| 21 minute read

Podcast Pit Stop: Mike Brown on How to Not Raise a Bridge Round

Posted by Arielle Walsh on May 20, 2022
Arielle Walsh
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In Episode 37 of the B2B podcast, Pit Stops to Podium, Mike Brown coaches founders and executives of companies on where to direct their time and focus in the seed stage to prevent the need to raise a bridge round. Mike is a Managing Partner of Bowery Capital, a firm based in San Francisco that focuses on seed-stage companies and legacy replacements in and around technology. Hear from his experience on the type of thinking, decisions, and metrics that ensure they are positioned for success. 

Take 20 minutes to listen and digest and then head back to the races! 🏁🏆

Pitstop Highlights

What’s a Bridge Round?

A bridge round is essentially an interim financing round intended to keep a company afloat until the next, larger financing round. Companies want to stay up and running without the threat of going bankrupt, so they turn towards insiders who are willing to keep financing the company in the meantime. This type of financing is primarily used to fulfill a company’s short-term working capital needs. It often has a negative connotation of financial trouble, however, that is not always the case.

Founder-Led “Data Junkies” 

Founder-led selling deals with the founder consistently working towards attracting customers, investors, and people to work within their company. 

We’re in a market environment where founders don’t want to immediately hire people, but instead, work on the documents and projects that will be used to onboard and hire workers in the future. The issue with this is that these documents are not edited much and don’t anticipate all of the inputs associated with those outputs.

When talking about “data junkies” founders tend to focus on tracking and organizing the data, spending huge amounts of time on it but not going any deeper. Mike recommends documenting everything from the beginning with the initial prospects. The results are strong–you have more command of opportunities, more understanding of a business context, and are able to see the anatomy of a successful business deal.

Connect with Mike: 

Full Transcript

Brendan: Hey everybody, welcome to Pit Stops to Podium, the RevPartners podcast, where we talk to execs who compete and won, taking their companies from high growth to high scale. Well, my name is Brendan Tolleson. I am the co-founder and CEO of RevPartners, and I'm delighted to have with me today, Mike Brown for our latest episode to Pit Stops to Podium. Welcome, Mike. 

Mike: Hey, how are you? Nice to meet you. 

Brendan: Nice to talk with you. Well, Mike is the managing partner of Bowery capital, has a really impressive resume. But Mike, how about you? Give our listeners a little bit of background on who Bowery is? 

Mike: Yeah, so we're a seed stage focused fund based in New York City and the Bay area, the firm's kind of origins really start with the legacy transformation cycle that we're seeing right now. Everybody is familiar with software as a service, and a lot of the go public successes over the recent year and beyond have sort of pushed Sas to the forefront. But since 2013, our focus is really just been, hey, there's a huge amount of legacy replacement that needs to happen in and around technology. We want to be harnessing that in the form of investment and investing in startup companies in and around that. So our focus tends to be we want to be the first check into the business. You'll see us sort of lead seed rounds and precede rounds of funding. And I think we've sort of evolved over time. These days, we're spending a lot more time on the verticals of software trends. We're spending a lot more time on business marketplaces, but we still do a lot of horizontal software, both at the infrastructure and application layer. That's great. Well, mike, before we get into our big idea, which is tied to that core focus that you have in terms of seed and series a, we have a tradition here. It puts out the podium and that's to get to know our guest. And so outside of work. Mike, what are three fun facts that our audience should know about you? Yeah, sure, three fun facts, all right, so I have two young boys that are my world, Theo and Walter. You know, the pandemic, I think, has been beneficial for everybody, but it's been awesome having two young kids to see them grow and evolve. So so. And we're about 100 miles North of New York city, so I am blessed to not be cooped up in an apartment and can watch them run around, which is always fun. 

Brendan: So how old are your kids?

Mike: My oldest son, Theo is almost four, and my youngest son, Walter, is a little over a year old. So you're in that. We're in a very similar season. That's fun. There you go. So that's one fun fact. The second fun fact is see sort of the forest image in the background. And for those that are just listening, there's an image of a forest. I'm very excited and passionate about conservation. I spend most of my volunteer hours and time outside of work focused in and around that effort, mostly at the federal level. So I'm on the board of an organization called the National forest foundation and Sandra 93 million acres in the u.s., you know, federal forests and grasslands. And it's a really important thing because with climate change and with forest fire season upon us right now, it's getting more and more critical. So I've been involved with that organization for about 12, 13 years, a couple of others at the state and the local level. And that's kind of fun fact. Number two, I really care about conservation and spend a lot of time on that. And then. Third one, which which is a little more educational, I'm kind of a lover of learning and I'm actually a terrible Gardener and and lawn person for a guy who focuses on conservation. So I shout out, shout out to Fran, one of the heads of sales for one of our portfolio companies who recommended that I take Alan Haynes course. It's called the yard care boot camp. I encourage you all to boot camp. OK Yeah. And the guy so the guy, if you start thinking about your lawn or about whatever you come across these YouTube sort of guides and the guy his thing is the lawn care nut and his name is Alan lane. And they're really fun and informational, and he he's a great teacher. So I'm taking that course now, and hopefully I can share with you all some great photographs of my lawn. Yeah, I feel like COVID has caused people to pick up some new hobbies, so this seems to be one of the new ones with you. There you go. Well, my fun facts about me.

Brendan: I love them. Two kids, passionate about conservation. And you have now become a gardener. A gardener, excuse me. So we'll have to see a picture of your yard at some point before and after. Right, exactly. Well, mike, let's transition to the big idea. And so in the intro to who Bowery capital is, you talk a lot about your investment thesis. And so I think a really appropriate big idea that I'd love to get your thoughts on is how to not raise a bridge ground. And so maybe before we get in on some of those kind of key themes, how about you give a little bit finer on what a bridge ground is for those that may not know what a bridge ground is? 

Mike: Yeah so and again, sort of the context here is we're usually the first investor in a company. We're capitalizing the business. There, of course, is some amount of time spent on initial hiring and product development. We can't really go to market without that, and sometimes that can happen quickly. Other times it takes a very long, long time. Leave that aside for a second. When we talk about a bridge around what we really mean, is you coming back to your existing investors? Perhaps there may be some, some small new people, but really existing investors. And we may not have achieved product-market fit or the numbers we put on the board or the success that we thought we were going to have. We need to continue to finance the business, mostly with insiders and people that understand where we've come and sort of help usher us to the next phase of growth. Sometimes this happens internally via discussion. We have founders that try different things. It does not work. And so they come back and ask for some more money to try more things. It's totally fine. Other times there are external conversations. Maybe you attempted to raise a new round of financing. And you attracted no suitors, right? There was no one that wanted to defund the business. So we obviously don't want to see the company fail or go bankrupt, so we need to bridge the business to the next round as an insider. That's kind of a smattering of what we tend to see and the styles and scopes of the extensions or the bridge rounds. 

Brendan: So in short, you do not want to raise a bridge round. And so like, I think with that context in mind, I think it's helpful as we talk to our audience. It's almost like the Do's and don'ts. When do you think about where to focus your time or energy from a sales and marketing perspective? And so let's kind of break that Do's and don'ts into three separate areas. Let's start first with probably kind of the big idea from a good market perspective. What should that founder be thinking about to ensure they don't have that hiccup where they have to come back to you and ask for more money? 

Mike: Yeah well, I think so. There there are. And, you know, we're again, in the context of this is a RevOps podcast and we're focused on the revenue line of a company, so there may be other reasons why you need to raise a bridge, leaving those things aside and just focus on go to market, as you're mentioning in revenue. Our firm spends 100% of its time after we make an investment working on the sales, the marketing, and the customer success line of a company. And from the origins. OK, how do we actually set this up? And you always go back to these go to market motions. We're usually taking a sales motion or a marketing motion when we think of software as a service businesses. And then there are a couple of bullets within marketing has a tremendous amount of bullets in terms of channels that you may activate to go, embark on go to market sales. It's commonly one of two motions, either direct or indirect, and it's commonly inside or outside. And you know, most people who listen to this podcast will understand the lingo. So we anchor on those things with founders and then direct to your question. I find that many founders do, too what I call first level activities, which are absolutely necessary but may get you into the bridge situation if you don't do more work. The first is look, we talk to in case the market and really understand how to our competitors. Sell, who are ICP is all of the common. I'm I going to go into ton of detail, but all of the common things that help a founder arrive at, oh, this is a marketing motion, and I should think about these couple of channels or my pricing is x, and my ICP is why. So this is going to be outbound sale outside sales. That is helpful. You should totally do it as a first level thought. The second is we have internal people, we have external advisors, we have everybody coming at us and talking about playbooks. And they say you how you have to make the first sales play bunker, you have to make the marketing playbook again. Totally need to do it. We got to put all the information in there. What's our sales process map? What's our how are we doing our outbound? How are we, you know? You know, all this stuff? Those two things are awesome and you should absolutely do it. And I think that it is critical to success. What we tend to find is 9 months later, we go and we look at this stuff and we say, like, what else did you do? And founders like, well, what do you mean? You know, like, I just I thought, that's how this market should be sold to, and this is what this should look like. And we say, yeah, OK. Like, yeah, you should have done that. But there's more and and so this is like a huge cliffhanger. But but I'll give you some of the I'll give you some of the kind of sub bullets around the more first, I don't think founders spend enough time considering the ideal customer profile and building out an ICP map that is very, very narrow and focused. I think what we tend to find is an extraordinarily high level ICP mapping exercise, which can lead you to the wrong sales motion for your business. Just watch out for that. The second thing I tend to see, and especially we're operating right now in a product led growth environment, it's a fancy word for a certain type of marketing activity. Um, you've really got to be careful in certain type of software verticals with listening to your peers that are taking these marketing motions. Not every channel that they're working on and activating is going to work for you, and I think you really, really, really have to refine and focus again bridges back to that ICP because we're ultimately going to need to talk to that economic buyer, either on a website or somewhere else. But watch out for the channels and don't always listen to the competitors or to the founders in your cohort that are telling you what to do and what they're considering. The third big thing I'd say is exhaust the exercise as much as you can on both the build the playbook and talk to a lot of people. So our sort of baseline numbers are usually 25 to 50 prospects around the ICP piece and then roughly the same amount on building out your playbook. And the reason I say this is, I think if you're a student of these motions and you start to learn as much as you can about the early successes and failures, mostly from founders or people who who've been sold to, you'll really have much more command. Don't just kind of say, oh, this company did that, that, you know, channel activation around marketing for their go to market motion. And we're just going to do the same thing. I find that founders sort of press pause. The ones that press, pause and maybe take, let's say, a month and a time block. Every day, I'm going to take two to three hours to just be a student of inside sales, go to market to really figure out like, if this is going to be for us. And then the next month I do outside and the next month. And again, I'm kind of giving you a smattering here, but. You go to the second level to figure out what has succeeded and what has failed both within your peer group and outside of it. Gather that much command to really, really understand what might work or what might not work for you. It's a super nuanced decision. You're you may end up spending a ton of money on outbound, only to realize that, hey, there were a couple of other companies that failed that. Doing that, or maybe sort of ran into some issues that you find you can't deploy. And so then you've got to move to an inside motion or something like that. That's that is a sort couple of blanket statements, but real, real really importance needs to be placed around the go to market motion and doing the second level thinking and being a student of those areas to really, really figure out, OK, am I going on the right path and pushing the right sales motion early on? It's a bear to reload and reinvent this. I don't believe in the let's experiment and waste time with prospects trying to figure out what the motion is going to be at a high level. 

Brendan: Yeah, I really like the second level thinking concept. It really I think it displays a whole one size, doesn't fit all. And informs, you know, why dictates the what? Meaning if you really, truly understand who you're targeting, then it informs how you actually go to market. And so it puts the priorities in the right place. Mike, let's transition now to the second topic that I really like how you we were talking about this earlier. A lot of people heard this like founder led sales concept in the early stages, but you talk about founders being data junkies. So let's talk about this founder led data junkie concept that you have coined. 

Mike: Well, I don't know. We've coined it internally, I guess. Now that now that we're doing this podcast, so yes, we coined it. So what for the listeners? What I really mean is I think everybody understands founder led selling. I think from the outset where we're again in a market environment where we don't want to immediately hire people, we want to get our motion down. We want to really start to sell ourselves as a founder so we can understand and make that first playbook and make all of the documentation that we're then going to use to train and to orient our team as we go. The problem that tends to come up is founders treat those documents as Bible. They all. So they don't edit them that much. The second thing they do is they don't anticipate and understand all of the inputs and the formulas associated with those outputs or those playbooks. And so we talk about data junkies. Most founders are going to be data junkies around certain things. Maybe they like really look at their P&L in a refined manner, or maybe they're focused on product data or whatever it is. It's not really that hard to also be a data junkie around the revenue line of your company. Now, this gets a bit tricky in founder led selling environments, and most founders ask me, mike, OK, like you want me to track all this stuff? Hey, it's a huge time suck. And be, you know, if I get sort of the revenue line going, I probably hire a RevOps person, or I probably have some outsourced ability to kind of do this. I really, really need to do it at the earliest stages. And the answer is yes, because it's really hard to understand if you may know the formula, but you've got to really understand the drivers of that formula. Otherwise, you're really going to be flying blind. And you're going to not be able to train and teach people. So maybe like another level below. What you really want to consider, and I'm going to I'll mention sort of sales motion, but this applies to marketing as well. Look, if I'm in, if I'm in an outbound motion, what I tend to see is founders will come to me and say, all right, we're going to here's our pipeline high level numbers. Here's here's some high level statistics about what's working and what's not working. And I kind of say, all right, look, we've got to go a level deeper with these drivers. I want to know like, hey, how many meetings does it take for every single opportunity? How much time between the touches if we're in an account based selling environment, how many contacts do we need to actually get this account? All of this number. Number of times we got to call people. A number of times we've got to email people. All this stuff is probably obvious to everyone listening to this podcast and you're like, yeah, brown, why don't your companies do that? But in a founder led selling environment, I think it's different and it's harder, right? They're not really focused on all that stuff from the outset of starting their business. So we really encourage founders to be data junkies. We say, look, just open up, Excel and whatever prospect you're working, like, just write this stuff down. I find that nine months later, they have so much more command of what it takes to close an opportunity. They have so much better understanding of how to inspect what's going on. Maybe they just hired an a-e and he's not doing things correctly. OK, let's look. We'll sort of do a diagnosis on this as the founder and I'll see what you're doing or what you're not doing to help. It's just really, really, really important to get this right from the outset. And if you don't do it nine months from now, you come back to a firm like Bowery and you ask for the bridge and I say, hey, like, just walk us through the anatomy of a successful deal here. And how have you been able to replicate it. And what does it look like? And if they don't have that command or they just don't know the number, you know how many phone calls it takes to get to a meeting and how many meetings it takes to get to a deal as a baseline. Let's say we have a real problem and we weren't being data junkies around this stuff. So that's number two. Yeah, I love that. And it's not that it changes the outcome. It actually ensures that the right outcome happens, that you're able to effectively scale, which which I really like. 

Brendan:  Exactly all right. Lets this transition to last topic, which is really understanding which metrics really matter. Not that they don't all matter, but especially in that kind of seed stage. What what are those ones that you focus in on and what are the ones that you say, hey, they're important, but they're not the most important at this stage. 

Mike: Yeah, and we so the common thing that founders come to us and talk about is this concept called the sales velocity equation. Sometimes they'll bring in the literature behind it. This is a concept that started by task group. The company was called Alta phi until a few years ago when it got bought by or actually this year, sorry, got bought by, sorry, 19. I got bought by upland software. Anyways, it's this high level concept that most listeners will be familiar with that talks about the four key metrics of a selling organization that you should be tracking. Again, it's sort of deal size. It's pipeline, it's your win rate or your close rate, and it's the sales cycle length and they have a mathematical equation on sales velocity and how you can increase sales velocity with your company, right? We all want. We all want to grow faster. And founders bring this to us and they talk about, you know, we're going to OK, we've got to track these four things. And this is going to be great. And we're going to increase sales velocity over time. And it's admirable and relevant in any software business. However, in a seed stage and an early stage company, there's just not a lot you can bite off with that formula. And so for us, where we tend to spend a lot of time and maybe, maybe I'll talk about all four, but I'll really focus on one or two. So, you know, deal size, there's a lot to unpack around deal size. Not sure you're really going to figure out deal size in the first 12 to 24 months of your business. We sort of talk a lot about, hey. It just it just may not make a ton of sense to do anything other than first level thinking around product pricing and around deal size. We're just trying to get the initial motion going. Ah, the second one, we tend to hear a lot if sales cycle length, so so all DeFi has a great piece of research that they put out that talks about. If you lower sales cycle length by 10 percent, you will increase sales velocity by something like 40 or 43% You know, lowering sales cycle length obviously has the greatest impact on your overall sales velocity. The problem in an early stage software business, again, is I'm just trying to convince the economic buyer to buy my new thing. It's really hard to nail my sales cycle length. So those two not as relevant pipeline and win rate or close rate. We talk a lot about internally here to focus first, maybe on close rate and win rate again. Talk about the metrics, the inspection being the data junkie. You know, there's a lot of stuff you shouldn't waste time on. There it's going to be difficult to close if I've got the math and I've got the numbers and I've got the data and I'm being a data junkie. Great you're going to put yourself in a good position and you'll probably have higher close rates. The big piece of close rate, though, that we tend to focus on is there are lower. Activity that are going to be consistent in your organization that you really got to pick up on and figure out, maybe it's some give get that's consistent, maybe it's something related to the closing of the deal that is specific and consistent, maybe something that moves them to the demo phase or the evaluation phase. I don't know what it is. It doesn't really matter. But really figuring out the lower funnel activities because think about it, a lot of seed stage and early stage companies, they waste time on stuff that doesn't matter, and they get really excited about number of calls that they're taking and people are interested in their stuff. If you refine the late stage funnel activities down to these are the only things that are indicators of a deal to close. You won't waste your time on all this other stuff that just doesn't matter. So figuring that out, the late sage funnel activities around close rate and win rate is going to be really, really helpful to you. And then the second thing is pipeline, and this is evolutionary for me. People with always when we first started the firm, people would always throw up these numbers. You know, xyz says I got to be a 3x 4x 5x coverage ratio. Yeah, in a steady state, the software business, I think sure. Yes, you have to have a significantly greater number of pipeline. And again, pairing this with close rate, you're not going to close over 100% of the opportunity objects in your Salesforce instance. That being said, I've evolved on this. I think that I have a number of portfolio companies that can close 100% of their pipeline early on. Maybe they bifurcate the pipeline a bit so they're not wasting time with stuff that's not truly pipeline or committed. Let's call it in some instances. But I think just figuring out what works for you and not being so strict about those definitions early on in your business life, again, narrowing and being focused on pipeline is going to matter a lot. I see scoring systems come into place. I see founders take a lot of time to really check, OK, we're not going to check this deal in as committed right now. It's just sort of out there and we haven't figured out all the indicators that are going to move it into our pipeline. But I wouldn't worry so much about pipeline coverage ratios and about pipeline in the prescriptive sense that a lot of ex talk about in that seed stage of a company. Now this is a little bit, you know, you're probably thinking, OK, like, well, wait, if I don't do this, then I'm going to be in the situation that that, you know, Mike and Brendan are talking about. I'm going to have to raise this bridge round. I don't think that's the case. Again, if you figure it out, the go to market motion and you've got second level thinking there. If you've been a data junkie and again, we're not going to start thinking about pipeline until we can actually generate pipeline, right? So if we have one opportunity object, it's not really a matter. But once we get 20, 50, 100, OK, then we can start thinking about pipeline. So we're doing the data junky thing. The pipeline as an output of that data junky thing can be really, really informational and helpful to us. And again, I think if you have one X coverage ratio and all of those deals, if we were doing a Monday morning sales meeting can be talked through about next stage are not, you know. And in the same time, you know, it's not the deal's not 300 days old. All of the leading indicators that you would think an a-e saying this is a good deal. I'm fine with it. It's totally cool. We can do one coverage ratio for early stage software companies, but we got to have the go to market right and the data junkie right. Anyways, around sales velocity, that's it always comes to us and people use this formula. I think it's super helpful. It's very relevant. But in an early stage company just focusing on pipeline and the win rate is really, I think, what is going to set you up to not have to deal with the bridge. 

Brendan: Yeah, I think the takeaway for me and that is that there's freedom in a framework. And so while the framework is really good in terms of what need to be looking at, it's also being cognizant of what is most important at the different stages of your company journey. And so I really like how you said, hey, isolate on these ones, knowing that the other ones will come as you continue to grow. Well, this has been a really helpful exercise, but a way to think about really where to focus your time and that and that stage to ensure you put yourself in a position for success. What are some practical ways in which our audience can engage with you and with Bowery moving forward? 

Mike: Yeah, So we have a pretty informed blog around a lot of this stuff, if you just go to barackobama.com backslash blog, you'll see it. Basically that's kind of the best way to orient and understand us. We also have a pretty well-worn podcast. So a of these topics that I'm talking about, we probably talked about it over time. You can find that pretty much anywhere. And then the third thing I say is a lot of what we do is asynchronous. So just reach out where we're in conversation with a lot of people. We're also pretty flexible on a lot of these frameworks and thinking there have been three or four people this year alone that have come to us and debated. Some of these concepts. And actually, in one of our portfolio companies, specifically around win rates and close rates and some of the late stage funnel activities that they've been, they've been having trouble with sort of broke something loose for the business and they suddenly had a real change in sales velocity as a result of me sort of talking about this publicly and then them reaching out privately. So, yeah, hit me up. I mean, I'm on LinkedIn and anyone can find my email, but that's the gist of it. 

Brendan: Yeah, Michael, I get it. So takeaways, there are other blog listener podcasts or reach out and sounds like you are very gracious and generous with the content. You do have to help companies go further faster. Well, Mike, Thanks so much for the time. Really do appreciate it.

Mike: Of course. 

Brendan: Talk soon.

Mike: All right, thanks. 

 

Pit Stops to Podium: A RevPartners Podcast

On the RevPartners Podcast, we talk to executives who have competed and won, accelerating their companies from High Growth to High Scale. Hosted by RevPartners Co-founder and CEO, Brendan Tolleson. Take some quick notes from each week's "Crew Chief" and then head back to the races!

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