Industrial customer acquisition with no sales team, how channel partners work and how to give 250+ pitches and not give up - by Sam Nagar, founder and CEO at Pixeom acquired by Siemens.

This is Fundraising Radio and today as a guest speaker we have Sam Nagar, founder and CEO at Pixeom that raised $15 million and was recently acquired by Siemens.
In this episode we'll talk about so many super science topics. The major topic is how to get first in because Sam's company, Pixeom was actually doing really big deals - each deal was about $1 million or more.

We'll talk about how a Jaan early stage company can acquire the large customers that can afford to be social sums of money.

of course, we'll talk about this acquisition.

by the way, small, spoiler alerts, it's APIC.

Sam Lesky calc by you giving us a background on yourself and on big stone.

Sure.

Thanks for having me.

so I'm Sam nigger.

I'm the former CEO of pixie on, now working at Siemens with the rest of my acquired company.

before starting the company.

I actually did work as an engineer at Microsoft.

spent some time up in Seattle, originally grew up in the Northeast, and a real short summary of the pixie.

I'm adventure.

We we, grew to about a hundred people or so, a little over a hundred people.

we're reached, we reached about 24 and a half million in annual revenue and it took us about six years to do.

it was a quite a journey and, happy at how everything turned out.

Right.

I mean, you got acquired successfully.

I hope you're happy with the results.

let's, can you describe pizza more so that people, have an understanding of, how the model works?

Sure.

Yeah.

were one of the early pioneers in a concept called edge computing where instead of running applications and workloads in a central data center, like something maybe you'd leverage from Amazon or Microsoft.

the idea is, we would encounter customers that had a lot of distributed infrastructure think, like fast food chains for example, that had in every single location or a couple of servers in the back room.

managing all of this distributed infrastructure at scale was a significant challenge, especially without having to send people out there to make changes, perform maintenance or upgrade software.

to put it simply, we made a software solution that made that easy to do a dashboard and, a bit of software you

embedded into all the different infrastructure and it just made it so that with one click you could make a change at scale to, thousands of systems.

which would save a lot of these customers, millions of dollars depending on, the number of changes they wanted to make in a year.

some of our background that we leveraged to do so, our team had previously worked at Microsoft just like me and VMware.

A lot of virtualization and cloud experience came into play.
That's really interesting and hard for a financial person to understand.
I think you did a good job describing it, so hopefully our listeners understand that as well.
before we move on to you talking about acquiring customers, because in that case it sounds really complicated. I first wanted touch on to something that's really dangerous to me personally.

you started the company, you started teaching with your sister, right? How did that affect your fundraising process or how did that affect your business in general? Would you recommend, working with your relatives on the startup or should you refrain from doing that? That's.

A great question and I think that's definitely a controversial topic for sure.

I don't know if there's blanket advice for that.

I think there is some element of it being case by case with my sister and I, we already had a very good dynamic.

Even growing up.

We rarely fought.

there was a lot of confidence from both of us going into it that we'd be able to work very well together and I think that may not apply to some other siblings or other types of relatives.

when it came time to fundraise, I, I'm sure a lot of your listeners can sympathize with this.

We actually got rejected pretty extensively in the early days and it's sometimes looking back on it's still hard to say.

I think part of it was definitely an element of it being that, it was two relatives working together.

We did get that feedback when we pushed some of the investors for some reason until why were constantly getting rejected.

one of them did say, yeah, look, we avoid investing in any company that, the founders and the chief executives are related.

you know, there was other elements too.
we were operating in a space that was still new territory.

We the, in general, most of the investments from VCs at the time were being made towards centralized infrastructure, like cloud based companies instead of, I would go into offices and try and tell some of these VCs that, look, I get that the cloud is very popular now, but maybe we don't want to put everything in the cloud.

usually that wasn't met with great responses at the time.

we had a pretty controversial business model.
We didn't charge recurring, subscription based revenue.

I think that also didn't command the multiples and especially like the exit multiples, right? When the VCs are thinking that through, and just enjoy, Oh, I forgot to mention this.

All of our early customers roll.

outside the U S and I, that was one of the feedbacks we got to was why are you guys going after customers outside the U S is the biggest market.

You guys don't even have boots on the grounds.

in some of these countries, our first customer was Samsung out in Korea, our second customer was Vodafone out of the UK.

And it was definitely challenged.

I mean, I'm not trying to dismiss some of the criticism or some of the feedback we got and it certainly was, I felt a difficult task to do so, but were up for it.

I think having my sister alongside was a big part of why were able to execute. Right, absolutely.

I'm a more of a believer that, siblings can work together and most of the cases, but before we move on to the topic of inquiry and large customers, so as you mentioned, you've got one of your first customers were Samsung, before going to that topic I was going to ask you, so do you raise it then in the beginning of your, venture or do you only raise money at the very end before?

Oh yeah.

in our early days, because weren't getting much VC traction, in fact, are you, if you ever Google our company, you'll see some of the evolution of it.

We actually did a pivot, in our early days.
We originally wanted to sell a hardware box itself with our software included. because were selling this piece of hardware, we decided to go to Kickstarter.
you may find that online if you ever Google it.
And were very young at the time.
I was 23.
My sister was 21 just coming out of college.
and, we did get 75 K from the Kickstarter and we ended up shipping that product.

very quickly after the Kickstarter, maybe I remember we did the Kickstarter in January, 2014, really by may, within a few months, were approached by our first Clark's customer, Samsung, and they played a big influence on us, by kind of whispering to us saying, Hey, look, why are you guys making hardware? we're Samsung, we're making the hardware, but we do need your software where you open a licensing that will give you a, a big customer contract.

that helped us sustain ourselves despite not getting the VC funding.

then, as we started getting traction and growing, organically, we ended up not needing it.

Got it.

That's that's a quite success.

How how did this happen that some song approached you?

Rivers, actually it was, as far as I'm aware of from what they've told me, it was actually the Kickstarter.

Oh yeah.

They I think they keep an eye out on, especially potential new consumer products or kind of small business products cause that's, big business for them.

they saw that there was some traction, we've had barely put any money into, marketing or anything like that. A lot of it was word of mouth anyways, even from the Kickstarter.
that they actually reached out to through that and said, look, we like what you're doing.

at the time they were looking at it, getting more into, at the time, I don't know if you remember a company called smart things, they had acquired to try and get into IOT and more stuff to be deployed in the home from a service perspective.

they were looking at, some of the stuff we built in our early days, but primarily the software which could enable that.

they approached us, they look, well we want to license this.

We know it's not really your business model.

We're not interested in buying your hardware cause we can make our own.

weren't getting VC money, so actually we got some pretty good advice that I still remember to this day.

that it's easier to convince a customer to give you a dollar than it is to give it, to convince a VC to give you a dollar.

I still believe that's true to this day.

I'm not hundred percent sure that's true, but for that so far, but I was wondering, you mentioned that you got rejected like many times when you didn't really have a reason that you didn't understand why you got rejected so many times.

I'm curious, can you like approximately how many times you've gotten rejected by me? Sure.
somewhere in between.
Let's see.

I think I would do at least, let's say four to five VC meetings a week, or we'll call it for at least a phone call, right? Maybe not a meeting itself, times, let's say a few months.

Even after the Samsung contract, were still trying to do it.

I mean, this was at least a year, so I'd peg it at least 250 rejection, like five times 50 weeks.

Right.

That's very impressive.

That's extremely impressive.

that's what defines a startup founder of tree.

You get first hundred rejections, you just keep pushing it after you get 250 rejections that you should probably think, am I doing something wrong?

Wears you down.

Yeah.

I was wondering how did you manage to get so many, actual meetings and calls with the investors? So one of the problems, especially with the earlier stage founders, but no experience, no networks in the fields, how do you get this initial meeting? How do you get in touch with investors?

Oh, the biggest thing, and I still hold by this to this day is LinkedIn. it seems like it might be a little expensive paying.
I think it's, at the time it was like 70 or $80 a month.
Maybe it's a little more now.

you pay for the premium LinkedIn account and then you can send a message to anybody. And this works for both VCs.

It works for even journalists if you're trying to get some coverage, or whatever announcement you're making as a company, that works big time for us.

And I totally milked that contracts. Like I would hell in the message.

Like the first thing I'd write is, Sam's, we got a nice contract with Samsung products and I think that was at least enough for them to say, okay, at least let's take a meeting with that.

Nice, nice.

Nice.

where are you actually doing these by hand? So were you actually manually going through some lease? Where do you find investors through each out to, do you just search on LinkedIn? Like venture capital or w what was Australia.

Go to? The search bar, type in venture capital.
I mean a lot of people can, a lot of my friends that are founders and CEOs, I've found that they're a little picky

sometimes and they'll say, we don't want to talk to associates, right? Like filter out based on whoever's a, the term is, like managing director or a partner or whatever.

Right.

I'm not as similar.

Right.

I do get much funding so, but, I, I know some people are really picky, but I, it really didn't matter to me.

I was hoping that, maybe even through the associates, even through, even down to the T, partner with maybe kind of, point them towards me and I just be messaging everybody.

It wasn't just me.

I'd actually share my account credentials with my sister.

we did have someone in the early days, trying to help us, with of marketing here and there.

she also had my account credentials and we had kind of a standard message we would send out and it was just us three, typically on any given day, just sending out as many as we could.

I actually, I have to give VCs credit where credit is due.
I think they are pretty good about taking meetings and at least giving you a chance.
If you give them an articulate message and there's something for them to hang their hat on.

I think the Samsung deal helped, I think writing them a proper message instead of just, I have an idea like, I mean short, like we made sure to tell them if we have a product, it's not just, like something we've drawn on a napkin kind of thing.

Like there was some elements where we thought through the message too. That's really nice.

by the way, some advice from me personally, I recently interviewed an associate in a us based fund and probably it's actually a good idea to try to reach out to associates first because if they like you, they will push your deal to the managing director and they will definitely listen to their associate, especially in a small a VC firms.

probably it's not such a best friend as you.

you're, I wanted touch on too, why you say on these Bismal why do you decide to sell a license instead of charging a, instead of choosing a regular SAS model?

Also? Great question.
so it was mostly a personal decision.
I personally don't like subscriptions.
I like it just every time I cringe when I want to pay for something and I need to pay them per month. And that was really the main reason.
There's really nothing wrong with a subscription model from my perspective.

We probably could have done it.

that being said, after went with that decision and went to market with it, I think that was a big reason for us getting customers, especially the customers we did.

we found that over time our customer rates tended to skew more towards like industrial customers, retail customers, ones that aren't that interested in paying subscriptions, like if were selling it in other verticals is, especially with like, for example, selling to a telecommunications company.

Right.

Let's just for argument's sake, let's say like, I dunno, Comcast was a customer of ours or, any telecommunications or, internet provider.

They're already charging their customers, monthly fee and all that.

it does fit in well to their business model and they can, compensate for that and make sure they're not losing their margins on it, especially if they're paying us for something.

especially like in the Siemens for example, right? Like they'll sell, just think of like an H do HMI panel, human interface panel, just the thing of like factory equipment maybe, for example, that's a onetime expense, right? You're not charging per month for that.

every time they sign, you think of signing someone up.

that is a consideration they have to think about is, okay, what is the impact on the margins of products that are sold? Right.

Right.

Regularly.

you mentioned that, you switched to more of an industrial.

Yeah.

Industrial customers and wondering, you've got acquired, I mean, you got first customers, Samsung reaching out to you themselves, they helped you a lot, et cetera.

how do you acquire the rest of them? Do you actually hire a salesperson to reach out to those big companies or do you use yourself and how do you do this? Was it,

That's, I think, I'm glad you asked that question cause I think most startups should have some plan for this. for us, we never had a sales org.
We didn't have anyone we hired for sales until literally like the last three months of our company's lifetime. it was mostly me as someone in house.

even if you look at the composition of our team, a hundred plus people, but almost all of the team was engineers.

when you grow organically and you don't get the VC funding upfront, every dollar you get from customers matters a lot.

it's, as opposed to if you do the fundraise, you have a pre allocated budget for everything.

Right.

to get some money for marketing some money for, increasing your head count for engineering, all of that.

for me, I never knew when I'd get my next dollar.

I decided, and this was at the time a risk, right? I, in hindsight, obviously it worked out, but at the time, and there was no way to tell if this would work out.

So I did.
I decided I would go all in on making sure the product was a killer product.

That there was nothing wrong with it, there was no bugs with it, that, if I could get it in the hands of the right person, they would love.

I put all my money into engineering and I would do all the sales.

it's a bit of a misconception to say I was the only sales force of the company.

We actually leveraged channel partners very heavily.

this where we first figured this out was, back in late, maybe late 2016, early 2017.

I don't know if you, how familiar you are in the edge computing space, but basically you had all these, cloud providers like Microsoft Azure and Amazon AWS.

they started introducing their first edge offerings, and at the time Google cloud who's still doing a great job, trying to catch up and capture that market share on the cloud.

they didn't have any edge offerings.

we, I happened to meet the, I think the right person at the right networking event.

really I recommend to all startup founders who listen to your channel.

You go to as many events as you can, aside, that doesn't sacrifice, actually executing the company.

it just ended up being a, a nice fit for both of us where they needed an edge offering.

even for us, like when you're talking about running infrastructure in a facility, that's a finite number of resources.

if a customer of ours ran out of capacity, they needed to think about what happens then either they buy more or they've potentially offload to the cloud.

we had a conversation with Google and we partnered together and, they're them as a channel partner.

Basically what ended up happening was I started doing some webinars and I started spending a lot of time and I invested a lot of time in building relationships with their Salesforce, the Google cloud sales guys, and showing them what we could offer and if, especially if since they were getting a lot of their customers asking, Hey, what are you guys doing for edge? why should I go with you over, Amazon or Microsoft, if I made those sales folks aware that, Hey, we're a Google partner, include us in the conversation or mention that, Hey, look, you're not left without a key piece to be able to challenge your competitors.

that worked out a lot.
the sales team, they actually did start looping us in.

I had started getting emails, at first it was sporadic.

it went from, maybe once every few weeks to suddenly were getting, a handful of week to, 10 plus a week, all over the world.

I mean, customer, Google's trying to get traction all over the place and that became a force multiplier for us.

We went from less than, a million and a half in revenue, suddenly to 5 million plus in like a quarter.

and, and it just, it kept multiplying for us.

we realized we could repeat this with Google and it wasn't just we, with cloud provider, obviously, Microsoft, Amazon had less reason to partner with us.

some of the hardware and components, guys, Intel became the next big one for us.

where they of course want to push more of their products and they're still a cannon and the more you run on premise, the more applications you run, the more Intel stuff, a customer's going to buy.

Intel then became our next partner and we started growing substantially from that.

we found that if we found the right channel partners, their Salesforce effectively would become our Salesforce.

If a sale of our product resulted in a sale of their product.

Right.

That's a really interesting mode.

can we go just deeper into what a channel partner is? So how can we look into a Google, again, so I didn't quite understand that.

I hope I'm not telling me why he's not a misunder you're saying this.

how this works is that your approach, Google, they are missing a piece off.

by the way, I have zero understanding of what had edge is.

what you're saying is that sometimes customers get too much on their Google clouds and they want to offload some of it to an actual hard drive, right?

not necessarily. Just sometimes.

they may want to, because in order to get everything up to the cloud, there's basically you have one internet pipe, right? is it going to be a lot of data? You want to send up to the cloud.

sometimes if the Internet's not there or if you just want something that has better, like more performance or lower latency, right? It maybe it's like in a factory for example, right? If the internet goes and you're relying on the cloud to automate or just give you insights and process a lot of your data, your factory could go down if you're in the cloud.

basically a lot of these people are saying, well, Google, I love your cloud, but we don't really have an option if our internet connection is not working and we can't use Google cloud.

and so that's where we came in.

We gave them ways to leverage some resources in the facility instead of outside the facility. Got it.
Alright now I understood that and I don't want to go too deep into that.
let's move on to the last part of the fundraising before you got acquired.

right before you got words, not quite right before you got acquired, but boy, a year before you got acquired, you received a million dollars.

why did he say to raise then what happened there?

Yeah, actually that's also a fun story too.

I'll try not to spend too much time on it because I can spend forever on that.

It's a really fun story.

we started growing very quickly, and collecting a lot of revenue and it was actually a challenge for us because of our team composition.

Like I alluded to earlier, were all engineers and were a little reliant on channel partners.

suddenly, we had all this money, we have, customer money that were collecting revenue.

we started getting approached by potential acquirers actually around the time we raised in 2008.

were thinking about exiting, at the time were, the offers coming in were pretty compelling.

then, whatever was, we got some intros from, at the time Intel who was one of our big channel partners, to Intel capital, their venture arm.

I, I have to give a lot of credit to, my, the one who invested in us from Intel capital, her name is Elena Leon. phenomenal, phenomenal, investor.

Probably one of the VCs I've met and I as you've heard, I met a lot of them and I have the most respect for her of pretty much any VC.

she talked to me about and she said, Sam, I understand, you're thinking of exiting, in case you want. I know.

I think she recognized right, that I, I had a lot of frustration in the past from not being able to raise, she said, look, if you want it, there is an option here for Intel capital to come in.

If you can take the exit, I'm sure you'd be very happy with that too.

just in case you want to, play with a full deck of cards for once, Intel capital's here and I'm certain we'll be able to get you an investment assuming you're not, obviously you don't do something stupid so to speak.

Right.

she was pretty confident it was like this could go through and I decided to take a chance and then I said, all right, look, if you go through the process, if you get me a term sheet, I'll take it.

I had already, I didn't have much faith in VCs at the time. Right.

I said, like, you get me the Turkey, you've finished your process then, but you have my word, I'll take it if you can do it.

and so she did.

she went and she championed for me intel and she got me the term sheet.

She got me, I'd say 90% of the terms I wanted, of course.

I think as a CEO, you can never get everything you want, but I was very happy with the deal that they structured.

We structured together with Intel capital and that was really the message he gave me is look, play with a full deck of cards.

Like the same concept I told you earlier, right? Like you could have a preset budget for everything now for the first time.

so, she basically said, you tell me how much you want.

I of course also was, I also wasn't sure how much I actually did want cause we already were making a lot of money too.

the 15 was kind of just like a number I decided on.

It wasn't, there wasn't really as much logic to it as it was like, okay, I want to double my engineering team.

Cause I, I think they could build their product twice as good.

I, I think I, I, I want to take a chance on, these expenditures and all that.

I didn't actually end up spending that much of the money.

but, it was some that I just said, look, if I'm, if I feel I want to play with a full deck, this is what I think a full deck looks like.

if you can make this deal happen, you have my word, I'll accept this deal.

That's really interesting and sounds really inspiring for those people who are trying to raise money right now, ?

Yeah.

you're, we're moving onto the last part of this fundraising process of wishes acquisition by Siemens.

I know we're pre-interview call, you said that's, you basically retain most of the largest part of the shear even after, raising the, this $15 million.

How did you, how do you manage to do this?
Yeah, so that was also I think, a result of the circumstance.
If we had taken money in our early days, I don't think we would have had that option.

now, when Elena and Intel capital came in, I had been so jaded I think by the fundraising process and all of that.

I basically, I basically told her, I said, look, if this is gonna work, I want a mechanism where, we can build trust and if things aren't working out, I don't want to be stuck with you guys forever, basically.

I think this should also be hopefully a philosophy on your side too, where, if you feel it's not working now, you're also not stuck with us.

we ended up structuring it as a convertible note.
I had gotten some feedback from, another founder that I'm very close with. that, you know, this is an option.
Of course, if someone who doesn't raise often it's new territory.

? Right we ended up doing a convertible note and we had basically for anyone who doesn't know what a convertible note is, I assume your reader or your audience probably has some idea, but just in general, it's, you gotta effectively it counts as a loan that you're not paying back every month, but eventually it'll convert it to equity after a certain period of time.

at the end you get the option.

we've structured it such that both of us had to agree if we wanted to convert, it had to be mutual and that was something I was insistent on at the time.

she, she agreed and of course we, there was some terms in there that also, of course, Intel. it wasn't a totally one sided deal either.

the fact of the matter was that we had to either do a res, like a full, like series round, or, a certain period of time passes, right? And then we mutually decided to convert.

then, back six months ago, more than six months ago, we started getting a lot of acquisition interest again. this time it was even more companies that wanted to acquire us.
I had a chat with, of course, in Atlanta and Intel capital.
I said, look, here's what's going on.

I am thinking of exiting again.
I think the offers that we're expecting to see are just something we can't ignore.

in this case it would before you convert, you'll get an acquisition premium, but this is this something you're okay with? And they've, they were super supportive.

They said, Sam, we understand, we want you to make the best decision for your company. We're not, we're not trying to come in and take over your company.

If you feel it's the right decision, we're of course going to get our acquisition premium and we'll make a nice return on it.

we support you in whatever you want to do and if you want to raise again, we're happy to support you in that too.

they were really phenomenal in it. we actually had another investor too.

Lisa Lambert from national grid by this point, she's also another person I respect above all in the VC community.

she was also extremely supportive both ways.

she said she actually joined the round with Intel, the 15 rounds and same thing.

She said, I support you, whatever you want to do.

we decided that the deal was just too good.

we decided it made sense and, everybody seems happy, even the investors.

it just, it worked out that way that the cap table at the end was just the founders.

That's Epic and, Oh, I'm curious how much, so it's founders and also, I'm assuming, you gave out some options to your employees, right? How much, that's the question that you have per year.

Frequently.

How much should you give out to those early employees? They're like at least the founding team.

Yeah.

I'll, I'm just going to honor confidentiality on this, but, I'll at least say, I think standard everybody should expect to give is at least 10% of an employee pool just in general to just honor everybody's privacy.

I'll avoid commenting on that, but. Absolutely, definitely.
I respect that.
No worries.

yeah, I think that sends a 15% of stock option pool for employees is the standard one.

keep that in mind guys and we're moving on to the last two questions they ask to all my investors, speakers and successful founders.

As a successful founder, do you who exited his company, who sold pretty successfully his company? Do you do any advisory or actually angel investment roles now?

Oh yeah, absolutely.

I encourage, you or anybody else listening to this to reach out to me? I, I, I think, one thing for me just having the unique experience that I had, I, I would love to give back and in different ways, right? Whether that is advice or especially if there, something I view is a, potentially good investments, that I believe in, how the CEO might be operating.

Please feel free to reach out. I look forward to it.

I will actually leave a link so after the coal world decide whichever channel is best to reach out to Sam and I will leave that link in the description of this episode.

if you want to talk to Sam, yeah.
Check the description.
And last question for you Sam. huh.

Call to action thing.

the reason that I started doing this small culture actions to my listeners, what's the one thing that you want the listener to do as soon as the episode is over?

Oh, good question.

I say sign up for LinkedIn pro account.

That is, I think the single best decision.

I'm not, I don't work for LinkedIn for the record, but there's a lot of how you got, you get from it and I to this day I've still see value.

That's a perfect advice and I love it.

I love the whole episode.

I think that in the beginning I actually under promoted, it's when I was, saying duds the stories Epic.

I think the story is more than that big wonderful insights.

So much fun.

So much interesting stories there.

thanks a lot Sam for coming up for, to find reasons for you and actually sharing your experience with other founders.

Really appreciate and I'm pretty sure the listeners will appreciate it as well. Sounds great.
Thank you so much.