you actually spell it out is very cool.

Andre Ferraz: Yeah. And I wanted to add one thing here, which is, um, even though we, we like tweak the content, uh, towards, uh, the, the VC [00:44:00] industry, like when you're talking about your company's momentum, this is also, Making your potential customers and existing customers more confident on partnering with you, right?

So, uh, it, it didn't, like, divert our efforts to continue, like, producing content for customers as well, right? Like, if they saw, well, this company is growing really well, well, they're probably doing something right. So, uh, uh, better continue the conversation with them and, and, and partner with them.

Jason Yeh: no, I love that. Um, last bit of questioning around the Bessemer deal. Um, when did you, who was the partner at Bessemer that ended up doing the deal?

Andre Ferraz: It was Charles.

Jason Yeh: Charles. when did you meet Bessemer? Did you meet Charles and Bessemer during the 72 round? Did it happen, you know, a month before doing the deal? What was that like?

Thank you.

Andre Ferraz: Yeah, it was, it was almost a year prior to closing this, this series B. Um, so, so yeah, we, [00:45:00] we started developing the, the relationship early on. Um, and, and it was interesting because, um, it was inbound, they reached out to us, um, and they wanted to learn about like what we were building for the fraud prevention industry, but what really.

Like attracted me to them was that their, their line of questioning was from someone who really understood the space, you know, um, and that was something I really wanted to, to bring in this round was like, okay, um, bringing people that have their own thesis about. The industry we're in, um, not the thesis that we're presenting to them.

Right. And what was interesting was that, um, they, at some point they asked us, like Charles asked me to present their vision for the fraud prevention industry. And during the presentation, I was, I was like with my co founders, like watching at it and we were laughing because, [00:46:00] uh, it, it, it almost felt like they have stolen some of the slides from our investor deck, like it was such a perfect match that we were like super excited.

Jason Yeh: That's super cool. And when you went out to raise the Series B, was it just single streaming it with the Bessemer team because you already built a relationship or were you like, you like Bessemer but let's still make sure it's a bake off with at least a few good firms. how, you know, how much prep went into the Series B?

Andre Ferraz: well as, as much prep as, we did in the series A, even though we were more prepared, the cap table was, was cleaner, the metrics were stronger, but, we, we decided to run it as, as a standard process, even though we were quite excited about The conversation with Bessemer, uh, the, the approach you teach, right?

So, concentrated approach, try to pack all the meetings in one or two weeks maximum driving the [00:47:00] momentum as, as much as possible. so, so yeah, we, we ran that playbook and it worked out really well. We ended up partnering with, with a firm that we were building a relationship for a longer time, but it was a very competitive process.

I

Jason Yeh: Yeah, and I, I'm glad you, you pointed that out. Um, hopefully people hear just how much dedication you have to the process, even though like, it would be so tempting, you know, because you know how much time it takes to prepare for a fundraise. It would be so tempting for you to go look. I, we have good metrics. I think we have a couple good relationships here. Let's, let's, let's risk it or like, let's just go talk to these two and see if we can get there. But I think, you know, as well as everyone else who's like vigilant about this stuff is like, you never know, right? You had great metrics, but you were also in and we, I didn't give you enough credit.

Praise for this yet, but you were also in a total shit market when it comes to fundraising, right? So you had to really stand [00:48:00] out and make sure people felt really confident in what you're doing. And so, uh, kudos to you. I think you set a great example for founders around what they need to be prepared for someone who has all the metrics in the world, spent real time, um, and decided to run a full process.

Andre Ferraz: spoke remember? 130 different firms in this process.

Jason Yeh: It's so good. And, you know, I think You kind of also realize this too is, and I hope people see this value as well as like, look, it's a good excuse to create real relationships for the future too. Right? Like, um, you're going to be building not only this company for a while, but you'll be building companies for your entire career. And these are where some of the The valuable relationships start. You only took a lead check from one investor, but there will be more investors in the future. There'll be more rounds in the future. So, um, you know, I don't think you or I think that those 130 [00:49:00] conversations, um, were a waste of time. I mean, it

Andre Ferraz: I don't know.

Jason Yeh: Big amount of time, but not a waste of time.

Andre Ferraz: Yeah, probably we, we already spoke with our series C lead and our series D lead, um, yeah, I think that's right.

Jason Yeh: Cool.That was my conversation with Andre co-founder and CEO of incognita the next generation identity solution.

Empowering, safe digital experiences.

I hope this episode helped you appreciate how even the most successful companies today. Might have emerged from Rocky beginnings.

After the break, I'll be sitting down with my producer page to hear her thoughts. About the convo with Andre.

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Paige Randall: [00:50:00] hello Jason. Haha,

Jason_Yeh: I love the shift of gears. Hello, Paige.

Paige Randall: Zen. Hello Jason.

Jason_Yeh: How are you?

Paige Randall: I'm good. Uh, if you can't tell, I'm in a new location because I just moved. I can tell

Jason_Yeh: because there's like a, a dewy glow tease. I'm sure the temperature in Austin is, is is quite up there.

Paige Randall: You know, for as pale and as weak as I am in the sun, I'm actually doing quite well. And one could say I'm even slightly getting a little bit tan. So we're in the clear for now, but as [00:51:00] July and August come around, I might take that back. So, um, I am very excited to talk about this episode today. I, or first off, I'm very happy that we kind of, you allowed him to backtrack onto how Incognia even came to be, because it is a very, Complicated, messy story of like Really betting on yourself, which I think you both touched on.

Um, so if anyone did miss it, like incognia has pivoted multiple times, it's pivoted its product and name multiple times. It's pivoted like everything about it. Um, Kind of centered around the technology they were building, though, that kind of stayed consistent. And so I found it really, um, fascinating how we were able to see, you know, kind of some of the calculated risks that he was willing to take and how he also had to Play that out with investors.

So like investors were seeing all the changes that incognito had gone through and he had to figure out a way to [00:52:00] fix some of the messy things as well as communicate that properly, which is super impressive.

Jason_Yeh: Yeah, totally. I mean, I, I think sometimes you, you see people that make it to the other side and, and like are on a crazy growth trajectory like he is. I think sometimes it's like, yeah. That's a model that we can follow. And I'm not sure that's exactly what I would say the takeaway from talking to Andre necessarily is.

I don't think he would say, uh, we did it the quote unquote right way, but certainly that, that belief in team and the belief in self and, and betting on yourself is something that is universal. Um, but yeah, he certainly took a roundabout way of getting to where he is now.

Paige Randall: Yeah. And he did have like, what I admired was his, I feel like a lot of people in that situation might've backed off because it seems like the thing to do, you know, you're pivoting twice and you're like, okay, am I going to pivot again? Um, and I liked [00:53:00] his. openness to change, like, just perspective wise. And it, maybe it doesn't work out for everyone, but he ended up just, things just clicked in his brain properly, and he was able to see a path forward and execute it on it, and I thought that was really cool.

So yeah, it's like, don't, don't do as he says, but like, it's really cool to admire what he was able to do. Yeah. Yeah. Yeah. No, I, I will just point something out. Like, sometimes people think belief in yourself is represented by this, like, Dogged commitment to the path that you're on without changing. And I think sometimes maybe more often than not, a better and more honest representation of a true belief in yourself is the ability to say like, that path was wrong, we were wrong, but we believe in, we believe in our ability to do the next thing.

Jason_Yeh: And like, just because we were wrong once doesn't mean we won't be right in the future. And we're excited, happy. [00:54:00] Um, confident that making this new updated change is the right path because of our belief in ourself. So I think that's a great, um, great thing for people to pull away. Yeah.

Paige Randall: No, but I did want to this zen vibe we've created, yes. I did want to touch on something that, um, he mentioned that I had a question about. Which is, uh, before he started Incognia, we just mentioned he was working on some other stuff.

And he raised a round. Uh, his first round he ever raced and he talked about this was in 2011 and they sold 51 percent of the company for around 500k and that equals like a 1 million dollar valuation is the information that I pulled and I'm just curious. Is there any rounds, like I know that was a totally different time, are you, do you still see rounds like that ever where [00:55:00] people kind of get swept into crazy, like on the first round they no longer own majority of their company?

Jason_Yeh: I mean, it certainly happens still. That was a way different time, but it certainly happens. There are. There are predatory investors out there. There are founders that don't know what market is. And I'll tell you, like, that isn't reserved to like a guy in Brazil who doesn't know what fundraising is like, you know, and it's not reserved for someone who didn't go to college and. Is starting a company in Nebraska in the middle of nowhere or Buffalo, New York. I'm just kidding. I'm teasing Paige. Uh, there's some great, there's 43 North is in Buffalo. Uh, there's some amazing startup ecosystems around there. Uh, because like what I'm leading to is, I have a really good friend who is an extremely sophisticated [00:56:00] business person. Um, went to, I think Cornell undergrad, was top of her class in Harvard business school, was a leader at one of the top technology companies. And I remember as she was starting her company. She reached out to me because obviously I do what I do and was like, here's what's happening. I have a few people that would like to invest. And she was sharing some of the terms, both valuation and expectations around things like anti dilution and board seats or whatever that this investor was expecting. And if you're not in market, if you, as in, if you don't see a lot of different data points, you kind of don't know what to expect and you don't know what you should be. You don't know what you're allowed to ask for. You don't know what you think is Is crazy to push back on or reasonable to request. And so this woman who, like I said, sterling background with crazy business accolades [00:57:00] almost went into a business deal because she didn't have any other, she hadn't looked for any other options.

And when she talked to me, I was like, this is crazy out of market. Like you're, you're undervaluing yourself by like, A factor of three to four X. They don't need these rights. They don't deserve these rights. No other investor would ask for these rights. And so, um, does it happen? You know, long way of saying does it happen?

It still happens for sure. And I advise everyone, if you're going into a business, a business negotiation, whether it's fundraising or something else, like go out there and find people who have done it before, who are doing it now so that you can get real feedback and understanding of, of what the expectation should be on both sides of the table.

Paige Randall: Yeah, that's what I like about this podcast too, it's like it gives you so many different stories of all different types of people that you can kind of just get like a big understanding of like red flags, green flags, things to look out for, like you just have to become aware of it. Of, of fundraising, I guess,

[00:58:00] so that

you, when you go into it, you know what to look out for, cause you're right.

Like if you have never done it and you haven't talked to people who've done it, you're just going to kind of go where the wind takes you, which I think actually what, uh, in Tiffany's episode, Tiffany CEO, CEO of Cure Story was talking about. Like that's how she was running it at first. She was just going where the wind took her and, um, it got her into some messy stuff.

So yeah, no, I totally agree with that. And then, so fast forward a little bit, he. Had like a second run at starting a company using like location tech technology focused on like in person retail stores and success and everything was just like going, going, getting better and better. They really became like a 200 person company raised up until they raised a series B.

And then COVID happened and everything fell to shit. First of all, first off, that's insane. And number two, like my mind went to like, that is a, [00:59:00] and then they had to pivot to what incognito is today. That is a crazy pivot. And I was wondering if that's tied to what made their cat table messy. Like, is it the fact that they had been through, like, so many different changes?

I, I, my, I'm curious of where the cap table got super messy and if that's correlated to pivoting and, and how that stuff works.

Jason_Yeh: for sure. So, um, yeah, I'll just say like, this is, this is not normal. In fact, the normal advice that I give, I think I just tweeted this thing out, which is like a lot of founders will, there are some founders that will try to raise money based on Technology. They'll say like, we have this amazing technology. It could be used for a variety of different things. It could be used for this. It could be used for this. This is so amazing. And we're going to try to apply it to this. Uh, and my general piece of advice for people is that like investors don't like investing in science projects. They like investing in businesses. So businesses that have great [01:00:00] technology are amazing. But if you're a technology that think you could be applied to some sort of business, that's like not a great bet. Um, in this case, I do think Andre saw really great businesses that he wanted to run and he built technology for it. And as those businesses grew, Failed or, or were faltering.

He was just like, but this technology is so amazing. And like, he did find his way. Now, when, when people talk about messy cap tables, that's kind of a broad and very subjective term to describe. I think a lot of different things that can go on with cap tables. Um, but one of those things has to do, so there are two things.

One is. Do the right people own enough of the company to properly incentivize a winning outcome? So if you sold 51 percent of your company at the very beginning of your [01:01:00] company, And you need to raise more capital in order to keep growing the company. You could be, you could be two to three years into the company.

And if you and your co founder have equal split of, of founder shares, you could be owning like 10 percent of the company after two years, which is, I think kind of where Andre was. And at that point, Well, the reason that's messy is like, well, you know, if something goes wrong and you need to fight really hard to make it work, you're like, you know what? I don't really care that much because I only own 10 percent of this company. And that's not a good situation for anyone to be in, investors or investors. Founders, right? So that's one element of messiness. Another element of messiness is like, people owning chunks of the company who aren't adding value, who aren't like pushing in the same direction, who weren't betting on the same thing.

[01:02:00] So examples of that are like, co founders who ended up like vesting 10 percent of the company. Worked there for a year and then left. And that's like, they, they think about that as like a zombie, zombie cap table, um, row, which is like that, that equity, someone's not there pushing in the right direction and if. If a VC or an investor were betting on a location based, like, uh, you know, uh, data tracking for stores app, and then the company pivots and they're just like, they own 15 percent of the company. And it's like, they weren't betting on that. They weren't prepared to support a company in, uh, And,

Paige Randall: That's what I was confused, like, that's what I was confused.

Jason_Yeh: yeah, it can get really messy.

And it's like, they shouldn't really own that equity because like the founders don't own that much, that the team doesn't own that much. And it's, so it's like all these people on the cap table. And when it comes to [01:03:00] messiness there, they're trying to align everyone on the cap table to be rowing in the same direction, buy people out, get people off the cap table who like really don't care about this business anymore. And so there are a variety of things. And there are even additional things that could be considered messiness within a cap table. But I think. With incognito, that's what we're talking about at that point, at least.

Paige Randall: That actually makes a ton of sense. I, I, yeah, I was just trying to wrap my head around like how pivoting is related to like how that affects the people who are already investing in the company. Um, so I guess maybe my takeaway is like, What you have to reevaluate the cap table and see if you can get certain people off that no longer might fit the mold or people that want in, uh, there's like my main over simplified version of what you just said.

Jason_Yeh: Yeah. Yeah. And like, I think. You know, actually referencing back something we said, which is like founders don't [01:04:00] understand what is possible and what's not possible. Almost anything can be changed. Like, I think before I got into the work that I'm doing and being a venture capitalist and having raised money, you, you have this feeling like. If you signed a contract or if you sold shares in your company or if you put somebody on your cap table, that's there. So like, how are we going to work around this? We gotta, that's set in stone and we have no way of changing that. How do we just work around it? And the reality is all that stuff can be changed.

Everything can be renegotiated. And so, you know, you might've had an investor that said, well, we have all these rights and we have We have a participating return preferred. We have all these additional things that make the cap table messy. And at different points in the company, you can always go to everyone and say, look, this is where we are. We're not going to be able [01:05:00] to raise our next round of capital, or we're not going to be able to properly execute on the strategy. If. You guys have these rights. If you guys have this ownership, we need to negotiate to figure out how we get you into a better place, how we set ourselves up for success and how we change the signed documents that we had before.

I mean, I think that's one of the bigger takeaways I've, I've always tried to put out into the world is that like anything can be papered. Anything can be renegotiated. You just need both sides to agree, re sign some documents and move forward.

Paige Randall: Yeah. And the fact that. Andre was able to pull all of that off because that was the one thing that was like the one thing that was holding him back from being able to successfully close that round for incognito because it was super messy. And he like, it makes sense to go and clean it up, but I feel like a lot of people don't do it because it probably is a lot of work, but he really committed to it, just solve the one problem that was stopping investors from [01:06:00] investing.

And cleaned that up and came back and said, Hey, I'm the, what I took away is like, that shows them he's the type of founder that gets the things done. Like he's like, it showed that he was the type of founder that's going to work for what needed to be done for incognia. And then another thing that I thought was such a great signal was when they had to pivot the company to incognia before it was like the retail, um, location based thing.

Uh, company, all of his software engineers stayed and I, I don't know, it was just a little detail, but I just noticed it and how that would be such a good signal for investors to be like, they have so many good options and they're deciding to stay with him and his team. Like

Jason_Yeh: Great

Paige Randall: we got to bet on this, you know,

Jason_Yeh: page. I mean, that is, that's huge. That, those are the kind of like small offhand remarks or stories that VCs and investors are listening for. They're like, Oh my God. Like it says so much, right? It says that he's [01:07:00] created a culture where even as things are going crazy, people love working there.

People love working for him. People love following him. It says that the people closest to the company, They're, they're taking a bet. They're betting their own time. You know, they're, they have so many different options. They're betting their own time and, um, deciding to stay in the company. So they know more than we do.

And they're taking this bet. Yeah. And I will say, going back to cleaning up the cap table, you sort of like broadly referred to it must've taken a lot of work. They're like hard conversations. You have to go to people and say like, we're cutting you back. We need to cut you back. You need to own less. You need to do these things. And a lot of times there's like egos at play and people like that feeling. And so, I mean, that's, that is a lot of work and it does require someone who's like, I'm, I'm willing to do the things that are necessary to, to get this to the promised land. So, um, yeah, definitely kudos to him.

Paige Randall: that's, that's a [01:08:00] debrief for sure.

Jason_Yeh: That's a good brief. ​

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