Fundraising is never easy, especially for first-time founders; Pitching with investors and analyzing term sheets can be a nightmare.
That’s what Michelle Zatlyn, Co-Founder and COO of Cloudflare, reiterated in a recent interview with Qualcomm Ventures as she talked about her path from the seed round at Harvard University to more than $ 300 million and building a $ 33 billion IPO as she did at the same time steered sustainable growth over the past 12 years.
Cloudflare, a portfolio company of Qualcomm Ventures, is a global network that provides secure, fast and reliable internet access.
“The internet is a complicated place. Today everything has to be faster, safer and more reliable. Cloudflare helps with this. We’ve been able to use technology to take something very difficult and expensive to make it more accessible and easier for companies of all sizes – from startups to 17 percent of Fortune 1000 companies, “says Michelle.
As she shares her journey, Michelle shares some key leadership lessons founders can keep in mind as they move from seed to IPO.
Here is the edited excerpt:
You don’t always have to do everything right
Before starting her own company, Michelle worked in various roles and projects at multinational companies such as Google and Toshiba. She believes these experiences helped her learn new things, come up with new ideas, and create something meaningful.
She also says that having broad experience helps founders make life-changing decisions.
“But that doesn’t mean that you always have to do everything right. It means learning from it and getting better quickly. I got better with a high rate of learning and I stuck with it because I think it’s a really great superpower to be able to do that, ”she adds.
Who you hire is the most important thing
It helps to have great founders. But the most important thing that needs to be recognized early on is “who you are hiring”.
“Early, me and Matthew [Co-founder] made a really good family team. But we didn’t have a lot of industry experience. We wanted to recruit people who would try to complement our skills, which is important. Even today, with a 2,000-strong team later, we believe it is helpful to have a diverse team with different skills that knows the problem area, ”she adds.
Storytelling plays a huge role in raising funds
Michelle points out that in her experience, sharing a story rather than concrete answers during a conversation is much better, especially in early funding rounds.
“Telling a story early on can be very powerful. At first we didn’t have many sources of income. I think the story we go into and the other metrics to illustrate this and the value we provided were really impressive from the start.
Value the investment partner more than the investment firm
Often times, founders prefer to invest in top tier VC firms without worrying too much about the investment partners they are associated with.
“But I believe the person you are taking money from is a ton, and your care extends to them too. Ask people how the partners they invested in could help them through a difficult situation. Building a business is hard and sometimes you really want an investor partner who’ll listen, ”she adds.
Prefer simple vanilla term sheets over fancy reviews
Fundraising is never easy. As Michelle remembers, they were very nervous before the first partner meeting while increasing their seed round.
“We didn’t have lawyers. We had friends looking at term sheets and I didn’t know how to negotiate clauses. But we are lucky enough to win Venrock as an investment partner. We got two very clean term sheets – simple vanilla with no frills. Ten years later, that term still sets the tone for every lap we’ve done since, ”she adds.
Keep the business drama to a minimum
Michelle advises founders that at the end of the day, it is their leadership that can help protect the company. She related an incident when a really big investor came to offer them a billion dollar valuation in the Series C phase. The company was well known and it felt like an endorsement.
But the more time they spend with the company and investors, the more warning signs emerged. So they decided to withdraw from the investment. Six months later, they brought another investor on board with a 10 percent lower rating.
“I actually think that this very difficult decision has saved us a lot of headaches at the moment. Only you as a manager can decide this and make decisions along the way that will help you to be successful. You have to take this stuff seriously and make decisions. So try to minimize the drama in your company, ”she adds.
Hear more about this conversation here.
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