20VC Podcast: Harry Stebbings with Nathan Wenzel, Founder & CEO @ SimpleLegal (Transcript)
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20VC: Harry Stebbings with Nathan Wenzel, Founder & CEO @ SimpleLegal
Harry Stebbings: You are listening to The Twenty Minute VC with me, your host, Harry Stebbings @hstebbings (with two B's) on Snapchat. I'd love to see you there, where you can ask me anything you want, always love to hear your questions. But to the show today, we have a founder that is slightly different. They've just raised their series A, but unlike most growth-at-all-cost founders, this founder will be the embodiment of pragmatic and sustainable leadership. So, in the hot seat today, I'm thrilled to welcome Nathan Wenzel, founder and CEO at Simple Legal, his startup that helps legal operations reduce legal spend and improve operational efficiency. They recently raised that $10m series A led by leading theory led by leading SaaS investors Emergence Capsule with participation from our favorites in the team at Susa Ventures and Rincon Ventures Partners. I do also want to say a huge thank you to the one and only Jason Lemkin at SaaStr for the intro to Nathan today, without which this episode would not have been possible.
But enough from me, so I'm now thrilled to introduce Nathan Wenzel, founder and CEO at Simple Legal.
Three, two, one, zero.
You have now arrived at your destination.
Nathan, it's absolutely fantastic to have you on the show today. I've heard so many great things from Jason and the team at Susa. So, thank you so much for joining me today, Nathan.
Nathan Wenzel: Hey, Harry. Thanks, I'm excited to be here too. I'm big fan of your shows.
HS: That's very, very kind. And what a start! But I'd love to start with a little bit about you and how you made your way into the world of startup founding and came to found Simple Legal.
NW: Yeah, I'll tell you, it was, a little bit of, maybe a 10 year accident. My co-founder and I met each other on a consulting project and this was back in 2002 and so he and I really just kind of clicked and we found that we were doing the same projects over and over again and we said, "Hey, well let's, let's turn this into a, a product." Even that, then, took 10 years of running our prior business, which was a consulting business focused on dashboards and business intelligence. So if you were a company and bought Oracle BI or Cognos and you needed it to do something, you, you'd call our team. And we actually grew that business as a services business for 10 years and then, ultimately, found ourselves in legal departments across several companies, saw that the data was, was all the same, saw that the software was just universally not great, and then set out in 2013 to launch Simple Legal, the software company.
HS: Can I ask, was it very, uh, challenging mentally for you to make that transition, revenue wise, from a revenue services based business to a kind of software based business whereby you start from ground zero?
NW: Yeah, I think, mentally, we were all in. Our customers were not as enthusiastic. When we told them what we were doing, they said, "Well, fantastic, we will give you a, you know, a statement of work and a requirements document." And we said, "Well, no, no. This, this is a software, so you log in and you start using it." And they said, "No, but you're, you're the development team." And so, yes we built this product. So that was, that was one big challenge. So we had to reset from these very large companies and Fortune 100 companies that were our customers into very small startups. And so, that presented a challenge for the first 18 months. We built software, it was just the two of us, and we paid ourselves very little, so that was, that was not a fun period of time. We could grow a little bit, we could add customers, but never for the same reason and there was always a temptation to sort of fall back to just we can bill a few hours and not have to burn through our personal savings this month.
HS: And speaking to you there and kind of correlating that to prior conversations, very much one theme that you've said to me before that comes across is your kind of slow and steady approach to the journey. Now, I wanna ask, does this go contrary to the more traditional thesis of kind of VC and SaaS businesses in terms of plowing money in, hiring big sales teams, and really testing and iterating growth as fast as you can?
NW: Oh yeah, definitely. I mean, I think now there's a lot of talk about how startups can grow efficiently. Uh, but when we were coming out of YC in 2013 and into 2014, that really wasn't the sort of dominating mindset. Yeah, we actually, we got some advice, and it was very good advice, from a well-respected VC and they said, "Look, take the money that you have raised, bill higher for interns and hit the funds. And if the product sells, then great, you know you've got something. And if it doesn't, you shut it down and move on." And it was great advice, but we were right not to follow it. We knew we had something and we knew we just needed to get to the right product market fit, we knew we needed to get to the right sort of milestones in terms of customers and feature set, and so we took our time. We spent 18 months to get it right, but once we saw that it was working, we took another 6 months before we hired our first employee and it was definitely different. Most of our YC batch mates were not following that process.
HS: So many things to unpack there. One, the kind of immediate question is what type of business do you think this slow and steady makes sense for? And are there any types where it really doesn't?
NW: You know, I think in SaaS, especially in enterprise SaaS, it's probably okay to start that way. I wouldn't recommend continuing that way once you found your fit, but it seems to be okay there because the idea of move fast and break things really doesn't work if you need to be Sox compliant and if you're asking your customers to trust you with their financials. In our case, we really sit at the intersection of the CFO and the general counsel. And so, that slow and steady is probably the right approach.
HS: And then, those that maybe it doesn't, is it like consumer facing, uh, social networks, e-commerce startups where slow, where slow and steady may not be so applicable?
NW: Yeah, you know, I think it's probably all the businesses that I don't know how to run. So, consumer and then there great businesses out there, like Atlassian, that, that have just thousands and thousands of customers and, and probably more, where they're able toÔøΩ The effort it takes to buy the product and to use the product is very low. Uh, anything that's more like an app that you can just start using, I think your best bet there is you just move as fast as you can and get as many people as you can using the product so that way you can, you can iterate from there and make it better.
HS: So, if we have a founder, then, that's decided on the slow and steady growth model, I, I do have to ask, what level of slow and steady is still enough for hope to be within the founding team that the journey has the legs to survive? Is there a kind of 5%, 10%? Is there a growth rate where you'd say, "Yes, there's still traction points to continue"?
NW: Yeah, I think that depends on the stubbornness of the founder. I mean, I think the one thing that maybe I do better than most people is I'll just keep putting one foot in front of the other longer than anyone else and soÔøΩ And it is really, is, in those, those early days just a mental process to try to get through. And so the slow and steady, it's something you should do as long as you believe that what you have is going to work. So we, we would get customers, we would get them for different reasons, though. So if we were not growing at all, that would have been problematic and we, we probably would have figured out something else. But we would get customers, never for the same reasons and it was never really the same process, but as we learned more and more, we started acquiring customers for the same reasons and then the sales process became, you know, very similar from customer to customer and so we always saw improvement. So I think rather than the, the sort of rate of growth, it's more about are you improving it? As long as you're accelerating, no matter how small, then I think you know the growth will come because, with SaaS, especially if your churnÔøΩ Our gross churn was near zero. As long as you have that growth, then you know that something good is coming on the horizon and then it's just stubbornness at that point.
HS: Can I ask how did early VCs interact and respond to you when you presented this slightly extended period of kind of searching for the product market fit? How did they respond to that kind of extended period?
NW: Well, they all said, "No," so that was pretty easy. I mean, our prior businessÔøΩ So we're first time venture batch founders, but, but not first time founders and so, you know, we didn't really know what we we're doing. We applied to Y YCombinator a bit just to go through the process of the application. And when they, they said, "Well, you're accepted for an interview," I said, "Well, fantastic, we get 10 minutes of free consulting from, from some of the best in, in the business." And so, you know, once we got through the program, we pitched to one of the VCs that were sort of interested, they were outside the Bay Area, so they were a little bit more okay with our mindset, and I literally had, in the first iterations of the slide deck, that we would just slowly add customers, one by one, and occasionally get large customers, and then we would start to grow. And that's not something that VCs wanna see. Uh, so, yeah, it did not work well.
HS: No, I'm sure that didn't go down well. But kind of touching on this approach and kind of the, the master thesis behind it, you recently posted on Twitter, "Most Bay Area millennials have never seen market corrections. One bin, one to go." So tell me about this. And what did you learn, firstly, from your prior market correction?
NW: Yeah, so I'm 39 now, so I'm old enough to have been through the dotcom boom and bust in, uh, sort of late 90s and early 2000s. I, I was coming out of school in '99, so I, I hit at, at a great time. And then, watch the company go from 10,000 people to 0 because they spent themselves into the ground and their customers were all equally on shaky financial conditions. And then, as we grew our consulting business and in 2008, 2009 saw the real estate market correction. I think this idea today that VC money is just always around the corner and if you need more money you just go and ask for it, it's a dangerous assumption to make and we've already seen companies that have raised tens of millions of dollars just disappear overnight because they thought this never-ending supply of money would, would just be available to them. And that's, that's something that's hard to shake if that's the only thing you've ever seen.
HS: Can I ask how do you view the burn rates of some of that emerging and rising companies in the bay today?
NW: You know, it's a challenge. I mean, for us, we were net zero burn for the first year and a half. Uh, our personal burn rates were, were not net zero, but our company net burn was near zero. Once we raised money and found a fit, we actually dialed up our spend a bit and then, more recently, we've, uh, we've added several people to the team, but we always keep an eye on what it would take to become profitable; we know where that number is. I think one of the things that Jason Lemkin promotes is always knowing your zero cash day and I think that's important, but I think it's also important to know well, what's the day that you become profitable? And if you keep your eye on that, then you can dial up burn to, really, I, I think as high as you can, knowing where profitability is.
HS: Uh, but I do wanna touch on the other element of that statement. You said, you know, "One bin, one to go." What makes you suggest that that's an impending one coming soon?
NW: Well, I think there's just natural cycle to it and that people operate on greed or fear and, and when you see the stock market run up, when you see the valuation in the private markets run up, it's gonna revert to the mean. So any, any major downturn, you know that's gonna come back. I think in the real estate downturn in 2008 and '09, in the financials crash, I had a number of my employees and, and even customers ask, "Do you think we're gonna make it?" and that was sort of a weird question because well, if we don't make it, then that means we're all need to become farmers and hunters. So you're going to come back from a crash and you're going to come down from a, from a bubble or from a peak.
HS: Can I ask how do you sustain moral in a time of such macro uncertainty, like you said there, "will we make it"? How do you, as a leader, sustain that kind of optimism and morale and keep the team united in one direction?
NW: Well, I think there you look for successes sort of locally, right? You look for the wins in the customers that you have, you focus on internal items, you focus on your company, you focus on your customers, on your product. And I don't know that the macro-economic condition really changes, you know, anyone's individual perception of whether you're a success or failing at any given moment.
HS: I think one big determinant of whether you're a success or failing, particularly in the Valley and in the wider tech ecosystem, is if you're raising money. And so, I want to finish there on a congratulatory note. So you've recently raised a fantastic A round from a leading investor, so talk to me, how did you strategize the process? I know you're a rule follower, so walk me through this one and how you kind of orchestrated the round to get three term sheets to land in 36 hours.
NW: So it was a, it was an interesting process, it was very different from our seed process. Uh, we had raised a $2 million seed round at the end of 2015 when weÔøΩ We had found product market fit, we saw the growth coming, we started hiring the team, and we really went out and found one specific VC we wanted to work with. We work with Rincon Venture Partners, they're fantastic for us. And then, as we approached the end of 2016, we thought, "All right, well, the growth has been there. It's time to raise the A round." At that point, we wanted to run a very different process, so we had started talking to a few VCs early. We kept the list very focused on heavy enterprise SaaS, top down sale types of VCs. We didn't really give out a lot of information, we wouldn't give out revenue information, really just wanted to talk to the partners to identify who would be the best partner for us. And so, we started pitching, actually, at the SaaStr annual conference at the beginning of February and then, a month later, we had three term sheets all come in within a day and a half of each other.
HS: I mean, what, what a brilliant orchestration there. But I do, I do have to ask, you said there about kind of not displaying revenue numbers and just sitting down and talking with partners. VCs are always asked, what do you look for in the founders you back? What do you look for? I'm intrigued. When you sat with the VCs that you did, what was it that gave you, gave you those seeds of hope that you'd really like to work with them and what made you, ultimately, decide to work with those that you did?
NW: Yeah, I mean we raised the, the $10 million round with Emergence as the lead and, and, specifically, Santi is the partner and I think a big part of that for us was, was just having extended conversations with him. Santi, in particular, had run a business. He had actually bootstrapped a business and I, I don't think that's necessary, certainly not necessarily to be a successful VC, but it does give you a certain knowledge of how to operate a business, how to run it. You know, how to get revenue from the top to the bottom of the P&L when you really need to. And so that was a big part of what we were interested in, plus he's, he's seen these kinds of businesses before. They've got great investments in this top down sale. I mean, we were really particular. We actually, we were focused on not only just heavy enterprise SaaS, but also the top down sale and then not a sales product for a sales team and then not a technical product for a technical customer. I think those sales motions are different. So we were fairly specific in what we were looking for and we're really happy to work with them.
HS: So you kind of take a very much an ABM approach to VC selection almost.
NW: Yeah, I mean, we definitely had a target list and, and narrowed it down and, and we had suggestions of well, you know, have you talked to this VC or that VC, and, and we said "Well, well, no. I, I don't think that they would be as helpful as, as we would like." And we had an advantage of we didn't need to raise money. Had we chosen not to raise money, we would have been profitable by the beginning of the third quarter and so we got to, we got to have the flexibility that I think a lot of startup founders, uh, would like to have and, and really the key there is just make sure your business is successful and then when you don't need to raise money, then you can.
HS: I think that's absolutely it. Make sure you don't have the capital constraints whereby VCs know that you're in a corner and then can push you both on valuation and timing.
NW: Yeah, I mean, we even had the advantage of our, our seed investors. Um, we went to them and said, "Hey, if we don't get the terms we're looking for can, can, you know, can we raise a small amount of money from you?" and they were on board. And so we knew we had not only the business to backstop us but also our investors.
HS: I do wanna finish, though, and before we dive into a quickfire by kind of self-reflection on the rounds themselves. What do you think you did well and what would you like to improve upon for the series B?
NW: [laughs] Thinking about the series B already, that's, uhÔøΩ
HS: Always be raising, always be raising, Nathan.
NW: Yeah, yeah for sure. It's hard to second guess yourself looking back. I mean, it, the way that we got to be introduced to Rincon for a seed round, was, I don't think you could put that together a second time if you tried. Uh, we had pitched a VC coming out of YC and they rightfully passed; we, we were not really ready yet. But one of the partners saw something in us and so he made a personal investment and so that was Leo Polovets from Susa Ventures. And then he's how we got introduced to one of the partners at Rincon, um, because they happen to be on a board together. And so, it's hard to really think about what you would do differently because you would lose the journey of how you got there and I think that's important. I mean, I had one of theÔøΩ John Greathouse from Rincon, I was having a conversation with him and something came up and I said, "Well, you know, we're gonna grow this business for you and, you know, we're gonna make it a big success," and, and he just laughed at me and said, "Man, I'm in this for so much more than just the money at this point." And so, when you have that level of personal relationship, it's hard to say you would change anything because it sort of came out exactly the way you wanted.
HS: No, I completely agree. I think that's also a very kind of refreshing perspective from a VC as well. So, um, but I'd love to dive into a quickfire round with you now. So I say a short statement and then you give me your immediate thoughts in 60 seconds. I'm very strict. How does that sound?
NW: That sounds great.
HS: So let's start with your most favorite book and why?
NW: You know, it's got to be Only the Paranoid Survive, uh, Andy Grove. I think that book changed how I viewed startups and it basically gave me the reason for why startups can win over these large players that should just dominate them from the beginning.
HS: Have you read High Output Management?
NW: I've not read that one yet, no.
HS: Add it to the list. It's, it's a special one. Uh, and then, I'd love to hear what do you believe that most around you disbelief?
NW: I think a lot of it is, is just, especially in the startup world, is building that successful business, is, is the key and I think everyone says that but no one does. It so it's, I think everyone says they believe it, but no one actually follows through on it.
HS: Your biggest surprise from the YC experience?
NW: Yeah, you know, I think there were two. Uh, we went through, uh, I was 35 at the time and I was not the oldest, uh, so I think the idea that YC is really just for, for 22 year olds is, is kind of a myth. And then, the other one there was, you sort of think it's going to be thisÔøΩ Just a big social scene and kind of a big party; they're all business, right? You get there, it's pretty Spartan on the inside and the only thing they want to know about is how you're growing.
HS: What's your favorite blog or news? What are the must reads when they come in for you?
NW: Uh, well, there's definitely the SaaStr blog. I've spoken to Jason and told him I needed to sweep the office for bugs because it seemed like everything he wrote was just spot on, aimed right at us.
HS: Yeah, he does have a, a, an uncanny ability to do that. But then, hire fast-fire fast, do you agree or disagree?
NW: You know, I, I disagree with that one. I think, I think the manager's job is really to find how their team can be successful. If somebody's not working out, then, then certainly you, you have to help them find something else outside the company and I think you should do everything you can there. But also, hiring, I think there are certain roles where you can hire fast but other roles, uh, where you hired quite slowly. We, we took 6 months to hire our director of marketing for our first marketing hire and we couldn't be happier. With that one, we certainly did not hire fast there.
HS: What did you hire fast for? And you said there are some you can, which can you?
NW: Sure, I mean, we hired two account execs very early on as we started hiring people and so that one we definitely moved faster on. I think our STRs we move a bit faster on. I think you have a bit more objective targets to hit and so if you bring people and quickly, then you're able, you're able to identify very quickly if they're, yeah, able to hit those targets.
HS: And then let's finish on the next five years for you and SL.
NW: Yeah, you know, I think it's all about growth. I mean, we've got the products set, we have our core two components of our product that really laid a foundation for companies to operate their legal departments, we have customers, uh, into, kind, of mid 5-figure ACVs. And so, just building on that, it's more of the same. I mean, that's, that's how we raised our, our series A. We said, "Look, I don't want to do anything different, I just want to do more of what we're doing now."
HS: Absolutely, Nathan. And I cannot wait see the future that lies ahead. As I said, I heard so many great things from Leo and from Jason. So clearly, the, the love is mutual. Uh, but thank you so much for joining me on the show today.
NW: Great. Thank you, Harry.
HS: And I'd like to say a huge thank you to Nathan for giving up the time today to come on the show and some very exciting times ahead for him and Simple Legal with the fantastic series A from Emergent, Susa, and Rincon venture partners. And if you'd like to see more from us, then you can follow Nathan on Twitter @nwenzel (N-W-E-N-Z-E-L) or you can follow me on at Snapchat @hstebbings (with two B's). It'd be fantastic to see there, where you can suggest future guests and future questions for future guests on the show. I'd love to hear your thoughts and feedback on that.