How I Raised $60m Then Fumbled a $1b Exit

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founder path or latka next event we'd love to see you in person in the meantime though enjoy this recording it's a good one morning guys thanks for having me my name is rami assad i'm the co-founder and ceo of finmark as i was mentioned finmark is financial planning software for startups but today i'm here to talk about my last company distil networks uh distill was a web a web application security company we blocked bots for our customers websites um stopped scrapers stopped uh malicious

hackers doing a bunch of crazy things with bots founded the company in 2011 raised my first round of venture capital in 2012 and things really took off after we took some vc money um got really high up there in terms of uh revenue scale uh we were we were kind of by all means doing uh doing the pc game and we thought we were going to be a billion dollar company in fact analysts loved us right we had

accolades from gartner forrester top right in the magic quadrant top um top in the uh forrester in the um forester wave everything seemed like it was going our way but when you look at our exit in 2019 and you think about you know where we ended 2018 in terms of revenue where we were headed for um in 2019 in terms of revenue we actually sold for 5x a revenue multiple

right when you think about a 5x revenue multiple for a top leading industry categorized category leader company that's actually pretty crappy right most sas and this is pre-pandemic right before multiples got really really crazy like they are now but back then a good sas company still sold for 10x forward-looking revenue right or at least that's what it traded on for the public markets but when we sold we sold in 2019 for a little over a hundred million dollars right it was about five

facts are revenue um the thing that really hurts me is that our biggest competitor who we were ahead of two years before not just ahead of in terms of reviews and and um analyst uh coverage but we were ahead of in terms of revenue outpaced us and sold for a billion dollars that same year um so that that was a kind of a a painful piece right like we we actually invented the category we were the first to market

everything was going our way and then everything went wrong in 2017 and that's what i'm here to talk to you guys about ramy i'm to your left where you were sitting one last question so the last round of funding you took you sold for like a little over a hundred but the last round of funding you took what valuation was that at it was it was right above what we sold for okay um yeah so the last round of valuation that we took in um had us valued at

140 million pre and uh we we sold for for under the last round of evaluation can you just talk a little about what that means in terms of the waterfall and then jump into the rest of story yeah so what that means for for the waterfall um is that investors get their money out first before money gets distributed across common right and so that means that we raised you know 60 million dollars that 60 you know some of that money goes straight off the top before um before and before uh common gets paid

out it also meant that those investors had had a different incentive alignment right um you know i'll talk about this at the very end but those big investors um pushed us to sell i actually didn't want to sell i wanted to keep going and and that's my last point that i'll kind of save there but but because they didn't see a path to five to 10x their money anymore um they they lost faith that we should keep going and they said hey you know we'll take a bird in the hand right and i was saying hey guys like throughout the whole sale process i was

like guys like we could actually i think we can easily sell next year for for 250 million and they were like ah who cares right it's like like 100 100 and something million 200 million it doesn't really mean anything to us so these big firms when you talk to a bessemer sequoia when they have billions under management they either want you to be a 510x or they just want to get off the board so that they can go on and focus on other companies and that was a lesson that i learned the hard way so really great question there uh nathan

okay so today we're going to talk about what went wrong what you know what i i looking back some lessons that i learned um but before that i'm gonna like spend a little bit of time talking about some of the things that we did right right some some really key things that i think we we did do right um early on that led to the the early success that we had um one of the the biggest things that i i look fondly back on is our the thought leadership that we established right where you saw the

gartner praise the forrester magic quadrant all of those things um that took time and energy right and nathan you know he mentioned this earlier he doesn't like people up here talking and pontificating so he wanted me to give you concrete tactics right so here's one of the playbook that we used to build analyst coverage right to get in front of gartner right as an early stage startup it's 50 000 for this for the gartner subscription another 30 for forrester and then 451. you know that that adds up you don't have the money to

spend on that and we all know they say it's not pay to play but it's kind of pay to play right and so how do you how can you game that system well so what we did is year one we realized that we could we could reach out and schedule briefings with analysts without paying for it right they technically are supposed to talk to vendors and supposed to learn about the market now a lot of those analysts would decline our in our briefing request but some would take the call when we got on the phone with them

we tell them all about us but at the very end we ask who else on your team covers this area they all work in teams it's not one person so we get the name of the next person and we we send a briefing request and say hey john told me i should talk to you and that helped increase the number of briefings that we got in terms of this you want to brief them once a year this is a numbers game this is about building rapport with these analysts and so you're going to have to do this over and over again this is going to take some time but if you do it

you'll get the accolades you'll get the recognition and you'll be included in their reports right year two as soon as you start paying briefing people what you'll find is that a sales person is going to reach out to you naturally right they're in the business of making money when that sales person reaches out leverage them they an analyst is never going to decline a briefing request from a salesperson right so what we did is we gamed it a little bit i said listen we can't afford you right now but when i raise my series b i'm all in

i'm going to subscribe you got my business help me out in the meantime right i'm going to raise around next year help me out now and then he started scheduling briefings for me and we had a much higher hit rate right and what we did is we went to the conference right we would buy a single ticket and he would schedule in-person briefings right in those in-person briefings really built that rapport right and so by the time you get to year three where or year four when you've been working with the sales person you've been talking to all of them you might already have gotten coverage in

their cool vendor report or you know some early coverage but by the time you actually pony up some money you have a lot of rapport a lot of goodwill built up that makes sure that you get that you get in into the to their next uh briefing so that's one way to game gartner forester etc build some of that brand recognition with them before you actually shell out the big dollars that they that they need you to pay another thing we did oh before i move on to the next thing the

other thing that's really important about working with analysts is always follow up with them right they're in the business of talking about the market talking about the space understanding clients needs right and so what we would do is offer them to talk to a customer to understand the pain points directly from the horse's mouth we would give them research reports every single analyst meeting ended with an email that we would send out to say here's how we can make you doing your job easier same thing for press when you

do a press interview even if it's just a funding round or anything like that follow up with them offer them information to make their job easier right they're having to put out more content than ever right and so anything that you can do to grease the skids to make them look smart will endear them to you right and so that's one way to build some of that some of that uh expertise and coverage next thing we did is we hacked conferences

um you know sponsoring a conference is expensive especially early on right so instead of buying a booth what we would do early on is go buy a ticket or two to a conference just an attendee ticket right before we get to the conference we go there a day before find a bar that's nearby right and go to the bartender go to the general manager to say hey i want to invite 25 of my friends over for happy hour i'm going to give them this little ticket they're going to have their name and company and email on the back they show up with one of these give them a drink right and then at the

conference just hand out a bunch of free drinks right think about today right where's everybody going to go at five o'clock who knows but if somebody was doing this right now you could you could have the whole room come out for a free drink at the bar and you didn't pay anything for a sponsorship right at a big show at a south by or at a um let's call it a ces or black hat you can't do that all the venues are booked right but instead of spending fifty to a hundred thousand dollars at a big booth

what we would do is host a party right and we started off with decent sized parties for about 10 to 15k including drinks including the rental including a small talent um higher you can throw off a pretty decent party we would do this year after year to a point that people actually got familiar with our parties people wanted to sponsor my parties towards the end i was putting in ten thousand dollars i had co-sponsors that were putting in forty thousand dollars and i was throwing epic parties where like the headliners t-pain there's

a line down the street for people to get in and it was so much cheaper than throwing than having a booth right and so that that party builds that brand recognition across the the people right if i bought you a drink and then i emailed you tomorrow you're gonna at least respond to my email right but if i just scanned your badge at a booth ah god that sales person again calling me right it's a different way to build that reputation okay next thing we did really really well we punched the gas on hiring

understanding our drivers when things were going well right we like really punched our grass right like our driver was sales people when we for every salespeople we assigned a quota we knew how much they were able to make when most of the team was hitting quota we punched it right and so if you think about it you look at this we go we went from two we quadrupled right then we we actually tried to triple we had a harder time tripling from 2014 to 2015 but punching the gas hard

on the core driver that's driving revenue is a place that i see so many founders get skittish right push it to the limit figure out where it breaks you want to know the top speed of your car right this is the engine that's driving revenue why are you cruising right you're in this game to go as fast as possible if most of your team if you have 70 80 90 of your sales people hitting quota your quota is either too low or you're not hiring enough sales people push it push

it faster harder now the the reason i talk about you know 2014 to 2015 for example we tried to grow faster but couldn't is that you always need to hire more sales people than than you want to get to right so i wanted to go from eight i wanted to triple eight right but what ended up happening was i added 10 but fired six that same year right so i had to get i had to hire 16 to just get to a net of 10 new ads 25 to 50 of your sales people are not going to work out

so always plan ahead and think about how do i fill the funnel with enough people and count attrition in when you're thinking about a sales revenue driver right so if you really want to get to a a big speed make sure you do that and then the last thing that i think we did really really well is created a winning culture right we incentivized the behavior that we wanted a lot of people just think about commissions as like hey like this is just how salespeople get paid but no commissions are how you get salespeople

to do the thing that you want them to do most right and so one example of that is we took our sales structure and said hey we're going to give you twice as much money if you initiate a conversation with a customer and close it versus if marketing brings in that lead and what that did is that it went it increased in six months it increased 50 percent the number of deals that salespeople initiated themselves and increased the revenue um by by 20 that

they closed themselves now this didn't mean that i paid salespeople twice as much i just adjusted the commission plan so their ote was the same but i incentivized the behavior which led me allowed me to spend less on marketing or distribute those marketing leads across a a wider pool of people without having to um without having to invest as much right and so and i see too many people afraid to use commissions or to use that in their in their as a leverage as a

point of leverage make sure you do that okay um my best sales person probably made like 350 400 000 as an inside sales rep which was pretty good for for an inside sales rep my enterprise people i had one or two that broke a half a million dollars yeah and the best sales people that i found that ask me how do i get to a half million dollars in the interview process okay

enough humble bragging um this is the part of the the show that i think everybody's uh here for kind of the the fail porn if we will um so where did we mess up right the first one is i didn't feed reps enough right every time we doubled the size of the the the sales team i doubled the marketing budget and what i looked at is overall number of leads overall number of contacts overall amount of

revenue initiated by marketing versus by sales i didn't think about the real driver the real connection the ratio that mattered the most is how many high value are our sales qualified leads are big given per salesperson from marketing simple metrics should have been looking at it didn't understand that that's the thing that mattered the most right so having the right metric it would have told me that every year that we hired

more sales people they got less and less high value leads for marketing which meant that when things went really wrong in 2017 they were getting a fraction of what we used to be feeding them to help them hit their quota right even though i had kept doubling the marketing budget the efficiency of marketing just wasn't there because i wasn't looking at the right metric right and so make sure that you understand for me i said sales people are my growth engine leads are the lubricant right i i

expected my engine to work without lubricant and so understand not just what your driver is but what is it what are the the inputs that you need to make sure that driver works and the lubricant was high value leads that i didn't keep a close eye enough on um as we scaled up the the sales team next thing oh which a a a a quick uh shameful plug that's why we're building finmark today to help put kpis front and center in front of every ceo so you understand what you should be

measuring and you keep track of the key things that matter the most that's why i built finmark now okay next big fail um i didn't understand that product market fit is fluid right when we started distill we were the only game of town it was one us and one other competitor and so when we talked to somebody in 2016 2015 and said hey do you have a bot problem and they said yes half of those people converted they were like yeah you're the only game in town awesome i as an engineer thought the

problem was that you had bots on your website the solution is we block most of the bots off of your website in 2017 competent new competitors saw how good we were doing and came up with new solutions they weren't nearly as good at blocking bots as we were and so we discounted them we were like hey this is junk right like they block a fraction of the bots that um that we have what we didn't get is that they were five times easier to install and use

and so the convenience thing mattered so much and that was what product market fit meant right the the market adapted and people said hey i care about ease of use and and we didn't adapt our product we didn't adapt our offering and so what that meant was on net we had 30 of the people that we initiated conversations um lose now we were growth at this point in our growth phase right so we thought this was a

fault of the growth engine we thought the growth engine was broken we didn't think we didn't sit down and go back to first principles and say is the product market fit really there right is there something that we should be doing on the product front and the key indicator here if you look at how many people from the last slide how many people moved on from an initial conversation it was a vast majority it was like 90 something percent but from the moving forward before they even cut deeper into things we lost a third of

the tr of the conversations right there at the very top place that that should that should have been uh one of many alarm bells that should have rung off in my head that said hey something's happening way too early for this to be like a growth engine issue right something's happening here so there were some key leading indicators that i just didn't think about last big fail was bad financial planning again this is why i'm building finmark because it it just hurts me right the key number to look at

you may not be able to see it here i can't read it here off of the screen but the key number is when we went into 2017 we thought we were going to add 100 we're going to grow 100 on that year right we were going to add about 15 million dollars of new arr minus churn whatever it was going to get to be double um the the year prior in terms of uh entering arr four months later we had slashed that forecast for 20 um

for 2017 by almost 50 percent but it was like about 45 percent we said we're not going to add 15 million of new we're gonna get about nine point something of new um now we that should have been like alarm bells but what happened was we reforecasted in february we lowered it a little bit we were forecasted in march and lowered it a little bit from april we lowered it a little bit may we lowered it a little so like those incremental pieces we didn't go back and say hey what did we say we were gonna do

in december to january okay something's off here um we thought we were just all right go back to this race car analogy we thought we had a flat tire but we had run flats let's keep cruising let's fix things up like we're you know we're having some bumps we'll fix this in reality this was the engine light on and smoke coming out of the engine i should have been punching the brake and slowing everything the [ __ ] down right then and there but i didn't we didn't actually react to these bad numbers we kept lowering forecasts

we didn't react until july of that year where we laid off a third of the company right had i reacted in march and april had i seen this coming this should have been red flags red alarms had i seen this coming it would have made a big difference because what happens is when you punch the brakes right things get really wobbly right and then to rebuild to get back up to that top speed we had done so much damage to the engine that we can never achieve that same top speed again right um you know

think about if you're driving with your check engine light on something's going to break right so you got to stop you got to be adaptive you got to have these numbers and as soon as you see something off pull the pull the e-brake slow down fix it and then speed back up because otherwise you're not going to be able to get there again right so there's also some things that god i i wish i had even thought about i didn't even think about when we were doing it right the first one is talking to potential acquirers

what's wild to me is i treated potential acquirers as competition i treated him like the enemy right like a company that's doing application security even if they weren't in bot they would want to reach out their corp deaf people would reach out to talk to us i'm like i don't want to talk to you no i want to keep your arms like you're the enemy you're going to take my ideas and then you're going to go talk to your developers and then you're going to just copy us these are corp dev people these are business people they don't understand

the depth of technology their whole job is to find companies to buy i should have been building relationships with them because at the end of the day when it was time to sell you look at for 24 potential acquirers our banker talked to 24 people eight of them were like i don't even see the synergy there was synergy we knew there was synergy but they didn't know the synergy because i never talked to those companies before right and then of the people that took the intro call again half dropped off because they were

like ah this isn't a priority i should have been i should have been helping them understand why this is such a big important thing so that they want to invest in us of the eight actual people ate companies that dug in really dug in and and you know some made an offer some didn't four of which i had actually had prior relationships with right so had i built prior relationships with all the 24 i know that final number would have been a lot more than four right and the only reason i had built those prior relationships is because

those corp debt people kind of were a little bit more assertive on connecting with me coming to our office talking on a regular basis and they didn't they didn't just take my rebuffs they you know would meet with me at conferences they they took the initiative to build a rapport and the most aggressive one was imperva who had made you know had come to our office several times that relationship is there that's why that deal got done and and i wish i wish i had done more of that much earlier on i know in my heart

of hearts that absol absent anything else we would have sold for 25 to 50 more had we just had better relationships with the potential acquirers the next thing that i didn't do is i didn't leverage my network i didn't actually understand that business gets done by referrals i was so focused on building this engine that was you know self-sustaining and like sales people come in and then they make revenue less than a less than 20 of our deals um

through the life cycle of distill were from customer referrals or vc refers referrals now i've more than doubled that right i literally asked my vcs for customer referrals referrals non-stop hell i asked nathan to introduce me to three potential clients and one potential partner um before i came to the to the to the conference there's no shame in getting these connections right business is done with relationships and so leverage every relationship leverage every customer leverage every investor

for a referral because you know what when we like something when we have a affinity towards a product or towards a service we're okay with referring it we don't mind making a referral i i speak i tell people all the time you know about my favorite tools because i like them so much that i want other people to use them too right and so ask for that referral i wish i had done more of that i think that could have made my life a lot easier um again going back to tactical things that like you know nathan wants to see

here's an artifact at the end of every investor update or actually at the beginning of every investor update i put front and center and ask and i make it stupid simple for them to make introductions right here's a pdf here's the type of company that we're looking for please make introductions right just always always continue to beat that drum beat and ch i change up the ask right so that they don't have fatigue but i constantly i ask for referrals ask for connections all the time right um the last one

um might might hit home for for some of you guys and and i didn't create a work-life balance i mean starting a startup is hard we barely knew what we were doing we were sprinting 110 the entire time right and and we did we just kept going kept going kept pushing um when it came to the end what i learned was i still had juice right like i loved this thing i wanted to keep going

my investors were like hey like let's let's you know we're kind of at the top of the the the leadership board in terms of like coverage and analysts let's let's try to sell this thing let's see what we can do the thing that really shocked me was my key employees and my co-founders agreed with the investors they wanted to sell and why because they were tired we had just been sprinting for like eight years and this is life-changing money for me and my co-founders right like we still got like we would never have to work

again if we didn't want to and and i i was so that was the thing that hurt me the most i was like guys we've been in this together for so we've been through so much [ __ ] together like now now you guys want to bail and they're like dude like we're out and it just taught me like we should have been treating this like a marathon we could have been having more fun we could have been less stressed out and we could have probably kept going and if we had kept going we'd had more time to i think do things better and probably have a much

better outcome so this time around i'm very very diligent about work-life balance for myself for my co-founders for the whole team uh that matters a lot to me now and i wish i had done that so with that you know hopefully that was uh some some good lessons i'll do one more shameful shameless plug here come see us we have a booth um understand the kpis that matter to you understand your gross drivers put those front and center to you that's what finmark is and thank you guys for having me hopefully this

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