How to Raise Your First Round | Stephany Lapierre, Founder of Tealbook

Stephany: 0:00

I've learned more through that – same with customers today, same with employees – is really welcoming that constructive feedback, because it allows you to get in that perspective and then focus on the right things.

Pablo: 0:10

Welcome to the Product Market Fit Show, brought to you by Mistral, a seed-stage firm based in Canada. I'm Pablo. I'm a founder turned VC. My goal is to help early-stage founders like you find product market fit. So welcome to the Product Market Fit Show. Today we are very pleased to have Stephany with us, the founder and CEO at Tealbook, which is an AI-enabled SaaS platform for procurement. Tealbook is based out of Toronto. They've raised over $70 million and have over 150 employees. And today Stephany will be sharing with us how to raise your first round. Stephany, we've had a bit of a chat before this and I know there's a lot of interesting stories around how you secured your first few investments, and so looking forward to dive into that. Maybe before jumping right into it, it'd be great to get a little bit of background on just how you came up with the idea of Tealbook in the first place, just to kind of set some context and then we can dive in from there.

Stephany: 1:24

The idea came from my own consulting background. I got to work with a lot of large organizations who were trying to drive more value out of procurement, initiate working on more innovation type of projects. The business was looking to address a business challenge with innovation that came from supplier. My company would source that process and find suppliers that were truly innovative, but the process was really liked by our customers. They were trying to bridge the gap between what the business was trying to accomplish and the reputation that procurement had around cost savings and how could procurement play a more value added role into business decisions? And so that's what my firm focused on initially, and then a lot of our customers went to hyper-growth companies, raising a lot of capital and then building an infrastructure to commercialize a product globally. It was not so much about cost saving. It was really how can we spend money with the right suppliers as fast as possible, create enablement, scale transparency. And what I saw was a similar problem with large organizations and smaller ones that you're starting from the beginning is that software was being used as a way to collect information from suppliers. We're talking companies who had in the thousands to hundreds of thousands of suppliers, and each of those relationship require information. By buying software, they would invite those suppliers to come to a portal, to put information and often had multiple software to address different parts of that life cycle, that it's invoicing payment, contract sourcing, compliance, third-party risk, etc. Anyway, so I saw this as being a really difficult way because you end up having a lot of data, but no data that's really consumable, and expecting suppliers to come to a bunch of portals just didn't happen. And so you end up having software with not great data, no way of really connecting this information together. And so large enterprise were really operating blindly, not having a lot of visibility into their supplier base. I saw that as a huge on-tap asset and thought, you know, this is a data problem and how can we solve it? And since then, it's been putting all the pieces of puzzle of thinking differently about how to harvest and distribute and enrich that data.

Pablo: 3:39

And so you see this problem, this data problem as you called it. What's your first step? Like, do you think to yourself, okay, I got to go – you're not a developer, so you would think maybe I got to go get some money so I can hire some developers to build some product, or is there something before that where you're in this super lean – trying to see if this problem that you think exists really exists and doing pre-sales? What's kind of your first move at that point?

Stephany: 4:08

My husband and I sort of decided to put $50,000 at the beginning just to see if I could actually put something that would be an MVP in place and present this to customers and maybe land our first client. And so the original platform was used to create profiles of suppliers and invite suppliers to participate in this network, and so very different business model. My goal at the time was if I could sell five suppliers at $5,000 each to be part of this network, that would pay for my development costs. And so I was, you know, 18 hours a day selling suppliers. I generated a million dollars in that first year with selling suppliers. It was not really scalable. And also because our customers are starting to ask, like, I want hundreds of thousands of suppliers, not a few hundreds. And we're really facing the same challenges that every other portal-based companies had is inviting suppliers to do something and have to pay. And so at that point, when we pivoted to say, okay, we're going to enable suppliers to come for free, we're going to start finding information on suppliers to create these profiles, it was fundamentally changing our business model. At that time I needed capital. And so in the early days I started meeting investors. There's a bit of a story that make it sound almost too easy to raise capital. So I'm disclaiming this as this is not what normally happens. I was at a soccer game of one of – I have three girls, and my daughter was playing soccer, and one of the moms was chatting and asking what I did and said, "I think you travel a lot." I said, "I travel even more because I start to fundraise." And she said, you know, "Tell me more about the company. I would be interested." And so she ended up coming to my office and hearing the story in the family office. She ended up putting a million dollars in Tealbook in the early days.

Pablo: 5:56

So was that your first pitch or you had already been, you know, working on other people before that?

Stephany: 6:01

I had met some angel groups, but not had formally really pitched. I didn't have an investor deck at the time. I was really just starting to think like how much money – what does a valuation even looks like? I had said 2 million. She said, "I can give you one. I wouldn't give you two, but I could give you a million." And then we agreed on a valuation that at the time was way too high, <laugh> but we both felt it was fair. You know, I generated quite a bit of money on my own through the first model, though that was incredibly lucky. Luckily for her and I, she's made her money, you know, back and more. And so that was a big bet. But what was interesting about that moment, I remember coming back home and talking to my husband, and he laughed and he said, "If she's looking to invest money and you're looking for an investor, there's a common ground." What she had also communicated – that she was going on AngelList and all these different websites. Meanwhile, she had seen me before, pregnant, with kids running around. She's like, "This woman is such a hustler." She had seen me the week before where this guy was talking about having a manufacturing to make air spray bottles and right away, I gave him my business card. I told him what I did. And she goes, "I've always seeing you hustle. And why would I not invest in you versus going to these random companies on different angel website?" And so that was a common ground. She was looking to put her capital to work. And she really believed in me as a founder. The idea was interesting. She could relate because her family had made money in manufacturing. And so she knew that the supplier base was important to business sustainability and continuity. And so she could relate without necessarily knowing the technology. And so she took a chance on me – and really a true angel because I would never be here if she hadn't done that.

Pablo: 7:44

And I think like, you know, there's obviously a huge element of luck there, as you mentioned, especially I would argue more than anything the fact that she was willing to do a million, which was just about all the money that you needed at that time, versus, you know, could have been a 25k check and then we would just call it one more angel sort of thing. But there is a lot of – obviously it's not just luck, and frankly, there's a lot that you can actually pull out of there, which is what she was saying. She saw you hustle, and as a result of that was like, "Why would I would invest in these other companies that I don't really know the founder when I can invest in you? I know you're hustler and I know you can get things done." Whether you were trying to or not, you had built this kind of relationship with her where she felt like she knew you as a person or as a founder, at least. She knew what kind of founder you were. And I think there's a clear lesson there, and I don't know, you know, maybe something that manifested itself into your future rounds, but at the end of the day, early on, angels are investing in the people. And that's where I think there is this misconception that you want to run this really tight process and you want to do it in two weeks and you want to create all this FOMO. And it makes sense when you're like a late-stage company, that's got real revenue and real traction and investors know you, but in the early, early days, you have to find a way to get to a point where angels can believe in you, which is another way of saying you got to build relationships. Otherwise it's going to be a lot tougher than you think.

Stephany: 9:13

Yeah. I mean, if you're a second-time founder and you've made people lots of money, it's a lot easier. When you're a first-time founder, you have no reputation, no connection, it's really, really hard. What's been true across my entire fundraising journey is that it's all people from the network. There's always something that was attached, either a shareholder or a lot of people. Even Michelle McBane would stand up, which ended up being our first institutional investor. I would meet investors and say, "Have you met Michelle McBane?" She would talk to people, say, "Have you met Stephany from Tealbook?" A lot of people, it's kind of that trust that starts to build, but it was from the network. Even all the other angel – I remember an angel says, "I have no idea what you do or what this technology's about, but I really like you, and whatever you're going to do, you're going to be successful at it." So again, it was a lot of confidence in me in the early days. That stops. It doesn't stop, but it's so much more than the founder. In the early days when you have no real KPIs to show for, you don't have really revenue, you haven't found product market fit, it's so much about the founder and leveraging your network. I say this to founders who say like, "I don't really have connections to people that have money." There's always through your network to make introductions. There's always sort of six degree of separations with people that you can meet that are looking to actively invest in early-stage companies, because once people have money, where are they going to put it? Right now they wouldn't put it in the public market because that would be a bad idea. In real estate it's not so great right now either. So there's people sitting on money that is not working for them. And so they're looking for these opportunities. I think it's a bit of the hustle initially to find that network. But it's the people in the early days to me that have been very supportive and have allowed us to raise capital.

Pablo: 11:01

And so coming back to the story, she put in a million dollars. Did you continue that round and try and get to two, or you just said, okay, I've got a million, let's build now and heads down and then come back for her later?

Stephany: 11:13

Yeah, I was heads down. So I took that money. We closed the round. In the following 10 to 12 months, it was really about execution, and we had landed some customers, and so deliver on those clients. Then it became clear that it was just not enough money. So within a year I was running short on cash. We now had won this big biotech company called Biogen, which is a 60 billion market cap company and with a very visionary customer. He wanted more. He wanted us to be more primetime. That meant I needed capital. That was my first experience raising institutional money. Before I met Michelle, I started looking for every possible investor. I would go on LinkedIn. Anybody that had an investor title, I would connect with. I would go on the list of angel investors, send mass email. I remember flying to San Francisco and sending email to, I don't know, a hundred different people. I would literally talk to everybody that was an investor, because I didn't have a network, but I knew I had a very short pathway –

Pablo: 12:14

Let's dive into that. I think that whatever happened out of that, there's a lot of learnings there. Walk me through that whole process and even just the thinking. Are you going on crunch base and figuring out good fit investors or are you just running a high-level search, like investor on LinkedIn and just started hitting people up? How broad was this really? Then what came out of it?

Stephany: 12:37

Yeah. Initially, it was way too broad. I don't think I – I just did it. I just sort of started connecting with people. I would advise very differently <laugh> the amount of time. I learned a lot, but I wasted a lot of time as well, to understand, to your point, going to Crunchbase , looking at companies or investors that have companies in portfolio in your space or adjacent, that have a lot of parallel, would be a lot more efficient. Also, I didn't understand stages of funds, and funds had different stages. I didn't understand the life cycle of a fund. I didn't understand that funds had also thesis. And so all of that I learned through doing versus kind of getting educated up front and then be more strategic about the process. It worked out for me but I was initially – which I think is probably an interesting nugget – is that before Michelle came in, I was already getting commitments from angel investors, and I put together my own term sheet. And so based on the valuation that we thought was fair – so it was basically the same as the angel round. We ended up – just started getting commitments. As soon as we got the first or I got the first 150,000, I started to take other commitments. Then Michelle McBane came in that round and agreed to the valuation and did the diligence and ended up leading the round. But I was not waiting for –

Pablo: 13:56

And how did you structure that? You know, one of the things is when you're going and you're kind of getting these commitments is, you know, how do you get people to go first? Right? I mean, if you tell somebody you're raising 2 million and you don't have a lead yet, even if they're interested, but they're thinking it's 50k or 100k, they're so likely to just say, oh yeah, I mean, I'm interested, let me know when you have a lead and we'll chat. How do you get them to actually sign on the dotted line or do a hard commit, however it is you structured it?

Stephany: 14:25

Yeah. I try to go back in the details. I remember this one guy kept following me on LinkedIn and always posted, like always liked my post and always cheered me on. And so I reached out and I said, "We just closed a few more deals. We're going to start putting some fuel behind our sales and marketing. We're going to raise around fairly quickly. Would you be interested?" He's like, "Yeah, count me in for 150,000." And so it was by luck. That kind of gave me then the momentum. Okay, I had 150,000 and I had to fill up the round. So I went to my lawyer, my law firm at the time. I was like, "Can we just put a term sheet together?" That gave me the terms that are fair. We're going to keep the valuation. We gave it a little tiny bump. That was initially what we did. There's one thing that investors had said to me quite a bit is that I was a single founder. I didn't have technical capabilities – which I meet a lot of founders today that wonder how did you go about this, how did you find a CTO. But as I was meeting hundreds of investors, there's one investor in Toronto that looked at me, he's like, "Hey, lone ranger, like, you know, you can't do this alone. Like you have to build a team, and you need to have your technology in house, and you need to bring a CTO. That's the first thing you should do." And I remember leaving that meeting almost defeated because I thought, you know, I need capital to raise the money. He says, "Yeah, but you can't raise the money without having the team." And so that was sort of this learning moment. And I started looking for a CTO, which is not easy, especially at the time, talking about supplier data in the procurement space. It's not nearly as sexy at the time as digital tech and other things that were happening. And I was really, really fortunate to be introduced to a CTO that had worked at Ariba SAP, at Ariba before it was acquired, for about 10 years, so understood the space, and then went back to school to study big data and machine learning, and then worked at Jenga and Google. So he had all the ingredients. His whole career was meant to led here. We met, and as soon as he got on board, he had someone else that ended up joining us that just got acquired. So they were able to also all at the same time bring capital. And so all those commitments kind of happening – and that momentum kind of kept going.

Pablo: 16:38

Was that all part of – was that after you raised or was that – you brought the CTO before/as you raised that round?

Stephany: 16:47

Yeah, so it was really I made him part of the round with their group and the other employee that he brought in. And then that gave us the confidence to also go back to Michelle McBane, which was at IAF at the time. We ended up being the first investment in standup, but then I showed her, hey, I listen – like the things that we talked about a little while back in terms of traction or KPIs, especially on the team. And that gave her the confidence that I could hire. And now I had, you know, the experience in house to build this vision and bring it to life. And so she ended up taking on and leading the round. The listening to investors was the most, I think, critical, is asking for real feedback, because they'll tell you all kinds of things, you're too early, you're too late. They're all being super polite because they never know what's going to happen, and really asking like, you know, "I will learn through constructive feedback. I would love to hear your honest perspective on why you're passing," and ask them to be genuine. And I've learned more through that – same with customers today, same with employees is really welcoming that constructive feedback because it allows you to gain that perspective and then focus on the right things.

Pablo: 17:54

Would you constantly kind of update your deck, update your pitch as you got new feedback throughout the process?

Stephany: 18:01

Yeah, I think so. I think it was more the approach to fundraising. Then the early days like that deck is just – I had, I don't know, 50 versions on the initial deck. Again, as we progress in later rounds, the deck was done up front, some tweaks, but generally we had the storyline, the KPI as how we wanted to present our information, which I always find it's a really good way to refocus team on what's really important, what do we need to focus on to measure our growth, and where do we need to put capital so that we keep our KPIs to be best in class. At the time, yeah, it was pretty scrappy – and trying to explain – we're now talking like five and a half years ago. We're not SaaS. We're a data company, but our data's not good enough yet to sell the data company. The data's going to get better as the SaaS platform will get adopted. It delivers like all these different use cases. It was not easy to explain in procurement. <laugh> Investors didn't understand what I was doing. You know, luckily for us, the market caught, and then with COVID – and now it's like, oh my God, like I totally understand, you know, why data in this space is so important. But back then they didn't understand why Coupa couldn't do this, why SAP couldn't do this. And what I found that I wasted a lot of time with investors is trying to convince investors that I was right versus focusing on the investors that got it. And if I look at all my investors through all the rounds, they're the ones within seconds of hearing the story, they went like, "Holy shit, this is big." The tam is so massive because it's every single enterprise in the world today that are faced with this challenge, and there's network effect, and there's more tams because we have a whole side to our market when you start opening up to suppliers, which is 12 million, roughly, B2B companies globally. It was those investors then that got it and then came to the discussion more educated, more productive. And it was almost like let's roll up our sleeve and start, you know, thinking about the strategy. It was the same with Michelle. She totally got it. She just needed the confidence that I could execute. Tim Schigel, which is our series seed investor from Refinery Ventures or seed extension, where I got 5 million US from a few groups, including Workday – but Tim Sigel is the one within two minutes of hearing the story is like, "You're attaching yourself to massive market. The opportunity is big. There's a big tam. You've got some pretty impressive brands." And then by the time we went into a working session, we spent an entire day with the team rolling up our sleeves, really diving into the business before he gave us a term sheet. I don't even recall getting up to eat or go to the bathroom. Like we were just so into just getting to know each other and really understand – for him to understand the strategy, which was super helpful to us. Even if he hadn't invested, that time was very, very well spent. Luckily for us, he gave us a term sheet, came to Toronto, met the other board of directors. Each round has been the same. And so I think my advice is don't try to convince investors that don't understand your space or don't quite get it. They just won't get there. Just focus on investors that have a lot of conviction behind what you're doing and they understand it. And then I think they're going to be so much more helpful as you're continuing to build towards your vision.

Pablo: 21:19

I think it's a great point, because I think at the end of the day, one of the things that founders need to understand is that you have to find great fit investors. And it's really not about going in and trying to get a hundred percent close rate, right? And you do five meetings and you get five term sheets. It just doesn't even really make sense, especially at seed. Like there's just such a huge qualification component and this match between what the investor believes and what you believe. And you know, they might be the ones that are wrong, but even if they are, they're not going to invest. And so that's totally part of it. And that's why you end up talking to so many investors for your early rounds. Like I think later rounds are different, because if you have the right metrics and the right traction, then you probably have investors that are following you, and so things get a lot more efficient – not to say they get easier. They just get cleaner in that sense. But early on in seed, the stuff you have to believe is in investors is so much of it. It's so much story that you're going to have to run kind of a wide top of the funnel most of the time. Again, if you're a multi-time founder or whatever, that's a different story, but if you're more or less a first-time founder, that's really the way you got to think about it. And early on, it's meet enough people so that you can find a subset of them who just believe what you believe.

Stephany: 22:32

I recently invested. I'm part of Fresh Founders. It's a group of founders that are really committed to supporting early stage founders through their journey. Chloe Schmidt from Mercador – I'm probably bastardizing the name – approached me through Osler. So the introduction came from her law firm. I spent time with her and I totally saw the it. She was putting the right pieces together, a lot of parallel with Tealbook in a different market, building a data platform, you know, understanding the use case, how to monetize, how to package her solution. And so I got pretty excited because she had the it. I wasn't clear if she was raising, but I brought her up to Michelle McBane. I brought her up to Fresh Founders and she just closed a round with stand-up, with Fresh Founders putting commitments and other founders putting –

Pablo: 23:19

We're in that round as well, actually.

Stephany: 23:21

Oh you are? There you go. That's awesome. I understand a solution because it's very similar to Tealbook, but even in some of the group, I'm not sure it was not so much about the technology because it's so early, or the traction that she's having is really based on the founder itself, and the fact that I think she has that it and she connected with other founders. I know that Bridget from – I always call her Bridget. Mallory from Bridget invested as well – I think Candace as well. So all these people that she was able to network – and she did not come from my network. She's in Calgary. I'd never met her before. She went out of her way to get those introductions to people that got excited and made introductions to their investors and then ended up working out. So I do think it's, again, it comes back to your network and your ability to connect with the right people. But founders specifically, I know that my friends will be more likely to hear of a company that I'm introducing them to than just another company that's coming through their pipeline – so definitely an opportunity to connect with other founders. Plus, you get the benefit of expanding your founder network.

Pablo: 24:31

Makes sense. Maybe just one last question on that round. Did you try and shop the term sheet around? Did you try and get multiple term sheets or was it just like once you found the right partner, you figured out fair terms and you just went with it. How did you think through that strategy?

Stephany: 24:47

Yeah, in the early days, honestly, I put that term sheet together, and standup came. We ended up doing that seed extension. I didn't do multiple term sheet. I just knew when I met Tim Schigel that Refinery Ventures was going to lead that round, and then all the others came, you know, easily into the round. The only time I had competitive term sheet is in later stage, like really good above-market KPIs. We had preemptive term sheets, a few other term sheet, but I always knew the investor. Like there's a level of comfort being with them, around them, that I just knew. I felt it almost from the first meeting. And so I haven't kind of used a term sheet to create competition. I just more focus on who do I want to work with, who do I want around my board table, who do I want to partner in this journey, more than the term sheet itself.

Pablo: 25:42

Perfect. Okay. Well, that's great. So just to end on the question that we like to end on, because this is the Product Market Fit Show, when did you feel like you had true product market fit?

Stephany: 25:54

It's when we pivoted our position. Again, as a data platform, you can address different use cases. We were selling based on those use cases, but we looked at like a software company that was in multiple spaces. <laugh> And so that I think was very difficult. We were also kind of a nice to have, but our clients were quite invested in these large-scale implementation that we're frankly failing. So adding this nice to have did make sense. So we were selling, but not at the scale and the speed that we needed to. And we shifted our position to be the data foundation that powers the buy side digital enterprise, that could make those implementations successful. And as soon as we had that shift, we saw the market sort of picking up on the vision. It started before COVID, so we had a good six, seven months. We raised a seed extension. When COVID hit, the acceleration of the need for visibility and data in the space was just accelerated, like our pipeline of customers, our pipeline of partners that were cloud-based software companies looking for data solution, to be able to deliver the value they promised to their customers. They just couldn't do it at the speed and scale that we could. I think that all the stars aligned – the fact that we already built the technology, we reposition and then COVID hit shortly after. I think that all of those things have contributed to our growth.

Pablo: 27:18

Perfect. Well, look, Stephany, we'll cut it there. Just for a quick recap, I think you showed us how much networking and relationships can drive fundraising, especially in the early days. Obviously, there's always going to be an element of luck, sometimes more, sometimes less, but at the end of the day, it's going to be people who know you enough to believe in you. And that's work that as a founder, you're putting in every day, meeting a hundred people for the one that just works out. You never know who that's going to be and how that's going to play out. So I really appreciate you sharing the story. I'm sure founders will learn a lot from what you had to say. Thanks a lot, Stephany.

Stephany: 28:03

Thanks for having me.

Pablo: 28:04

Thank you so much for listening all the way through. It's been a pleasure having you here. Make sure to subscribe so you don't miss the next episode.