Scott Stouffer on Fundraising in a Down Market

[00:00:00] Scott Stouffer: The beauty of RevOps, when done right, is it actually enables, and in some cases, forces alignment and collaboration between the revenue functions, which we traditionally think of it as sales, marketing, and customer success, 

[00:00:40] Joe Michalowski: Hello, and welcome to another episode of The Role Forward podcast. My name is Joe Michalowski, and this episode is brought to you by Mosaic, a strategic finance platform that transforms the way business gets done. And today, my guest is Scott Stouffer, CEO and Founder at scaleMatters. Scott, thank you so much for joining me.

[00:00:53] Scott Stouffer: Hey, Joe, thanks for having me, glad to be here.

[00:00:56] Joe Michalowski: Of course. Before we get going, I’m excited about the topic, but can you just give quick background on yourself, what you’re doing at scaleMatters, how you got there, all that kind of stuff?

Scott Stouffer Introduction

[00:01:05] Scott Stouffer: Sure. Well, as you can tell, from the colors in my hair, it wouldn’t be a real quick background, but I’ll try. So, serial Entrepreneur scaleMatters is my fifth, uh, company that either started or, but definitely ran as the CEO, uh, ed, electrical engineering background, MBA. Most of my career initially was in product management and

[00:01:29] product-oriented strategy. And since I started my first company quite a while ago, I’d say my energies have predominantly been around go-to-market stuff, uh, really focusing on customer acquisition, that sort of stuff. What scaleMatters does, is we help early and growth-stage B2B companies get more efficient at customer acquisition.

[00:01:52] We are a, really a data analytics company, we are a combination software and services, and we work very closely with our customers, and our customers range, like, from 2 million, uh, in annual revenue to 3, 3 or 400 million.

[00:02:08] And invariably, uh, they’re all tech companies, most of ’em are SaaS companies and, you know, they have a need to be more efficient, more effective with their sales and marketing spend, and we effectively instrument their environment, build a bunch of models with them,

[00:02:25] then our platform surfaces data that identifies where there’s friction, where there’s inefficiencies. And the outcome that we deliver is they, uh, you know, reduce their CAC, I mean, whatev, however way you wanna measure, uh, efficiency, most of, most of our customers tend to use CAC or CAC payback, uh, we’re able to help ’em reduce it by 20%

[00:02:46] on the low end, we’ve had some outliers where we’ve reduced it 70% or more. So, that’s what we’re trying to do is help, help companies, uh, grow a little faster on the, uh, scarce and precious capital they have.

[00:02:58] Joe Michalowski: Love all that. I think, I was excited ’cause it’s a really interesting background, we’re gonna get to it a little bit later, but we’re gonna be talking today about, uh, you know, fundraising, you know, in the downturn, like the, the market Isn’t, isn’t great, and one of the questions I have in a little bit, and we’ll get to it, and all that expertise around go-to-market because, you know, efficiency’s kind of the name of the game.

[00:03:15] But before we really dive deeper into the fundraising aspect of it, I’d love your take on, like, where, where the market is in 2023, how that’s been different from kind of the, the prosperous times of pre, like, June 2022? Yeah, I’d love to know what you think about where we’re at.

[00:03:36] Scott Stouffer: The fundraising market?

[00:03:37] Joe Michalowski: Yeah.

The State of Fundraising in 2023

[00:03:38] Scott Stouffer: Yeah, I, I’d say it’s a step function difference. It’s, it’s just huge and, and it’s palpable. So, obviously, you know, for a number of years leading up to probably January, February of last year of 2022, a lot of money had, had gone into, you know, venture firms or private equity firms, et cetera.

[00:04:00] And of course, part of the reason, I, I assume most of your audience knows this, but the companies that invest in those investors are large pension funds, right? Yeah, employee retirement funds, family offices, et cetera. And they basically have an asset allocation practice, and some, a percentage of it is set aside for what they call alternative investments, which is where VC shows up. As the public markets

[00:04:29] became so overheated, right, over the last few years, it by definition to maintain their asset allocation balances forced these people to put a ton more money into the venture world, uh, which is why all of these funds sprung up and that, there was so much money to go around, right? So, then what happens, of course, start raising interest rates

[00:04:53] and the public market valuations start coming down very, very rapidly. Well, suddenly, that means we still gotta balance the assets, right? Which, which has, you know, kind of put the breaks on money flowing into, uh, the VC and PE world, and at the same time, what we’ve seen is, well, so let me start, it was kind of in April, and I, I know this firsthand, unfortunately, because we were out raising money this very, very time last year,

[00:05:27] Joe Michalowski: Difficult, but perfect for this conversation because

[00:05:29] Scott Stouffer: a, and it was almost mesmerizing how overnight this, this group, I mean, we had, we had very good interest from, uh, you know, a number of, um, good investors and almost overnight they just called me and said, “Scott, love it, but we’re out, uh, we have to focus our attention on our existing portfolio ’cause we don’t know what’s gonna happen, we need to make sure that we’re holding our reserves in case, you know, the entire fundraise, raising market, uh, locks up or seizes up.” 

[00:06:05] So, out of the fear of it seizing up, it actually did seize up, right? This is one of these classic examples where I, I think they, they caused something to happen, uh, by, by worrying about it possibly happening. And so, so, we just saw a complete end to people making, uh, investments in new companies, uh, and it’s not a hundred percent, but, you know, compared to what it had been and of, of course,

[00:06:35] people were rightfully concerned that they, they didn’t know what would happen, and they needed to make sure that they had, uh, you know, dry powder to support their existing portfolio companies. I think, you know, now here we are, maybe 10 months later and, you know, my take is, it, it sort of depends on the industry, but if you’re selling software, I think that’s not a great position to be in right now. because companies have, you know, the buyers, so, so forget about investors now, 

[00:07:10] the companies that would traditionally buy software, so not the huge conglomerate, right? But if you think about how much, how much tech gets bought by tech companies, right? All these tech companies are now being told by their boards and investors, “We need to focus on extending runway, making sure you’re capitally efficient, et cetera.” So, what’s the very first thing that you do? The last thing you wanna do is cut people, right, it’s just, it’s painful. First thing you cut is software, tools, right?

[00:07:42] And, and I, I don’t know how many people we’ve talked to that ha, have actually said recently, “Well, we’re in a zero budget philosophy, right? I, I can buy something, but I have to take something else out.” Right? And, and other people, they’re just saying, “Well, we’re, we’re trying to reduce our, uh, spend on tools by, you know, 20 or 30% this year.”

[00:08:03] So, right after tools, which is the easiest line item to start looking at, comes marketing programs, right, because again, we can cut all the, there’s, first of all, there’s so much money spent in marketing programs, right? Advertising, stuff like that, but it’s not people spent, so, so it’s, and as hard as marketers have been trying over the last three decades to actually prove the return on that spend,

[00:08:30] it’s very difficult to prove the return on that spend. So, it, it, you know, it’s, it’s just a battle that most marketers lose with the CFO, um, right? So, so, you’re going through all that stuff and, and because the, um, I, I think because of the tightening on spending on software and tools. I think we’re gonna be in this for a while, I, I, I think it’s actually real now that these, these companies in the tech space are gonna struggle, so I don’t know, the long-winded answer, uh, hopefully, it was…

[00:09:04] Joe Michalowski: Listen, I’m, I’m here to learn, I, the, bring on the long-winded answers, it’s, it’s what I’m here for, I love the, the kind of end-to-end explanation. I, I’m curious, what, how is it impacting your operations at scaleMatters? Obviously, like, you’re, you’re selling to these companies, you’re saying that, you know, it’s tougher to sell into these companies, to your customers. So, what, what are you doing at scaleMatters to kind of, uh, counteract that?

How scaleMatters Operates in the Current Market

[00:09:27] Scott Stouffer: Sure. Well, first of all, the good news is we’re actually helpful to them in this regard, right? I mean, our, our whole thing we’re doing is helping them reduce their spend in sales and marketing without actually reducing their revenue, right? Basically, drive up the efficiency. So, I think we are potentially less impacted by it than other software types might be.

[00:09:52] With that said, you know, we certainly see sales cycles elongated, and so, you know, we’ve probably put more energy than we normally would have into doubling down on our, the discovery part of our sales process and really trying to, zero in on kind of the emotional impact of this need for customers to get more efficient

[00:10:22] because we, we, find that if, you know, when purse strings are tight, and people are cautious, you, you probably need to get to the emotions a little bit more than you do in other times.

[00:10:35] Joe Michalowski: Yep. Makes total sense. I think, you know, we’re, we’re seeing the same thing. I love chatting with the sales team here, just about, you know, how they’re handling all that because yeah, you’re right, it, it’s not, it’s not easy. But I, I want to get back to something you mentioned, which was, you know, you were in the middle of trying to raise money, like, when, when this hit and that, you know, the overnight kind of impact of this, uh, environment.

[00:10:56] I’m curious, if you’re still trying to, to raise that money, like, do you think there’s a difference in accessibility for, you know, earlier-stage Series A versus growth-stage, uh, is it just everything is kind of at a halt? How is, how’s it at, or what’s it like out there, basically, if you’re trying to still raise?

[00:11:16] Scott Stouffer: Well, so, we’re not out trying to raise, we, we ended up just when we were trying to raise, we were trying to do a traditional Series A bring in a new investor, and our current investors who are very supportive of the company, we just decided to do an internal round instead. So, we’ve got some runway, at least, you know, good through the end of this year,

[00:11:35] uh, which means maybe in four or five months, we’ll be back thinking about it, right? But so, so I don’t have the personal experience of what it’s like right now, but what I will say is, I do think there’s heightened concern about capital efficiency, right, even on, if people are going to make new investments,

[00:11:59] they, they would like to see some evidence that this isn’t going to be a terribly cash-consumptive business, potentially more than they used to, uh, again, because, I mean, who knows when this, when this stuff’s going to loosen up a little bit, I don’t mean the investor money, but I mean the, the buying money to, to buy products and services, right?

[00:12:23] So, you know, that, of course, says if you’re later stage, you better have very good data around efficiency. I think it’s harder to, um, you know, very early-stage companies don’t have any data, right? There is no operating data to speak of, so I don’t know that they’re impacted as much, o, other than it’s high risk.

[00:12:47] So, I, I don’t know, is my short answer. I, I, I wouldn’t wanna be out there right now in what, whatever stage I’m at unless I was, unless I was profitable.

[00:12:57] Joe Michalowski: Yeah, right, it makes a lot of sense. I think that’s probably, uh, the take that a lot of people have, it’s like, hey, if, if you’re out there, good luck, if you’re not, find any way you can to, to stay out of there. I want to get to sort of, uh, your expertise, I had, I had a question here

[00:13:12] about what makes, like, an, an investible company right now? Because obviously, like, it’s not that nobody’s investing money, it’s just, to your point, it better be a really good investment, and what I’m hearing is exactly what you’re saying is that these efficient kind 

[00:13:26] of go-to-market motions, like, capital efficiency, being really good in your sales cycles, your marketing campaigns is, is critical, and that’s, that’s what you’ve kind of spent your career doing. So, I’m curious, what can companies do to kind of meet these new expectations for go-to-market efficiency?

What Makes a Company Investible?

[00:13:43] Scott Stouffer: Well, yeah, let, let me, let me answer the first part, what makes the company investible, and then I’ll come to the second. I would say the most investible companies are in markets that have some immunity from the downturn. So, for example, one thing that the market doesn’t affect is regulatory compliance.

[00:14:07] If you’re in a business that you have to comply with regulations, then you need tools to help you do that, right? Contrast that with maybe where scaleMatters is, selling software to sales and marketing teams, right? Well, all tech sales and marketing teams are being squeezed right now, so, you know, you wouldn’t normally, you wouldn’t

[00:14:27] nominally think that scale matters is in a great position from Investability just because of the market that we go after. Thank God what we’re helping them with is to actually be more efficient. But, so, so, I think market matters now potentially more than it has in a while, right, because, I mean,

[00:14:47] nobody really wants to invest in companies that the market is seized up, right? Because even if they’ve got great product, if, if you’re just gonna have to sit there and get, you know, 50% of the sales they otherwise could get, it’s just gonna be a cash burner. So, so, that’s point number one. What can companies do to become more efficient at go-to-market,

[00:15:10] which was the second part of your question. So, I, I, I mean, the simple answer is be more data-driven, and, you know, but everybody thinks they are data driven. One of the things that, if you think about people’s go-to-market motions and the process of getting them optimized, it’s, it’s really a, um, a set of iterations we all go through.

[00:15:32] No company comes out of the corporate womb, has this thing nailed, right? And instead, we experiment, we iterate, et cetera. What I see as the difference between companies that are quite effective and companies that aren’t is this iterative process is raised in their consciousness, you know? So, think of conscious iteration

[00:15:55] as we model everything, right? We, we treat it, we treat each experiment like a scientist would, we state our hypothesis, we design our tests so that it can unambiguously tell us whether it’s having positive impact or negative impact, right? Then we figure out how can we measure that thing, right? That’s, and then we take the data, the analytics that comes back, we consume it and make decisions on whether other tweaks to make.

[00:16:24] That’s conscious iteration. Subconscious iteration is, you know, um, loudest person in the room said, “Ah, we ought to do this,” there’s no data to back anything up, right? So, they, you go try stuff you don’t ever think about, “Are we setting this up, initiative up, or experiment up, in a controlled enough fashion that we actually will know whether it’s having the desired impact or not?”

[00:16:47] Right? So, that’s subconscious iteration, the way it feels when you look at companies that do it, which is about 95% of companies, is just, like, flailing, right? We just try new stuff all the time, most stuff we never actually stop ’cause we don’t know whether it’s working or not, and we’re afraid maybe it is working and if we stop it, we’re gonna go backwards.

[00:17:10] So, I, I would say that this day and age, getting very disciplined and precise around the process of iteration and measuring so that you can quickly determine impact, cut off the things that aren’t having the desired impact much quicker than you otherwise would is, is probably sort of the pattern that I see, uh, uh, from the companies that are the most successful at this.

[00:17:39] And I guess the oth, the, I’m, I’m sorry, Joe, one more thing. The other thing I would say is, I don’t know if you’ve ever read this book called The Goal, is awesome business book written as a novel, but it introduces a thing called Constraint theory. And I think it’s; Constraint theory is a very good way of thinking about optimizing,

[00:18:00] which is find the constraints, right? And, and in the go-to-market world, the way we talk to our customers is find the friction, right? The way you become more efficient is by removing the inefficiencies. And, and so, everything we do with our customers is around surfacing data that specifically highlights where the friction is in the motion, right? 

[00:18:26] And, and contrast that, right, right, because it becomes very actionable, contrast that with all these, you know, dashboards and KPI scorecards that everyone just stares at, and they’re numb because there’s nothing jumps out as actionable. So, I think, think about constraint theory, focus on finding the friction, eliminating the friction, and that, that theory will help drive you to a better place.

[00:18:50] Joe Michalowski: Do you have a, so obvi, like a, you know, you’re, you said you’re mostly selling to, to SaaS companies, we, we also, like, the audience for this podcast many times is SaaS companies. Do you have, like, an example, like a popular experiment that you are running with prospects, with customers to do these things? Like, anything that is, uh, on a specific level, maybe it’s ad spend, maybe it’s, I don’t know, some optimization for sales cycles, whatever, whatever comes to mind.

[00:19:15] Scott Stouffer: Yeah, a few examples. So, one of our customers had changed PE owners recently, and the new owners came in and suggested that they dramatically increased ad spend, particularly on paid search. Part of the strategy was to crowd out the competitors, right, kind of force the, um, price on the key, good keywords up.

[00:19:41] They basically did that and, you know, one of the things that they, and I’m not trying to position scaleMatters, this is more about setting up experiments properly, but they used our platform to basically create this, uh, insight panel around this initiative. And so, they said, “Okay, well, what are the things that we would expect to happen when we do this?”

[00:20:04] We would expect, number one, to see web sessions go up, right? More people, more ads, more people click on ads. If this is working, we would expect to see the website conversion rate stay flat ’cause hopefully, we’re bringing in just more of high-quality people. And we would expect to see, you know, our, uh, lead to op and our op to deal conversion rates stay where they are.

[00:20:30] So, these guys put this panel together that had these various, it was trending these various metrics, and it became immediate, as soon as they accelerated their spend, and, and you can log events and it shows that they spend accelerated. You can see this dramatic uptick in web sessions, within a week

[00:20:51] you could see a dramatic down-tick in website conversion rate. About a week later, the lead-to-deal conversion rate fell off the map, et cetera. And, and so, it became very clear to them that all they were doing was spending money bringing in people that were non-ICP, right? They, they were basically, they cast a wider net with all that spend, and it just brought in garbage.

[00:21:18] Had the, uh, website conversion rate metrics stayed flat, their conclusion would’ve been, “We’re just bringing in too many leads and we don’t have enough salespeople to process it.” Right?

[00:21:28] So, it’s an example of you’re going to try something, but if you are disciplined in setting up your ability to measure its effectiveness, you can cut it off a lot faster.

[00:21:45] So, without, if they hadn’t done this, they would’ve had to wait a full sales cycle to see that the accelerated input spend was not having any material change, in fact, it was basically having a negative change on the output because when the sales team started seeing it was all this garbage, they stopped paying attention to any of the ad search leads that was coming in. So, so, that would, that would be one example, we’ve also had, you know, examples where, uh, people will, uh, you know, they’ll, they’ll say, okay, we’re gonna change our, uh, sales pitch

[00:22:19] and, you know, we work with ’em, say, “Okay, well, what do you expect a desired impact to be?” “Well, we, we wanna increase the conversion rate from meetings held to opportunities created, or, you know, we want to, we expect that that may, um, change the success with our ICP, or something like that.”

[00:22:38] So, we’ve had customers, and we, we happen to do a lot of work with Gong where we put these very sophisticated trackers in to capture prospect priorities, all this stuff that prospects say for, and we do that to help, uh, customers, tailor their messaging and their targeting, right?

[00:22:55] Completely different than why Gong initially existed, which is to help sales managers coach their sales team. Uh, this, all the stuff we’re doing with it is around, um, positioning and messaging, but we were able to help these, this particular customer, and again, this is not specific to us, this is what can happen if you really focus on using data better, but help this customer recognize that

[00:23:21] they had changed some stuff in their sales pitch that actually, in fact, what they had done was de-emphasize something that they had forever been talking about because product management team was asking them to talk about the new stuff, and when they did that, their win rate started tailing down, and it turned out that just as they de-emphasize this historical thing they talked about that issue was becoming a more important priority for the customers.

[00:23:52] So, again, it’s, it’s the kind of thing if, if you instrument your motion well enough, and then you’re very conscious about we’re gonna try things, how are we gonna know how it’s impacting us, you just become a lot more precise, um, and, and it takes a lot of waste outta the equation.

[00:24:12] Joe Michalowski: Yeah. Love, love all that. I think, uh, you know, we started that, uh, that whole question about, like, what makes an investible company, you said it was, you know, starts with industry, but the reality is, like, even if you’re not in, like, one of those, like, mission-critical industries, you still might have to go out and raise money.

[00:24:28] All of these experiments that you’re mentioning, it’s like, the faster you can iterate on these things, the more efficient you can make your go-to-market motion, I mean, the better you’re gonna look when you go into that meeting, and you say, “Hey, like, we wanna raise some money, here are our numbers.” And like, the, I guess the, the feedback loops there seem really important for just being able to make a compelling pitch at the moment.

[00:24:51] Scott Stouffer: Well, there’s one other benefit, is you come across as a lot stronger management team, if, if that’s the way you operate, right, with that level of discipline and rigor as opposed to sort of, let’s try this, let’s try that, and we don’t know what’s working and what’s not. I mean, I guess if I’m an investor and I know times are tough, I’m gonna put a lot of, uh, value in, in a really good management team, ’cause I’m gonna assume they’ll be able to figure their way through the thing.

[00:25:19] Joe Michalowski: Yeah. Do you think this changes at all by stage, obviously, we said earlier that, like, the earliest stage, like, if you’re that Series A company, you just don’t really have the amount of data that, like, a growth-stage Series B, Series C, or beyond has, is this something you can do at those early stages? Can you put this rigor in place to, you know, look good for these investors? Or is it, is it harder early on?

[00:25:45] Scott Stouffer: You could absolutely put some rigor in place. So, for example, if you, if you think about what, what’s the very first thing that companies have to do, they have to achieve some kind of product market fit, right, before they ever think about scaling and all that kind of stuff. I, I would say you could put rigor around achieving product market fit, again, by leveraging some of these conversation tools.

[00:26:07] I, I mean, if you’re a PLG motion, maybe not ’cause you’re not actually interacting with people, right? But let’s say you have a, a sales motion where you’re actually talking to people, and still everybody, for the most part, does stuff via Zoom today, you can absolutely set up these tools in a way that give you some pretty statistically, uh, significant indicators of how to position, et cetera.

[00:26:34] So, I think it basically, um, speeds the time to achieve product-market fit as opposed to, you know, again, what’s so, has happened so often is what I call last call syndrome, right? You got off the last call, person, you know, said no, and you go back to product management and say, “Oh, we’ll never be able to sell any of this unless this product does this.”

[00:27:01] Right? Well, that’s, that’s not representative of the market, that’s just the loss you just ex, incurred, right? So, I, I do think there are ways to be much more structured at the very early stages, and, and therefore speed getting to some semblance of product market fit, and of course, again, be able to demonstrate a, um, a more rigorous managerial approach, which will be valued by the investors as well.

[00:27:28] Joe Michalowski: Yeah, ma, makes a ton of sense, I think we could, I mean, we could probably spend multiple podcast episodes just talking about, uh, go-to-market efficiency, but I think in the context of this, like, this fundraising conversation, the, the market downturn, things like that, just, just covering that just seems really, seemed really important to me.

[00:27:44] So, I’m, I’m glad I had your expertise here to kind of just walk us through that. I want to get back to some of the, the strict fundraising conversations. And, and one is valuation, like, a lot of talk about down rounds, a lot of talk about flat rounds right now. I’m curious, how are you thinking about valuation?

[00:28:01] If, if you are, I know you said you’re not currently, uh, in the fundraising cycle, but down-rounds, flat-rounds, okay in this environment? Avoid at all costs? What are your, what are your thoughts here?

How Valuation Factors in Funding Rounds

[00:28:11] Scott Stouffer: Assuming the company deserves to survive, then, then to me, valuation doesn’t matter, you know, and when I say assuming the company deserves to survive, meaning there is a meaningful market, they’ve got product market fit, right, and, and that there’s no reason to believe that when the market recovers that they won’t be successful.

[00:28:36] Uh, then you need to just find a way to finance the company and keep it going. And the fact that founders and early investors may end up, more diluted than they would have had the markets not turned sour, I mean, that’s just, you know, that’s life.

[00:28:54] Joe Michalowski: It’s It’s part of the game.

[00:28:56] Scott Stouffer: It’s, it’s part of the game, you cannot, you can’t precisely manage timing, right? So, I know in my view, you know, we, we may have to work up to our last valuation still, uh, which, you know, which implies depending on where we are at the next time, we, we raise, you know, we could end up with a down-round, and nobody likes that, I mean, especially, nobody likes that more than me, right?

[00:29:22] It’s terrible, but, but it is what it is if we believe in the company, which we do, and, you know, that’s just the nature of the beast, and, and while it feels terrible, we, we need to sort of remember that,, yeah, but it was kind of monopoly money that gave us goofy valuations to begin with, right?

[00:29:41] And so, all things kind of work out in the end. So, I, I, but I do expect there to be a ton of down-rounds. 

[00:29:46] Joe Michalowski: Has to be. 

[00:29:47] Scott Stouffer: Well, I, I also expect there to be a ton of companies that just close shop, right, because well, there, there just needs to be ’cause there was too much money thrown at stuff that probably never should add money to begin with.

[00:30:00] Joe Michalowski: Yeah, yeah, uh, I think it’s a really, I mean, you said serial entrepreneur have been doing this a long time. This is a very reason, reasonable sort of thinking for this, like you said, it, it’s painful, but outside looking at, like, obviously, like, I, I, I work in marketing, like I’m, I’m not a founder here,

[00:30:15] like, this is not something that is so dear to my heart, I’m sure as, from the founder’s standpoint, it’s, it is really painful to, to have to experience this, to have these conversations, but I think your explanation is, is just really well reasoned, like, it’s just,

[00:30:31] Scott Stouffer: Well, you think about,

[00:30:32] Joe Michalowski: that monopoly isn’t here anymore.

[00:30:33] Scott Stouffer: yeah, and you think about it, the, the goal is, I mean, you, you’re not gonna have any financial success as a founder or early investor unless you ultimately have a big success for the company, right? And, and I think about the first company I started and we, you know, were fortunate enough to take it public, et cetera. I, I think by the time we took it public, I owned maybe 6% of the company, and you know what? That was fine.

[00:30:59] Joe Michalowski: Turned out okay for you.

[00:31:00] Scott Stouffer: Turned out fine, out fine, yeah, you know, would I have rather owned 60? Sure, but just owning 6% of a public company and it’s good valuations at some point, you know, it was life-changing. And so, you know, I just think people can’t get greeted, either founders or, or investors.

[00:31:22] Joe Michalowski: Makes a lot of sense, uh, I have one, one more, like very much fundraising-focused question. I think I saw, I was doing some research, I was doing some digging, I think you have gone through a debt financing process before, obviously, like, not everyone’s gonna go through the traditional venture funding route.

[00:31:40] I’m curious if you have tips on debt financing, when to look at it, if there are other big kind of, like, working capital options to look at, anything from your experience I think people would appreciate?

[00:31:53] Scott Stouffer: Sure. So, you know, much like equity, debt takes all kinds of forms and, and shapes. For traditional VC-backed style companies, you don’t usually have traditional bank debt available to you. So, if you think about, you know, going to Bank of America and getting a loan, you know, no, no banks could, because they’re highly regulated, they aren’t allowed to make those types of, uh, lending decisions for companies that are losing money hand over fi, fis, which is what most kind of early-stage VC-backed companies are.

[00:32:27] So, there tends to be a couple different venues out there, there’s what, what we’d call kind of ven, venture debt and, and these companies, they almost determine their risk based on the quality of the VC backers that are in the company.

[00:32:48] Joe Michalowski: Interesting.

[00:32:48] Scott Stouffer: So, so, they will lend, and by the way, for, for any of your listeners that don’t know this, the reason you preferred debt is ’cause it’s a lot less expensive, it doesn’t dilute the stock, right? So, I mean, there’s a downside to debt as things go bad, but in most cases, you end up working through that stuff anyway. But so, these venture lenders, they love to tag on debt, either coincident with or shortly after some equity has gone into the company. So, so, they’re basically just adding some leverage, some additional runway.

[00:33:23] They often, you know, make their decision to invest largely based on the investors that are in the company. So, you know, having the Sequoias or, you know, Excels, or any of these, you know, top-tier VC firms, makes it a lot easier to be able to get the venture debt. There’s a whole new type of debt out there largely for SaaS companies, which is, you know, basically based on multiples of your recurring revenue, they will lend money against multiples of your recurring revenue,

[00:33:53] you can almost think of that as the subscription world’s equivalent to financing receivables or something like that. And, and that stuff’s pretty attractive, but the, there, again, you know, I’d say in all cases, I mean, you, you’ve gotta be minimum of a million dollars in annual revenue, probably more, like, two, you know, you, if you can’t get venture money, you most certainly cannot get debt.

[00:34:23] Joe Michalowski: Interesting.

[00:34:24] Scott Stouffer: Uh, is, is the way I would say it beca, ’cause just by definition, debt capital is more risk averse than venture capital. So, it, it, it’s something to consider if you can get venture money, then maybe debt is a better alternative for you because it’s less dilutive,

[00:34:45] or maybe it’s a good way to, you know, do some blended cost of capital by doing a little bit of equity and debt, but, um, you, you’re not gonna be able to go get debt as, as your financing engine if you can’t get venture.

[00:34:59] Joe Michalowski: Super. I, I, you know, I was excited about this question ’cause I, you know, very much in the, the venture funding realm as far as my working experience goes. And so, uh, yeah, haven’t heard anyone frame it that way, the, the, if you can’t get venture funding, then good luck getting debt. So, yeah, really interesting, learned a lot there.

[00:35:18] I think, I don’t wanna keep you too long. So, I, I have two, like, higher-level questions, one of which I could probably, I mean, we could probably turn into a really, like, probably maybe a whole episode, but I would love, for the people listening, cross-functional collaboration is enormous for, like, the finance leaders that we talk to, that we kind of promote,

[00:35:36] and I know, um, when we were talking about potential topics, kind of, like, rev ops interactions and collaboration with the CFO was on the list of things that you could speak to. I would love, like, a quick tip, like, what’s the, the number one thing that can improve relationships between rev ops and finance leaders? I think people would appreciate hearing it.

[00:35:59] Scott Stouffer: Uh, the number one thing that could improve relationships between rev ops and finance leaders is have rev ops report to finance.

[00:36:06] Joe Michalowski: Ooh, interesting.

[00:36:07] Scott Stouffer: To, to me, the beauty of rev ops when done right, is it actually enables, and in some cases, forces alignment and collaboration between the revenue functions, which we traditionally think of it as sales marketing and customer success, right? 

[00:36:25] And those, those functions notoriously are misaligned, have tension between ’em, et cetera. Some of it’s natural, but some of it’s completely unnecessary. So, rev ops has the opportunity to be that aligning mechanism, the best way to drive that alignment though is by focusing on goals that are aligning in and of themselves.

[00:36:51] So, instead of, you know, CEO and CFO, meeting with the marketing person and talking about MQL counts, right? You always have the whole group, the entire revenue leadership group together, right? And you talk about total tow bookings, right? You talk about cost of acquisition, things that are, are critically important for the company and, and it actually requires all three of those functions to contribute to.

[00:37:22] And so, if you get people and, and, and, you know, I would say you also should align composition plans around those types of goals. If you do that, and I’ve seen this work perfectly before, ’cause we’ve done it in a couple of our companies, you know, you, everybody’s fighting for the same thing then, you know, and, and if cost of acquisition is something that’s really top-of-mind and a high-priority, you know, then, if the data suggests.

[00:37:50] So, for example, here, here’s one area where we often see companies, you know, impugn their efficiency is they actually have too many salespeople, well, let, let’s say this, they have their, uh, funnel resources out of balance, most often we see that as more salespeople than they need, more salespeople than they’re providing top of funnel support to.

[00:38:13] Every once in a while, we see companies that are prolific lead generators and don’t have enough salespeople to follow through it. In either case, you’re wasting money, right? You’ve got, you’ve got excess salespeople, uh, so nobody’s making quota, the, the best salespeople get irritated and leave. So, you end up kind of going down to the mediocre, you know?

[00:38:33] So, if you’re focused on CAC, then there wouldn’t necessarily be any reason that the sales leader would want to cling on to excess sales heads, right? But when, when it is not really burdened with the responsibility of re, bringing CAC down and it’s just, you gotta hit a number, well, why wouldn’t the sales guy try to have as many people as they can,

[00:38:59] or the sales lady try to have as many people as they can. So, so I think by focusing on goals that are cross-functional, it, it, it does tend to bring alignment. Rev ops can be very good at being the forcing function of that, provided that the leader of rev ops has a seat at the C-level table, if they don’t, that’s where I say put it under finance and let the, let the CFO be the person driving that stuff.

[00:39:29] And, and also, I mean, it’s just, you know, one of the benefits of rev ops when it’s outside of the sales and marketing organization, you know, they don’t have a horse in game, or a horse in the race, so, so, you know, there’s never this kind of back and forth, that data’s not right, you know, they’re not, you just, you get, you just get past so much of the wasteful stuff that goes on normally in companies when you don’t have that alignment.

[00:39:55] Joe Michalowski: Love it. Makes a ton of sense, I think, again, ties into what we talked about, like, if you’re, if you wanna be that investible company, maybe not in the best industry, working on these things to drive efficiency, gonna be huge for, for the topic that we discussed this whole time. My, uh, my last question for you, and I ask everyone that comes on, very much not related to fundraising, although it could be if you wanted to. What is one thing that you know now that you wish you knew at the start of your career?

[00:40:18] Scott Stouffer: Oh, Jesus, man.

[00:40:21] Joe Michalowski: It’s my favorite question, I think I stumped most people for a minute 

[00:40:24] Scott Stouffer: Yeah, it’s a, it’s a good question, I, I don’t know that this is a, a particularly profound answer, but, you know, being a, a person with an engineering background, I’ve always operated under the assumption that logic will always prevail, and it’s taken me a while to learn that, well, if human is, humans are involved, logic doesn’t always trump,

[00:40:51] a, and, you know, even to this day, I fight that, right? I, I, I mean, I still just assume that because this makes so much sense, that’s how it will end up working. And so, I’d say the learning is the human behavior always trumps, and if you can put some personal development into becoming skilled at better recognizing, people’s motivations, people’s mindsets, et cetera, you know, I think that might make, uh, life easier.

[00:41:28] Joe Michalowski: I love it, I, listen, I, I think it’s profound enough. Also interesting to have the, the engineering, the electrical engineering background and then end up, you know, running a company that scales go-to-market motions, not, not probably where most people would expect to end up with that background, but I was, uh, a chemistry major at one point, and here I am, uh, hosting a podcast, and so

[00:41:45] Scott Stouffer: There you go.

[00:41:47] Joe Michalowski: Here we go. Scott, I, I just wanna say thanks for, for joining, uh, this has been fun, but I’ll turn the floor over to you. Where can people go to learn more about you, learn more about scaleMatters, whatever you’d like to, to

[00:41:57] Scott Stouffer: Uh, sure, uh, scalematters.com, uh, website’s pretty decent. If you have questions, you wanna talk to me, scott@scalematters.com. I actually am old school enough that I, I do see every email, or at least I see the first line in every email. So, be creative with that one 

[00:42:15] Joe Michalowski: Make it a good one. 

[00:42:16] Scott Stouffer: be, be creative with that first bit of real estate, and, but happy to talk about any of this stuff with people.

[00:42:22] Joe Michalowski: Awesome. Well, uh, thanks so much, Scott, and, uh, yeah, it was fun, and I appreciate all the insight, and I hope, uh, we can do it again sometime.

[00:42:28] Scott Stouffer: Yeah, Joe, thanks for having me. Have a great weekend.

[00:42:30] Joe Michalowski: You, too.