Fredrik Skantze is the co-founder and CEO of Funnel which designs and develops software/platforms that help marketers automate their data collection for reporting and analysis. The company has raised so far $65 million from investors such as Eight Roads Ventures, Balderton Capital, F-Prime Capital, and Industrifonden to name a few.
In this episode you will learn:
- Working with investors through a hard pivot
- What investors want to see when raising tens of millions of dollars
- His top piece of advice for aspiring entrepreneurs
- How they’ve built a unique company culture
For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).
Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.
ACCESS THE PITCH DECK TEMPLATE
About Fredrik Skantze:
Fredrik Skantze is CEO and co-founder of Funnel.io. Prior to starting Funnel he was co-founder of the automotive e-tailer Autoquake in London and worked as Product Director for mobile internet pioneer Openwave in San Francisco. He holds an MBA from Stanford and a Masters Degree in Engineering from MIT.
Connect with Fredrik Skantze:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today, we have a Swedish entrepreneur. I think we’re going to learn quite a bit from him. The good, the bad, and the ugly of entrepreneurship. The successes, the failures, the mistakes, scaling, fundraising, you name it. So without further ado, Fredrik Skantze, welcome to the show today.
Fredrik Skantze: Thanks a lot.
Alejandro: Originally born in Sweden. How was life there in Sweden growing up?
Fredrik Skantze: It was great. I grew up in the north of Sweden, so lots of snow. Then I moved around. I’ve also lived in Germany and Switzerland when I grew up.
Alejandro: I see that you studied in Brown. Quite a long distance from Sweden.
Fredrik Skantze: Yeah. I went to an American school in Switzerland and then decided to go and study engineering at Brown, so I did that and got my Master’s Degree at MIT in artificial intelligence and robotics. Then I went back to Sweden and worked in software development for a couple of years in the field of industrial robotics. But then, I went back to the U.S. to business school at Stanford.
Alejandro: You’ve done quite a lot of studies. Before diving deep into that, I’d like to ask you because here you go from engineering to robotics. What was that transition? What really got you into engineering, and then what got you to robotics?
Fredrik Skantze: I liked the products and inventing things, so that is what got me into the field of technology. I think, originally, I thought of technology as always being some big industrial. Then I discovered product, which was amazing, this notion of product management, how to develop product, and the methodologies around that. I got caught up with robotics, which probably was ten years before this new interest that’s coming into it now, and I really enjoy that also from a mechanical and electrical and software point of view.
Alejandro: After you had done all these years of studying, you went to Brown, and then MIT, two amazing universities and great networks that you were able to develop as well. But why did you think the business component was something that you had to bring to the table?
Fredrik Skantze: I went to Stanford because I felt that ultimately, I wanted to start a company. I felt like I needed not only the engineering part of it but actually also the business part of it. I wanted to bring that together and further the network, and get exposure to other people with similar ideas, and spend some time in Silicon Valley.
Alejandro: Which is something that you did. You spent five years there working for an internet-based company. Why did you put aside the possibility of maybe starting a business because I’m sure that many of your classmates from Stanford were launching their own businesses? Why did you decide to join another company rather than starting your own?
Fredrik Skantze: Going to Stanford, I wanted to exit Stanford and start my own business. My thesis was—AI had actually been at that point a disappointment, and most of the applications had been toys. What I wanted to do was start a toy company and apply AI and robotics to it. I felt what I needed to learn was about the toy industry. In my summer of business school, this was ’99, the height of the internet boom. My friends went to the internet companies of the day and didn’t want to go back to school because they got stock options for the summer internship. I went to El Segundo in L.A. and did an internship in the high-tech group at Mattel, which is the world’s largest toy company, which was an amazing experience. There were incredibly smart people from MIT there, and we worked with the media lab at MIT. I learned that it was a bit early for AI, and I came back, and I felt like the internet thing, which I felt was great phases and pretty simple technology at the time. It’s still going to change the world, and I wanted to join this. I ended up joining a mobile internet company, which was a pioneering company at the time called Sumacom, which became Openwave. It was the first wave of mobile internet, and it was very exciting. I was there for five years, and then I wanted to go back to Europe and spent a year with them there. Then I actually ended up launching my first company in Europe.
Alejandro: Let’s talk about that. For five years, you were working for other companies, larger companies. Finally, you make a decision to launch your own business. What was the process like, and how did you end up bringing Autoquake to life?
Fredrik Skantze: My co-founder and I spent a lot of time looking at the front technology businesses to see what we wanted to start. The model that we ultimately settled for was actually in the used car business. We felt it was incredibly inefficient, mostly to sell a used car was very hard, but also to buy one was very expensive. We started a used car retailer to sell used cars online. We raised about 30 million dollars from Accel and Highland in the UK to do that.
Alejandro: How did you meet your co-founder of Autoquake?
Fredrik Skantze: We met in London through a mutual introduction by friends from Stanford.
Alejandro: You were talking about used cars. What ended up being the business model of Autoquake?
Fredrik Skantze: The business model was taking used cars mostly from businesses that were selling cars like leasing companies. When a leased car is four years old, it comes off-line. It’s usually sold business to business to dealers. We said, “You can skip a step in the supply chain. We can sell it directly to consumers for you and give you more money back.” That was to appeal to the leasing companies. The appeal to consumers was that they get access to these cars much cheaper. We cut out a step in the supply chain. We could split that margin between the seller of the car and the buyer of the car. From our perspective, we didn’t have to buy any cars. We had the cars, and we had a full operation, but we didn’t own them. We didn’t have inventory risk. So from an investor’s point of view, it was a very nice, clean model with positive-working capital because we were paid before we had to give the money back for the cars.
Alejandro: Got it. You have amazing investors. You had Accel, Highland, and you did multiple rounds. You did Series A, B, C. How much capital did you guys raise in total for this?
Fredrik Skantze: We raised about 30 million dollars.
Alejandro: I know that the journey was a little bit bumpy. I know that you guys spent close to six years building this company, and here we are, talking about a company that went from literally 500% growth to a disappointing type of outcome. So, what happened, Fredrik?
Fredrik Skantze: Yeah, exactly, and that was a big mind-shift for me because, as you said, the company was incredibly successful and grew very quickly. In one year, we grew over 500%. I think we all thought we had found the next eBay. Then came the asset swings of 2008 and 2009, which was the previous recession, and that really caught us hard because we had invested so much in our growth and way too big a cost for us. We ended up continuing for a couple of years, but we never recovered, so we ended up selling part of the business. We never got anywhere near close to what we had for many years expected to be the exit. That was hugely disappointing, and it was a huge mind shift, and actually a bit hard to recover from mentally for myself, of course.
Alejandro: I can imagine. Obviously, the reflection part, I’m sure you got a ton of lessons from that. When you were reflecting, what are the things now that you would have done differently for that business?
Fredrik Skantze: I think the main lesson is that you have to get your uneconomic right before you start scaling the business. There are many stages in the business. The first stage is finding product/market fit, which is a graduate process, but at some point, you’re close. Then you have to find a good go-to-market model. Then you have to have reasonably good go-to-market metrics. But it’s very tempting to keep pushing too hard at all of these stages. Then you put on a big costume, and the uneconomic and the optimization in the business, and the health of the business, and the core of the product aren’t as strong as they could be because you are going to be spending all your time scaling that business. If everything isn’t perfect, then it’s even harder to scale it. So taking that extra year, and breathing a little bit, and making sure everything works, and getting the metrics better before you scale. Then scaling gradually, I think, was the biggest learning. Somehow, it tends to be that a couple of these companies come out at the same time, and you compete against each other. You feel that strong urge to grow, but really, these markets tend to be quite large, and it isn’t that often in the end that you encounter the competition in the early days. It is much more important to survive and get to spend five to ten years to work through the problem than to grow that extra 20% in a year or 30% in a year. Just taking that time and building a better company, the better product the more thoughtful way is a better way to do it.
Alejandro: For you, you were eluding to it. After investing all these years and raising the money, I’m sure that for you, it was quite disappointing and very hard to swallow as well. What was this process for you of dealing with the emotional side? Obviously, there is an attachment there to the business as well. How was that for you, and how did you bounce back from that?
Fredrik Skantze: I think it’s interesting. For most people, it’s when you end up exiting the business. We sold part of it, and we shut part of it down. When that happens, that’s when everybody goes, “Oh, wow. What happened?” As the entrepreneur, you’ve been on this journey up until then, and you knew some of this was happening. Usually, you end up having made your peace with it by the time it happens. My biggest concern at that time, we had 120 employees. They got into good jobs afterward. Then you’ve got to regroup. The good thing is, you need to make a living, so you need to find something else to do and move on. We had great investors, and we had such a great partnership with these investors. I learned so much from, and I worked with great people in the company. Every year was such a new, big learning experience that I was thankful for that learning experience. It’s not just about money, and I think I got a lot out of those years, and I’m really appreciative of those learnings.
Alejandro: All those investors that you guys had are super sophisticated. They’ve seen it all. Obviously, they have a lot of portfolio companies that as well go under because it is the nature of it. Startups are super risky. Did you get any type of advice from them on how to transition into the next chapter or anything like that?
Fredrik Skantze: They were very helpful and supportive. From my perspective, I had made up my mind. At that time, I was living in London. My family was in Sweden. It was time to come home. So, I ended up going back to Sweden and joining my wife there. I had a plan thought out for that, and it worked well.
Alejandro: You were going from one startup to another, especially, here personally because you were having your first child. I always say that children are like startups, but there’s no exit, and you only break even when they let you sleep at night.
Fredrik Skantze: Yeah, that’s true. It’s not necessarily always the best time to start doing another startup. Once you’ve done a startup and you’ve gotten quite far, and you’ve felt that energy, then it’s hard to go back and work for another company.
Alejandro: Of course, and you did it again. Tell us about it.
Fredrik Skantze: I ended up joining a marketing technology company that built some technology, and I offered to help them and do something with this. I met my co-founder there, and we spun-out some technology that he started to develop there around Facebook and Facebook advertising. This was very early when nobody thought you could advertise at scale on Facebook. But we believed in it. We had seen the journey with Google, and we felt Facebook was on the same path. The thesis that we had was that for advertising at Google, it was helpful at the time to have separate tools to do that. You need those for Facebook, all these tools were enterprise tools, and we wanted to make something like that available to SMEs at like $100 a month, a more consumerized version that you could pay with a credit card. We ended up convincing Facebook to give us access to their API and develop that tool, and that became the beginning of this journey.
Alejandro: And you call that company Qwaya.
Fredrik Skantze: Yes. Exactly.
Alejandro: This led you to now, Funnel, which is the business where you guys are focusing all your efforts. It was like a segue, and Qwaya is still up and running, but very much the focus is on Funnel. Can you tell us about that process and how all of a sudden, Funnel is the horse we’re betting on?
Fredrik Skantze: Yeah, absolutely. It was not a linear journey. We built this Facebook advertising tool. Our vision was always to move beyond Facebook and build something broader. We thought it would be a social advertising tool adding Twitter and LinkedIn and allowing people to advertise on social networks. We started with Facebook. It ended up being quite successful. In 2014, we did about 1% of Facebook’s revenue, about 100 million dollars through the tool. From Facebook’s perspective, we were at the time their only partner in the SME segment, so they were very impressed by how different it was and the need it was serving. But we were thinking about how to broaden this, and we spent a lot of time talking to our customers. They really didn’t want us to build social advertising tools. They wanted us to just build more features for Facebook. It was a bit frustrating because we wanted to build something strategically bigger that could be a billion-dollar company. But then when we spoke to them, what they told us they needed help with — we were also frustrated because we were the only Facebook advertising for the Me segment, but there 30 others for the enterprise segment. Everybody was building the same technology, and it felt like duplicating what everybody did. And Facebook built it themselves as well. We stopped and asked our customers, “What problems do you have that aren’t solved?” What they told us was, “We market on all these different platforms, and there are lots of tools that help us make ads and post, and lots of tools for optimizing them.” But when it comes to reporting, when it comes to figuring out how things are going, and when it comes to building the PNL for our marketing, everybody was using Excel or Google Sheets, and that kept coming back, and we said, “That’s interesting. That’s really interesting.” We just couldn’t find anybody to solve this problem, and we said, “That is the problem we need to solve.” We started looking at that and shifting our engineering resources to it. When we were getting ready to launch, it felt too big a difference from our existing products, so we launched it as a separate brand and called it Funnel, and we never looked back.
Alejandro: Obviously, that was a pivot, and pivots are always scary and risky. I know that at this point when you guys decided on pulling the trigger, you only had 12 months left of cash in the bank to support the operations. So how did you go about this?
Fredrik Skantze: That’s a really good question. It was a pivot. We had a business that was growing 100% to 150% year on year, and we had reached product/market fit and looked promising. But we didn’t feel like it had this opportunity to become a billion-dollar business, So, we ended up deciding to do a pivot, but it was a really hard decision, and we sat around the table for a long time talking about this because it’s a big risk, and you have to start over from the beginning. But we said, “We have a year’s worth of cash. If we’re going to do it, now’s the time. If we’re going to replace the spreadsheet in a year, we can do that.” It ended up playing out the way we thought. Customers had this need, but it ended up taking two years to build the product, to have product/market fit, and not one year. That was the problem because we only had one year of cash. In the end, we had to go and find more cash. Luckily, we had strong supporters in our early investors, big Swedish.
Alejandro: When you do a pivot, and also, this is very scary for you because if these guys would not reinvest, then that sends negative signals to the market, and people are going to be like, “Hold on. These guys have these VCs that are not reinvesting. There has to be something wrong with the business.” So how are you able to keep that communication and that incredible trust-building with the investors, when all of a sudden, there’s like a massive switch from that initial understanding of the project they were supposed to be joining, and now it’s becoming completely different?
Fredrik Skantze: Yeah. It’s a big challenge. We had a good relationship with them. They were on the board, and we kept in close contact, and we made sure we had metrics to show progress to give people confidence. I think what ended up helping us was our biggest investor who, at that time, was Industrifonden, a Swedish—it’s almost like a government fund that makes venture investments. They are a little more stable and have a bit longer-term view than maybe a traditional VC. They really stuck by us, and we appreciate that. Together, with them, they have brought in a smaller VC company, which is the team behind [23:43], and they also stuck with it and helped us, and together with some new Angel investments, we managed to pull through.
Alejandro: Very nice. What ended up being the business model of Funnel for the people that are listening?
Fredrik Skantze: The fundamental problem that Funnel solves is that you, as a marketer—the big trend is that digital is becoming the heartbeat of model marketing because, with a new audience, there usually is, there’s a performance promise, and also a promise of measurability and accountability. This past year was the first time that 50% of all advertising was digital, so the big brands are coming online with the big budgets. But to deliver on that performance promise, you actually have to have a process in place to be able to measure this, and that’s really hard because there are so many different marketing platforms. There are like 7,000 marketing platforms. The data has to be put together, and you have to put it in a way that you can see it. That’s the problem we solve. We pull that data together. You can say that we do three things. We don’t work on visualizing the data. We put the data in a visualization tool. Basically, there are great visualization tools for this. In the market, there’s like Google Data Studio, and then your great business intelligence tools like Domo and Looker. The problem that marketers have is they can’t get their data in there in an automated way. Basically, we do three things: 1) We take the data—and the data mostly resides in a different sort of marketing platforms online like Cloud tools. We pull the data in. That’s the first thing we do. 2) Then we do what we call, making it business-ready. We put it in a format that you can use it. We apply the data model, put it together by your business logic, which contains names you have, and then put that all together. 3) Then we put it together in a way so that the tools can actually visualize it, and we do that in an automated way. That’s what Funnel does. It’s a Software as a Service tool.
Alejandro: Very nice. For this being a Software as a Service company, I know that your culture is quite unique. How have you guys been able to build a unique culture?
Fredrik Skantze: From the start, we have always been a product-driven company, taken a long-term view, product first, and many companies do this, apply a lot of Agile practices for our developing team. Where we are unique is that we have taken all those practices and also applied them to our commercial teams. Examples of Agile practices would be: the team collaborates, they work together, the teams tend to be more self-organizing and having this one strong project leader manager. Our development teams work like that. Our sales teams and our customer success teams work like that as well. That’s very rare to get sales teams to sell together in teams as opposed to just focusing on their individual commission or their bonus and their leads and repeating about everything. That’s something we spent a lot of time building the culture, so you’d have sales teams that are Scrum boards and customer opportunities together and talk about them and help each other and stuff like that.
Alejandro: How much money have you guys raised for Funnel?
Fredrik Skantze: In total, we raised 65 million dollars. The last round was just a month ago. In January, we announced a 47-million-dollar round led by Eight Roads and F-Prime.
Alejandro: Very nice. Congratulations. For raising 47 million in one go, for a company of this nature, what are typically the concerns that investors are having that you need to fulfill to get the money?
Fredrik Skantze: I think that they look at three things. They look at the amount of revenue you have, and since it’s a SaaS company, it’s evangelized recurring revenue and the growth rate of it. They want to see a minimum growth rate and a Series B sort of large B round. I think they want to see at least a doubling of it in a year, which is what we did last year. We grew about 107% last year, and we’re forecasting to approximately double this year. Then they want to see go-to-market metrics that work well. At this point in the company’s life, you have a good sense of what the customer acquisition metrics are. How much does it cost to acquire a customer? What’s the lifetime value of a customer, and how those relate? What’s the average deal size? How is that moving over time, the churn rates, if you have negative churn, and so on? Then, I think, the final one is the strategic positioning. Can this really be a billion-dollar-plus company or two-billion-dollar company? Is the market large enough? Is the vision big enough? Is the market opportunity there? Are customers happy? Do they rave about the product?
Alejandro: Got it. It’s been quite a journey for you. It’s remarkable where you’re coming from and where you’re heading. There’s a question here that I typically ask the guests that come on the show. If you had the opportunity to go back in time and speak to that younger Fredrik, especially knowing all you know now with all the ups and downs and what you’ve done already as an entrepreneur, if you had the opportunity to have a chat with your younger self and give your younger self one piece of business advice based on what you know now, before launching a business, what would that be and why?
Fredrik Skantze: Actually, I have two things. I think when I was really young, I saw technology as big industrial companies, and I think I didn’t realize how exciting real technology and software can be, and all the different disciplines around it. It’s not just engineering, but it’s software development, product design, and so on. There are so many interesting disciplines. Then, getting a bit older, I wish I would have given myself a kick and gotten out and become an entrepreneur earlier because it’s such a fantastic opportunity to do, especially when you’re young.
Alejandro: That’s amazing. If you were to go to sleep and wake up five years from now and the vision of Funnel is completely realized, what does that world look like?
Fredrik Skantze: A fundamental problem that we solve is that business intelligence has failed business users and that they have great visualization tools, but business users aren’t able to get their data into these tools. We solve that now for marketing teams. When they sign up with Funnel, they can directly sign up for Funnel. They get their data into their visualization tools without talking to a technical team, without getting help, and it works. But nothing with that really has anything to do with marketing for any business user eventually. Over time, we feel that’s the biggest problem that we want to solve. We want to help the business users get access to their data. We feel like the business intelligence, and the adjacent markets around there could be ten times bigger if they really were made available to all business users.
Alejandro: Very nice. For the folks that are listening, Fredrik, what is the best way for them to reach out and say hi?
Fredrik Skantze: The best way to reach me is on LinkedIn. Fredrik Skantze on LinkedIn.
Alejandro: Amazing. Fredrik, thank you so much for being on the DealMakers show today.
Fredrik Skantze: Grateful. Thanks for having me.
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