How to build a new branch within a startup - Airbnb story. Also, how do you evaluate a company with no revenue? By Marc McCabe

All right, this is fun. Racing redo and today's a guest speaker with Mark located Angela investor and operator, and by the operator means that Mark joined air being D, really early on. 

So, in two thousand and eleven, and actually there, if you started the whole branch off air, being beat for business. 

So, in this episode, we'll talk about both angel investing and work in those big corporations and how you can actually start a new branch of the company. 

Within the company, 

and also, 

one of the things we'll specifically discuss is, 

how do you evaluate your company if you have no revenue whatsoever so, 

Mark, 

unless he calls by you giving us some background on yourself and on err being the I title. 

Sure, thanks for first for having me on. I'm very excited to chat with you today. My background. 

Well, you know, it kind of like many people who worked in Silicon Valley involves a little bit of luck, and some hard work as well. 

I I first started out in technology working at Google, based in Ireland eventually managed to move over to Silicon Valley where I worked at the same stage fund called SB angel for about a year and a half close to two years. 

And one of the companies I met during my time, there was, and I was just completely and immediately Smit with what we're doing from the first time I met Brian. Jackie. 

Backpacks quite a lot of my own. I've, I've actually moved around a lot with my family and lived in a lot of different parts of the world and moving to Americas is a pretty challenging and daunting experience. 

If you don't have credit history or much of a history in the country, it can be tough to get your first lease on your apartment, get your first cellphone. And so when I met Brian, you know, what, he was working on, really spoke to one. 

What? I think the potential of technology is to bring people together to make experiences, better and easy. But then also spoke to me as someone who's traveled and visited a lot of different parts of the world. 

He's kinda learned that the most exciting thing about travel is really what? You can an earth beneath the skin level version. 

The typical tourism gives you, and he was making that available for everyone, not just people are willing to take that risk on it. 

It could be easily accessible from my mother or my father and and so when I, I got the chance to join the company, it's probably the most excited I've ever been in my life. I started a business development there. 

And then, as you mentioned, I, I started the first non core product team, which was for business and grew that up for a few years before going onto work in the R. D. group. 
Nice nice. So, before we jump into discussing your role at. I would rather start by talking about angels a little bit. So, what was that fund focused on or was it an angel group? By the way? 

Angels and seed stage funds started by Ron Conway. It's one of the preeminent seed funds in Silicon Valley. ron's had incredible success investing in the early stages of Google. 

Facebook square Dropbox can pretty much list a large chunk of the very successful unicorns and technology. And Ron has been involved in, in some way or another, quite a high volume approach. 

They make a lot of investments, although I think the model may have changed a little bit in recent years. They've had incredible success. Really? 

I think what I learned most from angel is just how important relationships are to, to have incredible deal flow. 

Ron had had been really working on building a network in Silicon Valley for multiple decades even before he started angel, 

had had kind of been able to put himself into position to really help entrepreneurs, connect with the companies operators,
technical talent that they needed to find. 

And and, you know, he did that, maybe without always having, like, the deepest technological understanding of what they were building, but having an incredible insight into finders and what kind of mentality it takes to be successful. 

Right so the thing that really interest me in this specific cases, that's on our Pre interview call. You mentioned that you're looking at, like, thirty companies per week. I'm curious. How did you find those companies? So how do you source your deals there? 

A lot of it was inbound, as I said, Ron had an extensive network so we tended to get a lot of deals sent to us. 

I think in two thousand and ten, when I joined the fund, you know, there weren't quite as many seed stage options and certainly, the one that maybe had the best brand recognition at the time was sq, angel. 

So, just naturally, we got a ton of deal flow. We as partners in the fund, and, you know, angels maybe one of the funds that uses the term partner a little bit more high level. Really? 

Essentially, 

we were kind of associate principle level people and our job was really to keep our ear to the ground to make sure we knew every deal as as it was becoming an opportunity and so 

through that process I would say the vast majority of the deals that I looked out came from from the network that angel already established, 

but as my time through with the fund,
perhaps there were more and more deals that I was sourcing myself. 

Got it, so I would say, let's just one more question about angels and then we'll move onto your being the I'm curious. 
So, when you're seeing that you're looking into deals and, you know, you get a ton of income and deal flow your way what are the major factors that you are looking at? So, was it like month over month growth? Was it the revenue? 

Was it the number of CO, founders? What were the major factors that you're basically looking at? 

Yeah, it's a great question. I like, truthfully, I think the first factor that we always looked at was team was this a team that has. 

A deep understanding in the space that we're going after, and a combined set of skills that allow them to execute on the product that they were trying to build. I think that always came first and foremost. I think referral source really did matter, especially with the network. 

That Ron had built, you know, there were if you were getting referred a deal in the travel space by a formerly successful travel entrepreneur, you know, that, that kind of covers a lot of the diligence points. 

And if anything probably shows you that, there's a deeper insight. And analysis into what this finder is doing them, then you can even put together yourself, especially when you're investing across multiple sectors. 

So, I think those were really the first two diligence points that tended to be most important and filtering at a high level. 

I think once you get into the pull, you know, it really comes down to pattern recognition, which finders seem to have a clarity of insight, a purpose around what they want to do. 

What they think needs to be different and how they're going to execute on it. And, and that really only comes becomes a parent. I think once you've spoken to, you know, hundreds, if not thousands of Sanders. 

Nice nice. And the team is definitely the most essential part of it I think, especially in the early stages. But now now it's time to go into air being. 

B, so, can you tell us shortly that story of how you create a business basically within the business so, how do you create or being the for business? Yeah, it's a long story. 

So I'm going to try and not overwhelm you with all of the details but I think it was around twenty thirteen, you know, I was I had been working there being be a couple of years at this point. 

My first role really at the company was in business development, but at the time everything beyond me had maybe fifteen engineers, and, you know, the site was still going down periodically. 

And I remember my first week being told that I should absolutely not in any way. Consider pursuing opportunities, which were gonna require engineering bandwidth. 

No big custom business development deals that required key integrations. And so, you know, I set myself really looking at payments, which was a huge kind of area of involvement at the company. If you think of better be really? 

What it is, is a payment system that enables the travel experience. 

At the time, there were a lot of things to optimize and especially around, you know, we were really starting to scale to quite a large point that we could we could negotiate with our payment providers. We could set up pools of different currencies. 
We could start thinking about integrating payment solutions that would capture certain international markets that we were already growing well, and help us grow faster in those markets. 

So I did a lot of work around that and around verified ID and but really what I wanted to do. 

Was help companies scale and fulfill its potential and one thing that I started thinking about, in kind of late twenty thirteen was our entire company was using exclusively for business travel. 

So all of our employees were staying in when they were traveling. But they were also using them for a wide variety of other use cases, whether it was off sites, relocations, and even community events. 

And I started to think this is actually something that I think most companies aren't really thinking about. And maybe they use. 

But that had been some user research surveys that had been published internally at the time that said that roughly about, I think ten, eleven percent of all of our travelers identify themselves as business travelers. 

So, 

I started looking into it a little bit more and kind of realized one hotels are making a much larger chunk of their revenue from business travelers and their but we actually, 

potentially offer more use cases to business travelers that those just haven't really been heavily marketed yet, 

and so I started really pitching it internally that we should really treat every user. 

Exactly the same. That business travel users had somewhat different needs, but yes, they were a match for using properties on their B. 

B, but they may want to see a different selection of properties, and potentially, even not be able to stay in some of the properties that we are marketing and our site. 

And so, you know, 

I was kind of really doing a lot of political work at the start trying to convince people was kind of a very rebellious young company and we didn't really like, 

the idea of suits,
unless we're going to wear them. 

Ironically, and and business travel still had that connotation, and I remember doing a survey users who identified themselves as business travelers. 

And one of the questions I asked was what, what industry are you in, and, you know, having completed thousand online forms I put in the typical industry. So you had finance are you in marketing? Are you in technology? 

Are you in healthcare? And I had other as maybe the twelve or thirteen th, option and fifty percent of our travelers chose other. 

I, I kinda opened my eyes that, you know, business travelers weren't just McKenzie Monday to Thursday, you know, typical loyalty, poignant business travelers that we think of that a lot of traveling 
for business have a lot of different purposes around it. 
So, you know, I, I was able to to add a hackathon, convince a number of of people to help me put together a prototype of, you know, that kind of took together. 

Some of the feedback I've been getting from businesses about what they wanted to see from our VP and some of those involved small medium business typically, not having corporate cards and so expensing MBAs was quite problematic. 

We actually have a quite unusual model compared to hotels where we actually bill you at the point of booking, rather than the check in. And so this means that for particularly strict companies that will only let you pursue expenses. 

Once you've actually stayed at the location, made it quite hard for those people to claim expenses in an orderly fashion. 

So I started actually running an embracing product tracking different companies and their employees, and allowing them to invoice centrally for those employees. 

I put together which you called Judy of care, tracking systems for larger corporations were really the issue was more about risk and knowing where employees are when they're traveling. 

And if those companies, those enterprises got that kind of level of tracking of knowing what their employees where, in case of emergency then they could actually market B, as an option for business travel internally. 

So, I kind of turned some of our larger customers into growth engines. 

And, and, and, you know, really started to pick up I think I signed up the first two hundred, three hundred companies, largely on my own with a bit of help from from intern. But I was luckily able to get that summer. 

I was able to complete a partnership with her kind of on a larger business travel, expense management companies. 

And from there, I started getting resources internally built at a team focused on and and later enterprise and and, and I'm a product and marketing team as well. 

So, it was an incredibly exciting experience. I think really the takeaways for, for people who are looking for what they can do within companies is, you know, you really always have to add value. 

You have to look at where, what the data, and what you can learn. Especially in those first, six months, where, especially when you join a startup, what you're doing your roles, sometimes it's not always entirely clear. It requires you sometimes to make something of it. And so. 

I would encourage you to kind of really familiarize yourself with what's happening at an intricate level within the company. 

What engineers are saying about the things that building what design researchers are saying about their conversations with users try to use the product and talk to users as much as you can yourself and when you see an opportunity, 

you know, 

don't feel confident that people inside the business want to know what the opportunities are and why they might be really powerful. 
It won't always happen right away.
You might,
you know,
and kind of push back early on while trying to develop these concepts, but if you take it step by step and you just prove it point by point, 

you can build traction and give value to a company. 

Right? So, here, I want to go a little bit back to what you said, and it's to the point where you said you sign up roughly hundreds or two hundred, first businesses. Yourself basically I'm curious. How have you done it? 

So how do you how do you manage to get those very first clients? 

Because most of my listeners are early stage entrepreneurs, and there's the major struggle that they have sign up those first, ten hundred, first customers don't want to make it too easy. 

I think what I was very fortunate in that. 

Was just rising from, you know, kind of curious, funny tech company. No one's really sure if it's really going to become a big thing. I think especially in the investment community. Most people are thinking sleep on someone's couch. 

I'm not gonna go do that,
even though maybe that's not what was about,
but from a travel perspective,
we were really exciting company and from a technology perspective,
you know,
a lot of the people worked inside of tech companies and knew that we were exciting. 

And growing very quickly and so to that extent, it opened a lot of doors for me in speaking with our, the customers that being said, I was very fortunate to build the network that I did while at the angel. That's certainly opened a lot of doors. 

And I think going to your network in the early days is essential to get your first few customers on board. Once you do have a few customers with some recognition in the greater world. 

You've gotta make sure you build really strong relationships because you are going to lean on those customers as testimonial as Proofpoint as validation time and time again. 

And so, you know, one thing I think that I maybe realized early on is that the folks who organized travel options within companies are not the most celebrated people within organizations. And one I had early on was to make. 

Travel managers, HR execs anyone who is responsible for travel, sort of a hero within their business, and really show an interest and the challenges that they dealt with and in doing. 
So, 
I think one I learned a lot about what we needed to build,
and I also went over a lot of people who ended up being advocates for for what we were doing and, and helping to kind of get us more validation in the business travel space. 

That's really nice approach. So, now that we've talked about their being be super exciting story by the way. Thanks. Thanks for sharing. I want to move onto your angel investing experience right now. So, right now, as I understand your main ones, you and angel investment, right? 

Yeah, I'm actually in the process of setting up a seed stage fund in Europe, I recently it back to Europe from San Francisco. I am also a supporter of Skype. 

Sorry, I still invest in the US typically out of the scout fund and I've angel invested a number of different ways. Tried to meet setting up this fund. 

I used to set up syndicate level funds on angel lists with a friend of mine brought flora. So, we would, we would raise a million two million dollars and invest it and Y, Combinator batches and we would do dispatch after batch. 

And it really helped me build up a pretty substantial track record. If my own level investing. 

Because, 

you know, 

I see angel with such a collaborative approach and I was quite a junior member of that team, 

but it helped me build back a portfolio of investment decisions that I've been able to to build on ever since. 

That's really cool and we're not gonna go really in depth into the syndicates that you mentioned, because for me, as from the structural perspective, but not really for my listeners. I'm more curious here. What do you invest in right now? 

I mean, most recently, so you mentioned Y, SI, batches, which is one way did you invest in anything else? Maybe some specific fields or specific stage. 

But the one area that I think you can't really skimp on is are this team with this capital going to be able to achieve something that allows them to continue scaling the business and raise more capital and at the same stage. 

That's that's something I look at really, really carefully, you know, is the five of them are gonna wanna work for that. I know. 

Is going to take the introductions, the network, the capital that I can provide them and turn it into something that's so much more than that and work very hard at it. So, that tends to be the first thing that I really focus on. 

I think sometimes there are certain spaces where I have a keener understanding, and I will really trust my own viewpoint on whether the approach that a finder is taking makes a lot of sense. 

And certainly, I'll ask questions about that nearly every pitch. But, you know, most most often, I think that actually finders probably have more expertise in a given space, then the funds or the investor that they're speaking with as well. 
Right. So the thing that I mentioned in the very beginning of the episode that I want to discuss is just to find a violation of the company with no revenue. I do not really remember why exactly. I had this with this question. Put. 

I'm pretty sure I had a good reason. So, what do you think about this question? How do you justify the validation of the company and those early stages when you have literally zero revenue and very poor track record basically yeah. 

That's that's a that's a question. 

We probably won't be able to answer on this Bob, 

it's, 

I mean, 

valuations and seeing safe, 

say it's tech companies are our really strange thing to consider, 

you know, 

two people with an idea potentially, 

and often Pre products, 

Pre traction. 

Why is that worth? A ten, twelve million dollar cap fifteen million dollar cap or more and the truth is that the, the price evaluations isn't really a by traction at seed stage. It's not. 

I mean, it can be attractions and traction can be an influential part of why evaluation is so sky, high, but often. 

And it's really it's the market, it's investor interest and what you're trying to do what other finders are being able to raise and what valuations of being able to raise that. 

And what does that mean for what you're particularly bringing to the table so if you are bringing a seasoned entrepreneur, 

who's had multiple successful exits, 

they are going to be considered the risks compared to a finder who's coming off the street with no experience having not worked at a large tech company, 

maybe just graduating out of college starting a company so there's,
there's a number of different factors like that I think there are also some potentially hyped up spaces, where,
as a particular entrepreneurs attacking it.
In a way. That's quite novel. That's another element that can drive up evaluation. Yeah. For sure. 

Like, that is increasingly easy or not easy possible for finders to develop traction at a very early stage. Maybe even before they raise any capital at all. 
And so, in those situations that are relative signs that assigned to really knows what they're doing, that they've tapped into a market that is potentially undeveloped, and that they've shown a lot of resourcefulness and being able to do this with that much capital. 

And those things can also impact evaluation, you know, there are a lot of other things that that, I think, impact valuation and maybe shouldn't, you know, did they come out of a formally successful company? 

Well, yeah, but maybe that doesn't tell you a lot about whether they're gonna be a successful finder, but, you know, a lot of funds they do like to invest in the, for the Facebook. 

Engineer going off to start a new product as well. 

Right, right, right. So we're moving here to the, to the end of our episode and I have two more questions for you. 

So one of the last, I'm phrasing you really wrong, but one of the questions is, what's your recommendation to people trying to raise now? 

During this spin dynamics, 

so a lot of early stage founders, 

you know, 

precedes seed stage those, 

that we've just discussed those who cannot really we don't even know why their companies anything, 

because they don't have revenue yet were much of the product done. 

What's your recommendation to them in terms of raising? Well, I think you, you need to know what investors what wants to invest in. 

Like, I I don't think you should really think of this time during this time dynamic as being some limiting function. Actually, if anything, it might produce an explosion of entrepreneurship as people start to think. 

Okay, well, maybe now's the time to go, do whatever we wanted to do and, you know, you saw that around. I think the, the Great recession and today's, today's nine to ten. A lot of amazing companies were born in that time. 

And because there's just a lot of opportunity to disrupt the status quo to, to take a risk. 

And to go and try and do something. So, I don't think now is a particularly bad time to raise capital. You know, I think there was a bit of a low and early, mid February when funds we're trying to just do trash and figure out one. 

How they can help their portfolio companies, manage this crisis, but also what it meant for their funds, and whether they should be holding gunpowder dry or whether they should be jumping in with both fee. 

And I think in March and April, you started to see really funds get incredibly active. There are a lot of series ideals. There are a lot of companies that were able to raise capital from early all the way, the very late stages. 
You know, I think investors felt that there was an opportunity potentially to get into businesses that they might not have been able to get into. Previously if some funds were going to be sitting on the sidelines. So, that was not a bad time to be raising capital. 

And if you don't have revenue, you've really just gotta think about a few things. One. What is your team bring to the table? 

Two, what do you understand about this market? The other people don't Y, Combinator for your listeners who maybe don't know, is, you know, one of the, the most successful, early stage incubators on the planet. 

And the thing that they really look for a lot, and they're seeing finding teams as early as anyone sees them, like, often when the ideas really just being formed. 

And the thing that they look for the most is insights, like, 

what is it that you understand about this race and how how clear are you in conveying what you understand in terms of the opportunity and, 

and being very tight and synthesize and that is something that I, I still see a lot of startups struggle with I think some startups, you know,
an instinct about the product. 

And they trust that instinct and they're willing to pursue it. Are they able to synthesize it into something that makes strategic and business sense? 

And that is often something that I think is missing that the seed stage, and actually something that a lot of very successful companies have stumbled into have discovered along the way not by accident. 

But maybe by a course of just really believing in their intuition. 

But being able to explain that, I'm being incredibly clear about that upfront, not something that investors really crave, I think, when they're talking to factors, right? Yeah. Good response. 

And I think, for those people who have not tried filling out the application, you should definitely try. I mean, even if you're logged in yet there, first of all, you never know that. But secondly, it just gives you tons of food for thought. 

So highly recommend you filling it out. And here, we're moving onto the last question of today's up as a, which is a call to action. So, what's the one thing that you would like to do? As soon as the episode is over. 

Well, if you're starting a company, I certainly want to hear from you, especially if you're in Europe, but I am still investing in the US and so, you know, feel free to email me marked out mkay that Gmail dot com. 

I greatly welcome anyone who wants to send me their pitch and if you're looking for more support on fundraising, I actually did a plug another podcast on your Airtime here. Constant team. 

But I did last summer. I'm below the line, which, which is a two and a half hour in depth view into fundraising and perhaps you'll find it helpful as she, as you go along the way. Nice. 
I'll definitely make sure I include the link to that podcast even though it's kind of competitive, but, you know, a nice person. So I'll definitely include in the description of this episode. So if you want to learn more and more in depth nine thirty may the episode. Definitely take a look at it. 

We'll wrap it up here. My call to action go to the description of this episode. Check it out. I'll include a couple more links, so there will be definitely something fun for you there.