Tim Hwang is the co-founder and CEO of FiscalNote which uses artificial intelligence and big data to deliver predictive analytics of governmental action to determine its impact. The company has raised $230 million from investors like Mark Cuban, Jerry Yang (co-founder of Yahoo!), New Enterprise Associates, Plug and Play, AME Cloud Ventures, QueensBridge Venture Partners, Dorm Room Fund, Winklevoss Capital, Middleland Capital, Visionnaire Ventures, or 645 Ventures to name a few.
In this episode you will learn:
- The biggest opportunities in digital transformation and automation
- Net retention and whose job it is to keep customers
- What a powerful cold email looks like
- The most important piece of advice when starting a company
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.
The Ultimate Guide To Pitch Decks
Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.
About Tim Hwang:
Tim Hwang is currently the Founder and CEO of FiscalNote. The company owns media and news company CQ Roll Call Group, which it acquired from The Economist Group in 2018 and creates a technology platform that combines award-winning journalism along with products and services that provide access to large quantities of data, news, and analysis for all levels of government.
The global company with offices across DC, NYC, Baton Rouge, Seoul, India and Brussels is the largest privately held company in the legal analytics and regtech space and powers over 4,000 of the world’s largest and most influential corporations, associations, non-profits, and law firms, creating a more open and transparent society through data.
With Hwang’s technology and capital partners from the likes of Mark Cuban, Jerry Yang, Steve Case, NEA, Renren and others, FiscalNote is revolutionizing access to legislation, regulations, and court cases for organizations around the world.
Connect with Tim Hwang:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone and welcome to the DealMakers show. Today, we have a guest that is going to teach us a lot about artificial intelligence, about big data, about M&A, capital raising, cold-emailing investors, and you name it. So without further ado, Tim Hwang from FiscalNote. Welcome to the show today.
Tim Hwang: Thank you for having me.
Alejandro: So originally born in Michigan, but raised in Washington D.C. Why that switch?
Tim Hwang: My parents actually immigrated here from South Korea when I was much, much younger. I think they thought that there were opportunities in America. My father actually ended up working for the United States Government. He worked for NIH and NIST as a biophysicist. So where do you go? You go to Washington to be at the center of government.
Alejandro: Yeah. So you were basically raised there and school in suburban Maryland, which is beautiful to raise families. That actually opened the doors for you to get involved in politics very early on, and there was a lot of action starting at 16 years old. So, what happened?
Tim Hwang: The thing is if you work in Washington, D.C., the thing that everyone talks about, the thing that everyone breathes is politics. You live and breathe politics all day because so many of your friends, your friends’ parents, everyone you know works for a federal agency, for a law firm, for a trade association, whatever the case is. So I was sucked into that world very early on. I started working on political campaigns, working with different candidates, and the like. When I was 16, a friend of mine called me up and said, “You should probably look at this guy who’s running for president. It’s kind of a funny name, and not a lot of people know about it, but I think this guy has a shot.” That guy turned out to be Barack Obama. I ended up joining his campaign late ’07, helping to build out some key communities around the country. Then low and behold, he actually ended up winning, which was truly an interesting experience to be along for the ride. We used to call it the largest and fastest-growing startup in American history going from just a handful of folks to a billion in contributions in all 50 states, and trying to set up a government at the same time period. Then I decided that I was going to go into politics myself. So when I was 17, I ended up running for the board of education representing Montgomery County, Maryland. To be honest, to my surprise, people actually voted for me.
Alejandro: Tim, before we get into that, what did you learn from working with Barack Obama? What made him such a great leader?
Tim Hwang: I think the way that the President ran the campaign. A lot of people got inspired. Not just in terms of the policy messaging and whatnot, but even just the nuts and bolts of the operations. About decentralized operations, trusting your people, being very data-driven, being very methodical, being very values-driven. Those are the winning elements of building a great company and building a great organization. To this day, there are concepts that I think through even as we build our own company.
Alejandro: One thing that I saw at that point, social media was starting, and I remember Obama getting involved with Facebook and things like that. How much do you think that being able to really capitalize on new innovations and such incredible strategies like that was a factor behind such an incredible growth?
Tim Hwang: When you think about this intersection between politics and technology, we’re really only beginning to see the starting stages of that. When it comes to political campaigns, they’re obviously the highest stakes issues. But even in terms of just governance in the way in which citizens interact with public institutions, the way in which we think about transparency and accessed information. Just the sheer connectedness between our governments and our people is radically changing. Not just in the U.S., but around the world. That was, obviously, one of the many inspirations that we had for starting FiscalNote. To be honest, that intersection of politics and technology is a very, very inspiring and hot field for us.
Alejandro: Yeah, and we’ll talk about FiscalNote in a little bit. So at 17, you ran for public office. What was going through your head, Tim?
Tim Hwang: I think at 17, first of all, you’re thinking about a lot of things. You’re thinking about taking the SATs and where to go to college. But for me, I think I was just so inspired I wanted to make a difference early. So from a political perspective, running for office is probably the best thing that you can do. There’s a seat that opened up in local government. That’s basically the first step to being involved in politics is just showing up. So, I put my name in, campaigned, got elected, managed about a 2.5-million-dollar operating budget, 4-billion-dollar capital budget, and served roughly 22,000 teachers and 11,000 administrators. It was a great experience. It gives you on-the-ground experience of what it’s like to be a politician, what it’s like to manage budgets, to think about tax revenues and your interactions with state, local, and federal government agencies and all different machinations of governing an actual agency or government institution.
Alejandro: What is it like to be a politician?
Tim Hwang: Not just to be a politician but actually be somebody who thinks very heavily about policy and its interactions with the public. A lot of what I did was trying to actually revamp our communications architecture of how at least our agency institution thought about interactions with the public. Largely because education is probably the most visceral experience that a lot of people have with government institutions: the schools that we send our kids to, the curriculum that they learn, and the like. I mean, all the way down to the property taxes and the interactions that we have there. We fundamentally thought about all these different issues for the public.
Alejandro: How many people did you have under you? I mean, 17-years-old, 4 billion in capital management there? Were you getting vertigo? How many people did you have there working with you?
Tim Hwang: I think we had about, I would say about 22,000 teachers and about 11,000 administrators. I remember very early on in my tenure we would go from school to school. We had about 200 schools in our district, just trying to meet as many parents and as many teachers, administrators, and students as possible. Our district represented roughly just over 1.1 million people. It was definitely a great learning experience for me about just how to be a leader in the community.
Alejandro: Got it. Wow. Seventeen years old. You were probably signing autographs in your high school class. Why do you say goodbye to all of this, and you get this love for computer science and go to Princeton?
Tim Hwang: I think that for me, I’ve always thought about impact, and how in our very short life you can make the maximum impact in terms of the work that we can do and the lives that we change in the world. That’s one of the reasons why I went into politics. Politics is one of those areas where for one unit of time, the impact that you have on people is almost everlasting. In health care, education, foreign policy, whatever the case is, these are areas where every day you’re making a difference. I saw very similar elements of that in technology. In technology, the tradeoff is that actually, the pace is much faster. Whereas we would work in Congress to try and pass one piece of legislation, and it might take years or a decade or whatnot. In technology, I saw that people were building applications. They were building software tools that were getting rolled out in months and were immediately making impacts on the lives of millions of people. I felt like that was where I wanted to be. I originally, actually went to Princeton with the understanding that I wanted to sit at this intersection of policy and technology. I had studied the Woodrow Wilson School, specifically the focus on technology policy in computer science. My initial thought was that I was going to go back to government and work for the State Department or the FCC or something. But increasingly, I felt like what if I flipped this and took my policy politics background and went into the technology world? That was the major switch for me, switching into the technology field.
Alejandro: So, what happened next?
Tim Hwang: At the time, I was graduating from Princeton and had gotten myself into Harvard Business School. I was very seriously considering, and I actually showed up for a couple of days, but I decided that I wanted to start a company. There’s never a better chance to start a company than when you’re straight out of college, and you’ve got nothing else to lose. I moved out to Silicon Valley, grabbed two of my buddies from school, bootstrapped a couple of thousand dollars from summer savings. We were actually living out of a Motel 6 because we couldn’t afford an apartment at Silicon Valley. So you can imagine this experience where we had these two beds. Up until our fifth employee, we had two guys sleeping on each bed, and one guy sleeping on the floor. That was our first office.
Alejandro: Why did you guys move there? Why did you guys move from the East Coast to the West Coast?
Tim Hwang: Well, when you’re young and want to start a company, you just go to Silicon Valley. Right? It’s sort of where dreams are made of in the technology world. Honestly, we didn’t know what we were doing. But we wanted to start this company and this idea that we had been mulling around for a little bit. So we made our way out to the Valley, and that’s where we got started.
Alejandro: So what was that idea you guys were incubating? What was that process?
Tim Hwang: When I was working in government in policy, one of the biggest issues that we had was that if you worked in government, a lot of the time that you spent was actually trying to understand what other people in government were doing. So if the president wanted to change the minimum wage law, you’d have this team of economists and analysts and lawyers sitting in a room somewhere trying to look up what the laws were around the country. Or when you’re setting an education policy, education is one of those things that’s heavily regulated at federal, state, and local levels because everyone has an opinion on how their child needs to get educated. The challenge of just cutting through all that regulation was so immense that you just have to have teams and teams of people to do it. So I was thinking to myself, “Look. If the government doesn’t know what the government is doing, then how does the private sector understand what the government is doing?” If you’re sitting in an insurance company or a bank or health insurance company or an energy organization, how are you supposed to understand the implications of government on your institutions? We decided that we want to build initially a search engine with the ability to search all of America’s laws: legislations and regulations on one singular digitized platform and get a sense for how laws are changing. That’s what we built. We literally sat in a Motel 6 room. We were coding up this system to ingest legislation, regulations from all 50 state governments, from Congress, and to make that searchable and accessible to our constituents and customers who would be interested in this information.
Alejandro: Got it. So it was five of you. You installed the extra beds in there, and the founding team there were three of you guys. Right? What kind of backgrounds did you guys have?
Tim Hwang: Two of us were a little more technical. I had been studying computer science since high school, actually. Another one of my co-founders who had majored in computer science was actually on his way to a software engineering job at Booz Allen. The third co-founder had more of a financial, operations background. He was actually on his way to working at an accounting firm at EY. I remember my co-founder asking him and saying, “This idea, let’s go pursue it.” He actually quit his job I want to say, three days before he was supposed to start when we moved out to the Valley. That was basically it. We had three guys who had this idea and went out to the Valley to start the company.
Alejandro: So, for how long did you guys stay at the Motel 6?
Tim Hwang: We were there, I want to say for a good five or six months; a little less than half a year.
Alejandro: Did they see how you guys were working there like in the room. I mean, I’m not sure if there are any regulations against that.
Tim Hwang: That’s the ironic thing. We moved around a little bit. We went to an extended thing for a little while. But getting a month-to-month apartment in the Bay Area is near impossible.
Alejandro: No, I hear you. What were some of the early days like of FiscalNote?
Tim Hwang: We were working crazy hours. I want to say that we would get up 8:00, 9:00 in the morning. We’d code. We’d call customers, pitch investors, create marketing products. We’d work until maybe 1:00 or 2:00 in the morning, every day, seven days a week. We were really grinding it out. I think in a lot of consumer stories, people say, “Oh, we had this great idea and it just took off.” I can’t say it was the same for us. As a B2B enterprise software company, meticulously-built product, talked to customers, got feedback, just kept iterating over and over and over again. At the same time, we were paying ourselves something like $500 a month, scrapping together food, and whatnot. It was definitely a real grind for us to get this company off the ground.
Alejandro: What was an event that helped you guys to get out of the Motel 6 and stop eating Ramen?
Tim Hwang: Well, we started signing some customers, some beta folks that we brought on board. I started pitching investors about this grand idea for the ability to search all of the world’s laws on a digital platform. One investor that I reached out to through a cold email, actually, was Mark Cuban. I went on Google, searched the Mark Cuban email. Quite literally shot him an email and said, “Hey, Mark. I’m working on this idea. I feel like it could really change the way that the world understands laws and regulations.” He responded within 45 minutes, and he asked a bunch of questions. Then very soon afterward, he said, “Look. I’ll lead your entire deal, your seed round.” So Mark wrote the first $740,000 check into the company.
Alejandro: How long did it take for that, Tim? Was it just via email or via phone calls and meetings in person? What did it take to get that $740,000?
Tim Hwang: It was a bunch of emails back and forth. I think it was one phone call with somebody on his staff, and it basically took a couple of days. Mark moves quickly, and I think he knows what he wants. Mark has been a great partner ever since.
Alejandro: Did you guys have any other investors, or was it just Mark Cuban? Walk us through how that round came together?
Tim Hwang: Mark was brought on onboard. Then Jerry Yang heard about it, and he reached out and ended up joining the deal. NEA ended up joining that seed round. This was back in 2013.
Alejandro: So Jerry Yang, the founder of Yahoo, did reach out to you? Like literally, one day you wake up, you have your coffee with whatever you have with it, and then you opened the inbox, and there’s an email out of the blue from Jerry Yang?
Tim Hwang: No, no. I had been out in the Valley pitching folks and talking to people. I was at this pitch event. I remember having to leave early or something. At this point, we already had Mark and NEA. My co-founder texted me and said, “You know, this guy Jerry Yang and his staff are really interested in talking.” I was like, “No way. What are you talking about?” Low and behold, it was actually true. So, Jerry ended up joining that round. I think he was the last investor in that round.
Alejandro: Wow. How much money did you guys raise in that round?
Tim Hwang: We raised about 1.3 million. I think that was about average for what a seed company raised back in 2013.
Alejandro: Typically, I don’t really recommend to get VCs at a seed stage because normally, at the seed stage you’re still figuring out what the wheel looks like, and you want to raise money to really speed up the machine rather than to build the machine. So were you guys concerned such a top-tier investor like NEA coming in so early?
Tim Hwang: I don’t think we were worried about that. I mean, at that level, to be honest, we had a couple of things that we knew. We knew that the product was needed in the market, and we validated that through just grinding, like literally calling hundreds of customers a day. We had validated the price points at which customers we were going to pay, and at that point, I think we had maybe half a dozen beta customers and one that was pretty much on the edge of closing at about, call it a 20, 30K price point. So we knew that this was going to be more of a pre-S product and not like a Ferrari. We knew that it was going to be a certain range of a price point. And we knew that there were a handful of features and functionality in terms of workflow in addition to data that we wanted to build. I’m sure we could have bootstrapped it a little bit longer, and to be honest, in retrospect if I was to start another company, I probably would have strapped out a little bit longer. But we were first-time founders and obviously having the partnership of some great investors was really helpful there as well.
Alejandro: Got it. So how much capital have you guys raised to date, Tim?
Tim Hwang: We’ve raised a lot of capital. Between venture capital, acquisition financing, and everything else. I’m sure we’ll get into this a little bit later. We’ve raised just over 230 million dollars.
Alejandro: So how would you say the company, as well as perhaps the expectations from investors have changed from one financing milestone to the next one?
Tim Hwang: Yeah. So the financing mechanisms, to be honest, haven’t changed too much. You still do the pitch. You do the management presentation. You go through the diligence and into the closing. I would say that the complexity is definitely increased. We’ve acquired a handful of companies. We’ve launched new product lines. We’re in multiple geographies now. In the A and the B rounds, things definitely ratcheted up from a metrics perspective. ARR, sales efficiency, net retention, and all the different machinations of how you think about a business. I’d say as we’ve gone through the later stages, the C, D, E, F Rounds, things are still definitely very growth-oriented, but in some senses, to be honest, I think the expectations have definitely gone up, but the time horizons have also gone up as well. Maybe it’s just the investors that we have. Now, it’s not just about how do you get to the next milestone from the A to the B Round; from the million-dollar to the 5-million-dollar ARR range or whatever it is. But now, it’s okay. How do you build a 200-million-dollar revenue, 500-million-dollar revenue, billion-dollar revenue business? Can this business get to a billion in market cap, 5 billion in market cap, 10 billion in market cap? What is it going to take for us to get to that stage? So the time horizons start to elongate, and the bets become much larger. I would say the mechanisms for financing are largely the same, actually, on the equity side, but then I guess the other thing that’s really interesting is where you play in the cap structure, all the way from senior debt, mezzanine debt, convertible, preferred equity, common equity, it gets a lot more complicated.
Tim Hwang: You can start to think about financing multiple different areas of the cap structure. For us, we’ve started raising a lot more debt to minimize the solution for existing shareholders. We thought about creative use of convertible notes and the like. I think there’s a lot more complexity not just in terms of the business but also in terms of the financing of the business moving forward.
Alejandro: What, in this case – you were eluding to it before in terms of metrics and KPIs. What was the one KPI that you always wanted to do closely, and why?
Tim Hwang: Well, there are probably one-and-a-half for us as a SaaS company. So it’s net retention and ARGroup. We always think about how fast we’re growing our revenues and our customer base and how good are we at keeping our customers? Now, there’s a ton of other secondary metrics that a lot of other SaaS or prescription-based founders think about: sales efficiency and the like. But for us, the guiding north star was consistently how do we grow our business, and are we keeping our customers?
Alejandro: I keep hearing here, Tim, that for SaaS businesses, retention is everything. People may agree or may disagree, but what have you learned about retention?
Tim Hwang: A lot of times, you put net retention, and you place a lot of accountability over your account management, your customer success function, and the like. You sort of say, “It’s your job to retain the customer.” But to be honest, net retention goes so much further beyond that one department. It starts only with product, goes straight through sales, straight through marketing, the handoff between sales and account management, and then your continuous support of that customer. So it’s not just one department that’s responsible for the retention of the customer. It is such a cross-functional thing. It requires so much attention at every single stage of a corporate process that it’s a company-wide goal to retain customers. That’s something that I consistently hammer on our staff and our management and just consistently tell them that, “Look. It’s not Account Management or Customer Support’s job to make sure that we keep these customers. We need to all be in this together to actually make sure that that’s possible.
Alejandro: Got it. Going back to the cap table because you were talking about the cap table and the fundraising process. I’ve seen that you guys have raised money from – you have different types of profiles. Right? One thing that I see here is that you also have on board corporates like Renren, so corporate strategics. What has been or what’s the difference really behind corporate strategics versus, let’s say like the typical VC like NEA? What’s the difference?
Tim Hwang: We have raised, to your point, a lot of capital from different partners. The one thing that I would say about our investors is that they are all very long-term oriented, and they’re very consistently aligned with our mission. We have a lot of corporates. Like you mentioned, Renren is one. S&P Global is also a major investor. The Economists is also a major shareholder in our business. We have some sovereigns like Temasek. We have, of course, in VCs like NEA and the like; Visionnaire, Green Visor, and a lot of family offices: Mark Cuban, Yang, Steve Case and the like; a lot of multi-family offices that we’ve been able to partner with have been spectacular partners for us over the years. One of the things I’ve been very, very adamant about our shareholder base is that if you’re a shareholder in our company, you have to believe in what we’re trying to accomplish and the long-term goals of the business. One of the goals that we have, for instance, is I would like to build a digital platform that aggregates every law and every regulation for every country on the planet and make that accessible for our customers. That’s a very long-term goal, but it’s one of those things where if you don’t have understanding shareholders that are willing to see that investment through, it becomes very difficult to see that type of mission come to light.
Alejandro: After raising the amount you were saying like 230 million, and really now having dealt with all these different types of profiles and so forth, what are the three biggest traits that you’ve seen on the best investors?
Tim Hwang: I guess it depends on the different stages but on a consistent basis, at least in the venture world, the best investors, specifically in the early stages, are great coaches. There’s something about them that they just really, really love seeing great founders succeed. They just so want them to succeed because they just see a great idea, a great opportunity, and they just want to go after it. You can visually feel that level of excitement. Some of our investors, I’ve literally called them our fourth co-founder because they’re just there. They’re there to help you. They’re there to help you succeed. I think the second thing is that to a certain extent, they have some level of experience on different things that you might be interested in, and this is very helpful for a first-time founder to ask an investor around this marketing strategy or this legal issue, or this product design approach, or this M&A strategy, or whatever it is, and then validate that consistently from a big thinktank of people that are invested in the interest of this organization succeeding. The last thing I think is the best investors really are fully aligned with management teams in terms of the outcomes they want to see. So they’re not there to see a cash-on-cash return in six months or less, or whatever. If that’s what management wants to do, then that’s great. That’s great if you have those investors. But the consistent level of alignment and realignment between management and investors is something that, I think a lot of people underestimate. That’s where the biggest issues arise where if you see unnatural patterns from investors who need to do something for their LPs or whatnot, that doesn’t allow with management expectations. So I think even when we validate our conversation to investors, I tell them very upfront about what our goals are, or what we’re trying to accomplish. And look, if you’re not aligned with that, then that’s totally fine. Let’s move on and find some other way to partner maybe in the future or something.
Alejandro: Got it. You seem to be a pro of cold emails. So for the people that are listening, that they’re not able to get a warm intro to an investor, what does a powerful cold email look like?
Tim Hwang: I think that with any cold approach or cold email, you always want to add value to people. I get cold emails all day now. Dozens and dozens of cold emails, and to be honest, none of them actually add any value. You’re always trying to get something from them.
Tim Hwang: But the best, best cold emails that I’ve sent as well revolve around me trying to add value to someone else. I’m a big believer in just paying it forward and consistently helping people out even if it doesn’t mean any immediate value. Somewhere along the line, that relationship will turn into something. It doesn’t necessarily have to be something you need to get out immediately. I coach a lot of our employees and some of my mentees to think about which is, always try and be consistently adding value to people around you.
Alejandro: I love that. I love that, and it reminds me of the book How to Win Friends and Influence People by Dale Carnegie. In that book, there are clear examples on how when you’re able to position your outreach, or when you try to engage with people that it’s all about how you could elevate their game, they are going to be more inclined to establish a connection with you. So I love the fact that you’re saying that because unfortunately, people are always very selfish when they reach out. It’s very easy to weed through the noise, so I hear you, and I completely get that. So thank you for sharing that, Tim. You guys are a deal-oriented company. What does this mean? At what point did you guys come to the decision that perhaps M&A is going to be a way to go?
Tim Hwang: In our industry, there are a lot of really interesting players. You’ve got Bloomberg, Thomson Reuters, FactSet. These are mega, mega-companies, tens of thousands of employees, tens of billions marked capitalization. But the one thing that’s changing about our industry is that machine learning and artificial intelligence is making it much more efficient to run these operations. Suddenly you don’t need thousands and thousands of people manually entering data around private companies or around legislation or whatever it is. You can just basically do that with a script. It’s radically transforming the way in which we think about delivering information and data to other companies and other customers. As I was thinking about this, I was thinking about the world in which we live today where you have a lot of companies that have been unable to make this transition from traditional information business into a more automated, more efficient organization. You combine that with just the tremendous influx of capital that exists out there in the world from private equity to hedge fund to family offices, to sovereign. There’s just so much capital out there that’s slushing around. You combine that with a willingness for people to do big deals or big ideas to transform some of these businesses. So we took a step back, and we said, “Okay. Guys, what is the most capital-efficient use of our funds here today? What is the cheapest form of capital that we can access? We felt that there was a good opportunity for us to identify a handful of businesses that we could buy on a relatively cheap basis, some multiple EBITDA. Use some very smart financial engineering with the capital that existed out there in the world, apply some smart leverage, some seller financing, some rollover equity, whatever the case is. Combine those businesses together and then actually use our automation capabilities and technology to make those businesses much more efficient. So what you’re left with is a series of companies that you own that you haven’t taken a substantial amount of dilution to finance those acquisitions that are now operating at extremely high gross margins and are now recurring revenues. Going back to the metrics that you had talked about, ARR and net retention growth if I could tell you, “You can get major ARR growth without issuing a lot of shares or issuing a lot of dilution.” That’s music to a lot of founders’ ears as long as you’re able to consistently find those targets that are out there in the world. We’ve done a handful of acquisitions so far. We’ll continue to do acquisitions on a regular basis all with this thesis that we can come in, we can buy a company, apply some smart financial engineering, transform those businesses, and it makes you much more efficient and then now have those businesses sit on our balance sheet and that we can grow together as part of our broader product portfolio.
Alejandro: Got it. How many acquisitions have you guys made today?
Tim Hwang: We’ve done about three acquisitions to date ranging from, call it a single-digit, couple of million-dollar revenue business all the way up to 45, 50 million dollars in recurring revenue. We’ve consistently done that, and I think we’re on a continuous basis evaluating businesses to acquire within our organization.
Alejandro: What has been the biggest lesson about integration because integration is a beast, and that makes most of the transactions fail.
Tim Hwang: Yeah. We do a lot of planning for each and every acquisition. It doesn’t matter how small it is. For us, we have a very strong technology thesis that we need to implement very quickly and very early on. I think diligence matters a lot, and we obviously spend a tremendous amount of time evaluating culture, evaluating management teams, evaluating technology platforms in order to make them integrate within our business. A lot of people, I know that in big companies are, “Just do the deal. Just do the deal.” We are heavily focused on making sure that these companies succeed. So I think that there’s a very strong level of interest among our broader management team to make sure that we get these right. I think from a broader perspective though we would never do a deal that we felt like we were just doing to get it off our competitor’s hands or out of all the different reasons that big companies do acquisitions. We do these deals because we strongly believe that there’s a transformation thesis that can be had, and of course that our customers would find a lot of value from. So I think, generally speaking, we’ve been able to keep true to that, and we’ll obviously continue to do that moving forward.
Alejandro: How would you say that the business has changed because we were talking about it earlier that you guys started with this search for the legal side or for the political aspects or environments and how the regulatory landscape could change and so forth. What has the business model come to be today? What does that business model look like?
Tim Hwang: We’re still the same business that we started off from the beginning. We aggregate legislation, aggregate regulations. We do it from dozens of countries around the world today. Structure and normalized classified that information using natural language processing, artificial intelligence. We build workflow tools and analytics that sit on top of those laws and regulations. We sell that to lawyers, compliance professionals, lobbyists, politicians, and the like. We service roughly about 4,000 organizations today. From a lot of different angles, the complexity of the data, the complexity of the workflow, the different customer segments we’d have to go after and attack. We service everyone from every member of the House and the Senate and the United States Congress to major corporations, trade associations, non-profit. So even just thinking through the complexity of how do you service the Department of Defense differently from a major food and beverage company from a trade association or political party? They’re all so different in terms of their customer demands and needs. So that level of complexity has definitely gone up. We also do have one part of our business which required through a carveout that we did with the Economist Group of a company called Congressional Quarterly and Roll Call where through our media properties not only do our customers get data and information around laws and regulations, they also get the context. So they get the real-life stories of how the Speaker of the House thinks about this, or the President is interacting with the regulatory agency. What’s interesting is, running a media business in addition to a data and software business, that just adds an additional layer of complexity to the organization. So, it’s a real interesting business that we’re in, which is selling information to organizations, but I think what continues to drive us to this day is our mission and our values and that’s what drives a lot of our executives and our employees to get out of bed every morning.
Alejandro: Of course. So how big is FiscalNote today, Tim?
Tim Hwang: We are just under 500 people. We’re looking to probably double here over the course of the next 18 months or so.
Alejandro: That’s quite a bit. In terms of scaling, the top three challenges.
Tim Hwang: Definitely hard to place at the top three, but I would say staying true to your culture gets really, really tough, especially when you start to scale. Not only in terms of reaffirming your culture but operationalizing it every day in terms of your performance, your hiring, your management training, and everything that surrounds that. If I were to say that that’s a #1 issue; it is the #1 issue and there are different iterations in terms of the executives that you hire, how you train your managers, and the like. But generally speaking, it revolves around people and culture. I would say international expansion is tough. We have expanded somewhat successfully into the European market. I’ve been spending a lot more of my personal time at our offices in Sol and our joint ventures in Hong Kong and Jakarta. We’re looking at some stuff out in Southeast Asia in particular as well as Latin America. But international expansion is definitely tough. Again, going back to the first thing, maintaining culture and processes and consistent management amidst different work environments is definitely challenging. Obviously, customer expectations start to shift wildly between different regions. That’s a lesson we’re still even learning today as we grow our business. The last thing I would say is how you make decisions in light of competing priorities. It’s easy for people to say, “We’re going to make some x, y, z decision about this product, or this customer segment, whatever the case is, but there’s always a tradeoff. If you’re building for customer segment x, you’re not building for customer segment y. If you’re scaling sales and marketing, that’s coming at the expense of maybe an extra hire in accounting to account for cash collections or an extra recruiter somewhere with the cases. So I don’t care how much capital you have, you’re always going to resource constraint. Making those hard decisions, the stakes get much, much higher, I think, as you start to scale the organization. Those strategic mistakes, I think, we try and obviously our big subscribers, we make mistakes and learn from them, but sometimes blowing through 5, 10 million dollars is not fun when making a mistake.
Alejandro: I hear you.
Tim Hwang: So we’re still learning from a lot of these mistakes, these business mistakes that strategically speaking we need to consistently readjust and move forward as an organization.
Alejandro: Yeah. I remember this book from Ray Dalio, Principles, where he says that the lesson is everything. You’re going to be making mistakes, but at the end of the day, if you’re not knocked out of the game, you can get up and keep moving.
Tim Hwang: Yeah. I agree.
Alejandro: Cool. Looking back now, Tim, what would you say was perhaps a moment – the journey that we embark on as entrepreneurs is not that easy. It’s not the glamorous stuff that people would read on the media outlets, and it’s not a straight line. So Tim, in your case looking back, what was a very, very dark moment where you perhaps didn’t know if there was going to be a tomorrow with FiscalNote, and what was the breakthrough that perhaps that breakdown led to?
Tim Hwang: I started this company when I was 21 years old. I’m only 27 now. So it’s very hard to have a strong level of conviction about what you’re doing on a consistent basis. And I guess this is true even if you have a lot of experience, but oftentimes, you’re leading with your gut, and you’re leading with your heart. I remember this one time where we were doing our series A Round, and we were going down this pathway. We signed a term sheet with a fund and something kind of felt off. We ended up choosing not to sign the term sheet with the fund. At that point, I think we had maybe six or seven weeks of cash left in the bank, maybe about 15 or 16 employees. I pulled all of our employees into the kitchen, and I said, “Guys, we made this decision. We’re not going to move forward with this fund, but we’re all in this together. We’re going to stick through it, and we’re going to get through it to the end.” What really surprised me at that point was each one of our employees, every single one of our employees at that point actually voluntarily gave up their salaries for about two months.
Tim Hwang: They said, “Tim, we believe in this company. We believe in this mission. We want to see this company succeed.” That, honestly, just gave me the strength to go back out there. From the money that we basically borrowed from our employees to go out there and get a capital raise done and move the company forward. To this day, I’m incredibly, incredibly grateful to our employees for giving us that chance. I mean, imagine this experience. I think I was 22 at the time, and I was literally straight out of college, and you see mid-career people coming up to you and saying, “Tim, we believe in this company, and we believe that you’re going to succeed.” And then viscerally giving up their personal savings to make that possible. To me, even to this day, I lead our company with our employees at the core of it. We cannot succeed if our employees are not happy and if they’re not successful. That stems all the way back from that early experience of watching an entire team come together to save a company. It’s something that I think about all the time now even as we think about more mundane things like benefit changes from year to year, or whatever the case is, but I supremely think a lot about career pathing, compensation strategy, whatever it is. And we’re not perfect. I don’t think any company’s perfect, but it’s something that I have committed to our employees that I’m going to get right every day that I’m the CEO.
Alejandro: Wow. Well, that’s definitely a powerful story, Tim. So knowing what you know now because you’ve been at it for quite a bit, and you’ve seen a lot, there’s a question that I always ask the guests that are on the show, and that is, knowing what you know now if you had the chance to speak to your younger self and be able to give yourself one piece of business advice, what would that be and why before launching a business?
Tim Hwang: I think that – not to be too cliché, but your team is everything. I mean, the products that you create and the markets that you enter and the customers that you serve, and all that matters a lot. And there are different philosophies of how you run business, and I totally adhere to that. But for me, I think that the CEO and the management serves at the pleasure of their employees, and I think you have to be accountable to your employees. We do this engagement survey that we do even to this day where I very transparently ask employees about the status of the company, and what they believe, and what’s going right, and what’s going wrong, and to this day, my co-founders and I sit down twice a year after the survey, and we read through every single response individually just trying to get a sense for what’s bothering people. What more can we improve and try to create that work environment that we want for our employees? Quite literally up until our last holiday party, my co-founders and I would literally handwrite thank you letters to our employees, hundreds and hundreds of employees for giving us the opportunity to work with them. That’s something that I only learned through trial and error. I think when you’re a young founder in your early 20s or whatever it is, you think that people are expendable and that you can always replace them, but I think as you go further in your career, you just realize the team is everything. The ability for an organization actually revolves around the quality and the happiness of your team. That’s something I probably spend the vast majority of my time thinking about to this day.
Alejandro: I love it. I think that people are everything, so I definitely agree with that one. For the folks that are listening, Tim, what is the best way for them to get in touch and say hi?
Tim Hwang: Yeah, look. I’m very accessible. Feel free to shoot me an email. firstname.lastname@example.org. You can also get in touch with us at our company: www.fiscalnote.com. Also, on Twitter, Instagram, and everything else. Always happy to stay engaged and chat with anyone that wants to chat.
Alejandro: Well, now we definitely know how to do cold emails, so watch out for your inbox, Tim. Well, thank you so much for being on the DealMakers show, Tim.
Tim Hwang: I appreciate it. Thanks so much.
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