Why Front's Series C matters

Equity
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Automatic TRANSCRIPT

I'm Alex Wilhelm and once again I have have denny Crichton with me Danny how are you doing. I'm doing awesome. That is that's enthusiasm. You are back in New York. I'm in Providence and I have to say I've I've had enough of this shit. I want some summer but the good news is despite the terrible weather and the time of the year. There is a gazillion things to get to. So I'm going to skip the usual faffing about and jump bright in. I'm going to start the show with front which I need you to explain to me why this particular funding round was such a big deal. Right you'RE GONNA kick off the entire show that so start with why. Hi the Health Care Front. Raise fifty nine million dollars in series C and Here's here's the deal. They didn't have a lead. They had no investors. There no lead V. V. C. WE KNOW Vision Fund. No no sequoia. Although Sequeira did the series B. on they actually lead with a couple of really prominent be to be CEO and founder so lasting Cassia and founder Mike Cannon Brookes octa CEO and Co founder Frederick Harassed Multiplex Co founder and CEO. Ryan Smith Zoom CEO. Eric Yuen. What's interesting here here is is? We're getting to these late. Stage growth rounds at a time when there's more growth money than ever and basically said now we're good we're just gonNA take from really prominent angels. Who all of that exited you know? Kind of startups and. So what's interesting here is twofold one is one the dynamic. VC industry which we can talk about more but to actually kind of the strategy here of front is a B. Two B. Product Arctic. Selling to other kind of B2B startups and so by taking this money from other kind of B. Two B. Sales centered Start founders and see IOS. They're really kind of like buying. I'm from their own customers so to speak right synchronicity. That's connecting the two together. So the fifty nine million dollar round had no lead. VC there was no like Kleiner liner coming in here right in the big check. I'm curious do you think that the disease that previously invested got pro rata in this round or do think it was all just money from these I guess executives turned angels. I think they've got Harada me. I don't think it was in the press. Release that they did but I am sure they did. I'm also not entirely clear that these folks took the entire round. I mean there could have been nate. Twenty or twenty five million dollars slug from around that was announced yama funding from a farm that was announced But nonetheless like the fact that it was positioned this way If you imagine in ten years ago this sort of round first of all wouldn't exist but this ground where we would said Oh a bunch of angels came in late stage. It'd be like well. This company must be doing terribly wrong Novi. ABC was willing to lead the round. Things have changed so much. That founder can literally say God. We got a couple of individuals around at the party. At the craps table they put in fifty nine million bucks. We're going wow unbelievable. They said no to everyone. It's amazing change in time. It is but also I'm kind of embarrassed by the number of people I know on this list. Like I know Frederick a little bit I know Ryan a little but I know Eric a little bit. I think I've met J. I mean I think I need to change industry industries because the the same eight people keep coming up. That's embarrassing to me. I need any new friends. Let's talk about what the company does front is be messaging kind of calms thing. It looks like email works for teams. I'm assuming this is kind of product aimed at customer support customer success kind of groups. Yes affront fronts. Innovation was really for a lot of top companies they have an email like support at techcrunch dot com or press at at Google Dot Com. Which is actually how we reach out to right? And so when that goes into Press Google Dot com on that actually gets centered and moved around the the thousands of people who are in Google Google to figure out how to respond to it. So if he's coming from an ad tech crunch email address like from us he goes to our tech crunch contact if it goes to APEC Asia. Pacific it'll go to someone who's live overnight overnight overseas and so basically thousands of people are accessing the same email inbox and so. Have you ever tried to do your own inbox with g million. No it's basically impossible with one goddamn person on the box. Now you had an hundreds of people all of whom are interacting with the same emails etc and suddenly. It's just a complete mess front. Took that and said Hey. What have we built in box from? Scratch zooming that. There are thousands of people or hundreds of people reading the same tickets reading the same emails. And how can we respond to it. Really really effectively. Huge problem tons of companies have it. They've been super successful. It's only a couple years old and what's interesting is actually the the founders are French It actually has a large Parisian office one founder Laurent Had A decade and enterprise. And then WHO's also female be to be founder of rare breed unfortunately in the industry who CEO up and she. She kind of came out of her master's disagree in two thousand twelve and dived into this and front. So it's a five year. Old Company raised one hundred thirty eight almost one hundred forty million bucks. An insane amount of money ended the speed was raise capitals crazy because their series of ten million was back in May of two thousand sixteen. Then Bam sixty six million early eighteen and then two years later fifty nine million so really. It's pretty frontloaded or backloaded. I'm sorry to kind of where we are in time now. I'm curious to see how much more capital they'll need to scale this to IPO. It's already kind of there. But certainly a lot of star power a lot of customers on this new investment and. I'm kind of curious that this is a trend that will see a flex from companies. That were so hot. We don't even need venture capital all the real stars of our industry the money in It's certainly a new way to approach it absolutely. I think one of the key lessons here at least for me was a company that really figured out product market fit super early on You know if you look at it was founded Five years ago it took two years to build out so uncork. Capital is sort of a firm that argues it focuses on product market fit. They raised three point. One million seed in October two thousand fourteen and then once they sort of got this product market fit. And it's sort of obvious today but looking back in time the idea that there d the SASS product to fix this team oriented email. inbox was sort of not a concept of. Now it's just scaling right it's all sales scaling And so we're seeing the rounds. Get faster and faster. Because they're repeated you you know the sales are repeating assuming the growth is repeating internally. The numbers look great. It's sort of classic SAS business I expect us to see as one hundred millionaire our club as you call it hopefully in the next year or two that there hasn't been announcement around the revenues but I expect it to constitute here about their W. two and a half year over year now has a pretty quickly quickly there probably. I Dunno just guessing. You're twenty thirty million era or somewhere in there and they'll be largest soon enough. Let's talk about the couple world through a different Lens. Though you have been looking at Tau really large funds cutting smaller and smaller Jackson. We're talking about funds at have billions in assets under management writing five seven million dollar checks which seems to make no oh sense. According to the old model of larger funds larger textile works otherwise. They can't really disburse the capital. But that's changing and I want you to tell you why because to fascinating fascinating kind of like nuance about today's venture capital market. Absolutely free front is a great example of this right. So here's a fifty nine million dollar check that no growth stage investor mister. WHO has a billion dollars ready to deploy was able to invest it and so we're seeing once again The largest funds billions of dollars. We had we talked about last week. Show I think we had twenty-one fundraisers that were over five hundred million last year. It was ninety one somewhere in that category so a ton of money deployed and so the idea that you would do early. Stage investments is nuts. Because you can't deploy million dollars a thousand times a year and so the challenges is like. Why are people doing this when I started asking if he sees the answer was well once the the cap tables in the series B and D are out there? They're locked it in a sequeira already in the a benchmarks already in the a founders fund the and they have the capital to deploy in the B A C D E F g all the way through the Sesame Street Alphabet All the way through and so by the time you get to the D. you have no access or in the case of front. No one had access suicide. Basically you have to lock in earlier in earlier and so even if you're the Softbank Vision Fund you WanNa throw four hundred million dollars in series d you have to be in the seed or the series. He's A to start to lock in that Barada to start locking in those early ownership rights. It just gives you more ball control later on because other people are going to kind of knock you out of the way to get around in place and so there's sort of this paradox. Where we're seeing? You know the the largest latest stage funds doing the smallest early stage rows and so that that was a really interesting dynamic that we haven't seen before yeah and the one thing to keep in mind that when I was learning about the BBC World you know maybe a decade ago. Now I was always told that if you couldn't find a new lead investor for the proximate round the next one. It was a very bad signal because it would imply that no one else in the market one to lead your Siri seafood areas to be and having Europe preceding investors. That were leads lead. Your next around was a very bad thing. Now it's entirely flipped on its head because capital is sufficiently unscarred so ample so much flowing around the people want to stay in a company. Preempt preempt that next round they want to lead be and then the as much of the capital to work as they can on a winner to ensure that they can return enough capital to make their large fund contractive enough to raise a second one. So it's a facet of there. Being too much money in the market is certainly a change. Compared to how things used to work it's actually an inversion but it just goes to show how in twenty twenty the way the world works certainly is at least in my experience new. I'm maybe it was like this back in the late. Ninety something but certainly it feels like a new chapter and I presume zoom. Welcome back to what used to be normal when there's less capital around but I don't see that happening for the next eighteen twenty four thirty six months so this this is the way it's going to be Danny presented for the next while.

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