How does an immigrant founder raise $12M with no network?

welcome to episode 31 of fundraising demystified today we have L Lina with us former CEO and co-founder of class tag an edtech software company that helped democratize access to information in schools for parents they raised 12 million before selling to school status L walks us through how she immigrated to the US climbed the corporate ladder and then after becoming a parent decided to launch and scale an edtech startup to over 5 million users she shares her secrets to raising Capital without having a network getting to profitability and coming to the decision that selling the company was the best next step for the future of her company as a reminder to get notified of our weekly podcast and newsletters be sure to subscribe at join. thunder. BC again that's join. thunder. BC now on to the show hey everyone welcome back to the show today we have L Lino with us I'm so excited to have you on the show today L welcome hi Jason so great to be here no I'm excited to have you so L you're coming to us uh from an edte company that raised about 12 million and uh you know fortunately was able to recently sell this last summer I would love for you to just tell the audience about you your background and what led you to to starting class Tech absolutely well I'm originally from Ukraine and I got to us some 17 years ago uh to do my MBA at warten and um prior to that I had entrepreneurial background having grown in a family of entrepreneur and so had a few um sort of early uh juices in entrepreneurship flowing and so of course I wanted to do the opposite after after uh MBA program I went into corporate environment I spent a few years at Boston Consulting Group and then climbed the corporate letter d uh two levels down from Michael Dell and sort of uh that was a cool way to see what the big companies are up to and how different that world is and at the end of it all I decided it was time for me to go back to entrepreneurship I had this entrepreneurial itch and at the same time my daughter started school in New York City and so I was frankly shocked how outdated and fragmented parent communication was and in the day and age when we know what our friends have for breakfast on Instagram whether we want it or not not having the same level of connectivity with your own kid seemed crazy and so um I really wanted to use technology to help parents and teachers become Partners in the kids education there is just so much research Decades of research that suggest that family engagement and kids education is the number one predictor of Student Success it is actually twice more predictive of that success than family social economic status so uh you can't really Outsource that and there are a lot of uh ways that techn technology can help parents become Partners in the kids education and so that what class te did uh we um allowed teachers to have a free platform uh that um democratized that access and communication across automated translation over 100 languages and multi- channel reach um that allowed any parent whether they have access to technology or not become involved in uh a partner in the kids education and then we scale to 5 million parents and teachers across the country tens of thousands of schools um raised uh Venture Capital uh three uh three times or multiple times through that Journey became profitable and ultimately sold class tag this past summer to a great company called School status which has an important mission to combine analytics and family engagement to truly become the platform for Student Success and so that was a great home for classic that was a very good job of telling a very long story in a very concise manner that's impressive um so there there's so much I want to dive into um you know one just the edtech category and of itself is a difficult category to to scale it sounds like you reach Millions which is incredibly impressive you know before we go into the usual like fundraising story let's talk a little bit about how you built the business and and how you went to Market because you know that is a tough category to to penetrate and to scale yeah absolutely and the funny thing was that one of the first people I met in my early uh sort of fundraising Journey was Brian coin who led the New York angels in the time and he said listen come back to me with any other idea but not this right not education do something else it's a really really tough one to crack and it's effectively a graveyard of companies and um and um boy he was right it is a difficult category but certainly um it's also a category that has a lot of opportunities and as I joke there is no lack of problems in education there is uh sort of lack of funds to actually sold them right lack of willingness to pay and so I think that's what makes scaling these Solutions so challenging and so uh we went sort of the back door route we figured out that we want to really start with the teachers who understand how critical that family engagement is and that allowed us to scale really quickly so for the for long time uh we didn't have any Salesforce so it was all digital through word of mouse and um you know Facebook groups Etc sort of uh more viral and digital growth that allowed us to scale uh fast um and then we leverag that uh footprint we've built to upgrade to schools and districts uh paying contract with us it's impressive um so kind of like I like to consider like the bottoms up you know kind of approach ter yeah no had a similar experience the no tech company I was at doing uh doing something similar Bottoms Up was how we kind of made enough of a splash to then eventually have sales so it's it's good to he that's still that's the strategy that works so um as you're scaling this business you're obviously got some very blunt feedback like we like you just not your business or you know the market um so how did you go about you know raising capital for this what was kind of your strategy um you know what did you look at how did you find the right investors yeah that's a great question so we had actually two bad things going for us so one was education which you know typically investors there's a big group of investors that wouldn't touch right and then others would be either educational investors that are focused on impact or more uh maybe generalist investors who happen to also invest in education right so I think education was one challenge the other challenge was actually our early monetization strategy which was about more than half of our business we uh effectively were a media platform so we had parents and teachers we monetized our sort of product Le motion the b2c motion through um brand Partnerships and so at some point obviously media became another no no so we had we we were winners we had both we had education and media in one so fundraising was absolutely fun um experience um I would say in in the early days um it was really tough so and coming despite sort of my know business MBA and you know also being an immigrant founder so my network wasn't that deep right I had to build it from from scratch um I just uh talked to anyone who would listen basically I um reached out to some people in LinkedIn who might know someone someone who knows someone went to a ton of meetups events Etc just to build that sort of uh breadth of connections and started to to get um angels and then uh we also um interestingly when I was starting I actually talked to someone who was a founder and later became an investor and so they ended up leading our early round because she so me was a deck um and she wished me luck and said hey 90% of people don't move past this stage so if you move you will actually be ahead of 90% of others and so then a year later we came back with like 30 G or or something like that and she said well you're the real deal and um you know let's let's kind of get behind it so uh that was um a big cut of breakthrough after knocking on many doors you know it's great hearing this story because so many especially once a founder or a BC has gotten to a certain level of success they really forget about this grind in the early days of you don't have the network you don't have the track record and you have to just put yourself out there and Shake as many hands as you can take as many Zoom calls as you can but one thing I think you did was important is you you stayed in touch with some of those people and you kept them informed with progress and you know two giant gaps for a lot of Founders is they don't get the progress you know they they don't actually build something that is worth funding but they still try to pursue funding or they forget to keep people updated and show the progress over time because that's ultimately what gets you know investors to to lean in and and to look deeper into what what you're doing and that seems to be exactly what happened here so I'm really glad you you know share that story because I feel that's often forgotten especially if you you know you have the exit you have the success and you just want to erase that from your mind you know yeah yes exactly the trauma the trauma of the past you put it behind but um someone actually shared this um which I think is puts exactly what you said in a in a very sort of visual way that investors will look looking for a movie not a picture right and so that what you're talking about sort of that motion and that progress and being the witness to that is what an investor wants to see and I think for me not sort of jumping ahe but for me uh those I did monthly updates for both investors and non-investors and to me that was the tool that helped me raise so we actually just had a newsletter go out about how important those monthly updates are and just the Cadence of updates because again it's a lot of Founders that don't do it they're not showing progress so they don't have the updates um and so it's important to kind of hold yourself accountable as a Founder to do that and so it's a great example as to the value of uh you know doing that so can you walk us through the history of basically those first couple checks that came in how they came in were you getting like a rolling kind of convertible node or safe type of thing or did you have like a formal round process in the early days oh gosh it was uh it was the first time I ever raised money and so I um you know you get a lot of advice um oftentimes bad but you don't know better at the time and so I think the good of that advice we did raise on saves and notes and enrolling cap and discount and so with more money committed we actually moved um we moved the discount down and we moved the cap up or some combination of there off and so actually um so we raised a few million dollars like that it ended up sort of the all this role um and then when we came to actually do a price round it was a complete disaster because then you had to you know had all this stack of notes that had all these different uh discounts and whatnot but anyway this is you know technical moreal the lawyers uh problem but the the problem for the founder is that until it all converts you actually don't know where you stand because the the the calculations of all these Stacks if you have different terms are really complex um but it did I think help us sort of maybe save some Equity um because of the strategy we were doing um but it also I think doesn't allow you to actually sit down and say okay now we raised we stop and then you and then you just plan for the budget you have and the runway so I think that in a hindsight that that extra few bits of equity that we got uh was not worth it worth the sort of the the um variability of this budgets and decisions that you have to make in Flight depending on the budget you've got I hear this story more often than I think most people realize it's it's so true because again especially first-time founder like you you know as much as it' be nicer to have that one round like do you think you would have been able to pull that off at the state of jur at like that's you know it's a it's a hard burden that's a hard burden and I think uh well the reason I sort of went that round is I think that route is I think because it was so hard to do um and I think um you know that early days had to be this sort of what they call party rounds right when no one really leads and you have to figure out how to and that those rounds are really hard to navigate because nobody wants to be the first check and how do you actually talk to people in a way that makes them a little comfortable to come in and so it's a lot of uh a lot of dancing so what were some of your dance moves you know to kind of get into the tactics like how did you kind of overcome that because that's that's everyone's problem their you know that preat seat stage you know that early you know kind of firsttime founder you don't have that track record where it's like the next time you go do another company it might just all flood in at once or easy it's done you have a track record exit it's easy but you know that first time tough so what were some of the called dance moves that you used well the first pette that I used was the fact that you have to have a number of plans right and so I think many times and I I get this question a lot from Founders it's like well you know I will want to raise $5 million and then they go and talk to an angel I was like that makes no sense because an angel is never going to write a check big enough and then they'll wait for the rest of the round to come together so if you're going um I had you know two or more plans at all times so if I went to talk to an angel or someone small I did have a in interesting path forward for me was a smaller round that allowed me to do XYZ and show um you know certain level of milestones and outcomes if I were to raise let's say I don't know a million dollars in total right so then when I'm talking to an angel who can give me 300K he like well I can see how we you know can put together this party round right uh really quickly at this early stage but if you're talking to a a large fond then you know and talking to them about raising a million that's also basting their time because if your appetite is only to you know get that far then it's not um it's not how their fund Works they need to deploy large amounts of capital and they need to show the return on that and so they need to see a whole different plan it doesn't mean and so I think that Duality is really important and um I think that many Founders from my experience find it difficult to actually think in two Dimensions or a number of Dimensions at the same time yeah it's a it's a tough Journey navigating that but you it seems like it worked out successfully for you you were able to trickle in um I guess what was the stages of the RS he raised uh kind of that first conglomerate Frankenstein round uh what did that conclude at when you raised the was it a seed that was the formal price or was it uh series a well it's uh so it stayed as an as notes and so that was C then we had sort of something we called I think seed plus and then we had an A so those two were priced rounds so the they kind of cleaned up the the notes yeah did you know that most Founders waste days of their lives chasing the wrong and s well as a Founder you know your time is your most valuable resource don't waste it on the investors that aren't going to write you a check here at Thunder we built a free tool that identifies exactly which VCS are worth your time to pursue we score your company against 3500 VCS and family offices that have been vetted and are actively writing checks into companies like yours get your AI recommended list of investors that will look like this absolutely free by 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VC now let's get back to the show so after you get to let's say the all to the seed plus where it's more form around I guess what what point were you at the company at this stage like in terms of traction and velocity and what was that fundraising cycle like compared to the you know previous yeah um well it certainly I think um in the early days right it was a question of network because I just didn't know any investors at all and so I had to really build that once I had investors I was really lucky to get um a couple of uh real really connected folks brilliant um Founders themselves who could empathize with the journey and what it takes and so uh they were really instrumental in later stage fundraising and introducing me to the right people and so from that point on it it stopped being a question of getting in front of the people I wanted to get in front of and started being a question of more continue to overcome these structural barriers that we had such as education and media um and then just having a great business that's um you know is hitting those 2x 3x expectations of whatever you know users or Revenue especially increasingly Revenue the closer to today we get and um and then you know just building and gr business that's pretty much what it is it it is coming down to that point of just making an attractive business for people to come into and and having those relationships early days to nurture and get to that point so what's something that you know knowing that the knowledge you have now and the experience that you have now like what are you going to do differently next time for your you know if you ever do it again well I think that when I started building a tech company um somehow the idea that I had to fundraise was just um the only option forward which I don't think it really is um especially if you're building something that's B2B uh you have to work really hard on getting that those customer checks and getting customer funding as I would call it um before you can um spend the same amount of effort in your investor funding um because that's just really proves the business model it um saves you so much time um you know going after investors especially if you're firsttime founder and you uh don't have an existing track record so I think that um thinking about monetization at the foundation of the business and ideally getting those uh customers signing the checks uh before you actually go to fund raise um for first time founder that's um that's really key and and then actually questioning whether you need that funding or not or thinking about various other options I think I just didn't for me it was oh you're building a software company so you know that's what you do but you know I didn't put a lot of thought into sort of what other optionality exists I really hope you're mentoring other Founders I feel like the lessons you're sharing the experience you're sharing is so valuable that I hope you're finding a way to give it back uh to to other Founders um I believe you mentioned you you you have your own podcast so I'd love to talk about that to towards the end for other Founders to absolutely thank you Jason that's a good entry for me but uh I yes it gives me a lot of Joy uh because I did learn a lot of lessons and I know that uh folks that I invite are all um Founders uh cosos and they learned a lot of lessons too uh but um most importantly the show is called Co unboxed and it's really talking about the the humans the leaders behind those company headlines and how did they persevere what brought them to entrepreneurship what empowered them to power through all the uh all the roller coaster rid that everyone goes through right there is no such thing as a smooth ride in entrepreneurship and so how do you keep your head cool and how how do you still stay happy and well or maybe they had some crisis moments most of them did everyone did and so how did they actually turn things around and so that's what the show is about so it's a CO onbox on Spotify and all the other podcasting platform and YouTube as well awesome we'll make sure to link those in the show notes so before um you know we kind of introduced you on the show one thing I want to go back to is the exit you know that's a pretty critical event for any founder and I want to understand at the point of basically when did you start engaging the idea of the sale were you approached did you guys pursue it and uh you kind of walk us through that journey and what that look like well I hope that I don't get um in in trouble for for saying it but I think what defined actually the exit journey and the fact that for me was extremely smooth uh because we had the first process that um blew up in my face and um that was a very painful and important learning and I definitely want um as many Founders to learn from it as possible I certainly know there are a lot of close uh Founders who learn from it firsthand but um I think that the actual process of selling uh class tag was very smooth we had reached the board uh decision to do it in um in fourth quarter of 20 uh2 and then uh we hired a banker uh we had interest in parties that we knew were interested from before reconnected with those parties we had new parties come in we ran a pretty smooth process a lot of meetings a lot of um conversations um then we got the Lois we selected the party we went to exclusive agreement and then voila the company was sold so it was pretty smooth was it really that smooth that sounds too smooth that sounds uh you know pretty clean I guess you know I guess taking a step back then it's like what what made you go to the board or what brought the board together to even want to just you know pursue uh a sale yeah I would say from a sort of a market uh landscape perspective there were a number of things that were happening and so obviously covid was very um important Catalyst for many things including education right in in one way the all of a sudden family engagement became more important than it's ever been which is good for us because we're family education family communication platform but what happened was that um because we were building a bottom Le motion all of a sudden these districts said hey this is actually our decision we want to be in charge because this family engagement is a key priority and key function of our district and so that's how we started doing um an actively growing our B2B SAS motion through kind of the product lead side but it also meant that uh we all of a sudden to actually uh do the things that we wanted to do if we were to stay independent had to build a brand new goto Market focused on these districts and so that means um massive sales team uh long sales Cycles with the districts that's going to take a long time to materialize uh that meant raising uh more uh more capital and so we um you know looked at that and looked at frankly what's best for these districts what's best for these district is to have best of breed together and so uh given the consolidation in the market it seems like the uh really a thoughtful uh opportunity to become part of this bigger ecosystem that has other components such as attendance and analytics that we didn't offer and has this big and powerful goto Market muscle um to bring our solution to many more millions of people who need it no it's a very thoughtful approach in terms of looking at the market and kind of what your options might be and and being able to pursue it do these firms uh in terms of the potential acquires they kind of come at you C did you already have relationships with them did you kind of pursue them what was that experience like yeah I would say over the years I've gotten I've talked to many of them because they reached out their investment bankers reached out their funds reached out so over the years I've been um pretty much picking up the phone when they called and so I'm meeting them at conferences and like any industry it becomes actually small over time if you're out there and meeting people right so I do know uh a lot of people in education and they I knew about the company and um certainly knew that it's a great platform that so many teachers and parents love it and so uh I would say it was um and it was also quite unique because it was sort of a new generation Solution that's really built for the modern uh world as opposed to sort of a lot of um old school Solutions that's um are still out there um and have a pretty large install base but you know they are old school uh so that was a great opportunity yeah I think the underlining theme Here what I'm hearing is constantly expanding and maintaining your network and building a great business I think those are the the two key takeaways of what you exceled at really really well um yeah I think that your insights have been you incredibly valuable to to any founder that's thinking about it because I think this is something that a lot of found struggle with in terms of how to allate their time and build a great business you know have happy customers generate Revenue yeah exactly build a business not a startup as they say yeah ah good well said well you got some good nuggets in here the uh investors want to see a they want to watch a movie and not see a picture and uh you know build the business on a startup I think that's the underlining sentiment of this market right now it's treating a lot of called startups not very well but favoring businesses real businesses that are real Revenue real you know margins to to grow in scale um that all said what would be some parting advice to to our fer Community to you know kind of what should they be taking into consideration beyond what you share to this point yeah I want to spend just a moment on what not to do in the m&a process I think that's quite relevant for the audience I think one thing is a lot of Founders get excited when they get these calls or emails from private Equity firms or whatnot uh interested in you um that's their job right their job is to reach out and um and even sign this Lois and go into diligence they are doing their job uh your job is to continue building a great business and so um I think it's really important to even if they're not bad actors but their job is this and your job is that right and you canot not afford for you or your team to get distracted especially if it's an inbound um and um the other thing I would say related to it is there are a lot of private equities who would reach out and they don't have a champion within if it's a tack on acquisition they don't have a champion as a CEO or leader of that um main company uh that's a huge red flag don't move forward unless you have a really good uh conversation and and relationship and partnership with that um CO as a as a champion because the risk of that deal falling apart at various points is going to be so much higher so if you want get on a plane fly see them have them fly whatever you need to do uh don't get into the deals that don't have an underpinning relationship in them so that's be my advice think that's incredible advice and I I kind of want to unpack it a little bit more to help some Founders understand that haven't been through an m&a process you kind of explain the sponsor aspect because every deals can happen in a bunch of different ways there's you know a corporate deal where it's like Corp Dev team and then there needs to be internal sponsorship inside the company and there's private Equity that do Bolton to an existing Fork go there's all kinds of interesting deal making that can happen but to be specific with what you brought up in terms of that that kind of sponsor uh can you elaborate on what that that person's role is who they are and why they're involved in the process yeah so I think it it just talks about sort of as a as a way of qualifying the interest right so if the interest comes from a sort of purely Financial standpoint which would typically be a Corp DAV or um or a private Equity Fund right they're broadly scanning the market their job is to evaluate various opportunities so that level of interest is let's call it has a probability of I don't know 3% of actually materializing then next level is when you have a corporate sponsor who might be a CEO of this acquiring company or maybe head of that department if you're talking about Google or you know larger organizations like that who um you know would have a specific request from that person whomever that champion is because during the diligence during the negotiation there is always some something right as you said I don't believe you there was smooth right there is always something that happens right some turbulence that occurs and that sponsor and your relationship with that sponsor is what makes or breaks the deal and um most of the deals uh I don't know the exact stat maybe you do Jason but vast majority of Deals they fall apart and I was absolutely clueless about it going in um I wish that so that's um so going in uh you need to know that what you have is a great business and that's what needs to survive whatever whatever deal you entering is well said and I've personally been through some deals that Fallen apart I got all kinds of horror stories of deals closing the morning up ble champag everything's ready on nice we're like let's close and then we wake up to a text say deals dead um you know that's it's very much a reality I think that's very valuable about advice of have you know it shouldn't be you know keeping the business going shouldn't be Plan B it should be plan a right and you know if you sell then you know you keep working on the business until that trigger point actually happens and then you make the necessary adjustments as as to preparing for the sale and only if the sale goes through um so I think that is a some wise advice for for any founder that finds himself building something valuable and you know stay focused on that value last right and and maybe just last thought on this is as you think about presenting your plans and financial projections forward you always want to think about how you would outperform the plan so you want to be optimistic but you don't want to be overly aggressive right because as you go into diligence the last thing you need is giving more reasons to renegotiate uh experienced people out there tell me every deal is you know the reason attempt to renegotiate it and if you're outperforming your plan relative to what you claimed that's your biggest lever uh that you have in your pocket to actually uh suggest that the negotiation would be in your favor if uh if they so desire yes now that's good advice so um L it's been absolutely amazing having you on the show we talked a little bit about your podcast can you remind everyone where they can learn more about just how to follow you where to learn more about your podcast absolutely so I'm uh quite active on LinkedIn so you can find me by my name vadina I also have a CO unbox podcast that's on YouTube Spotify and um you can find me there hope to connect with many of you no no I think uh any smart founder should be also listening to you because I feel your level of advice you're fresh out of it too so you you're very very much close to uh the details of what goes on and I think everything you shared was incredibly accurate to what is is very common for a lot of Founders to experience uh and you build a great business you know people were coming to you and I think that's the the number one thing that most Founders should focus on so yeah really appreciate you joining us on the show today and and sharing your your amazing experience thank you it was super fun thank you awesome thanks for listening to the show today we hope you learned something valuable and if you did be sure to let us know in the comments or by hitting that like button and if you're a Founder looking to raise Capital then join us at Thunder VC we provide a free 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VC and as a reminder we release new episodes every week so stay informed by subscribing to our newsletter at join. thunder. BC again that's join. thunder. BC and if you or someone you know has recently raised around and want to share your story please email me at Jason thunder. VC and that's our show we hope you enjoyed it and we see you next week