Do you want more funding?

YES, I WANT MORE FUNDINGNO, I HAVE ENOUGH FUNDING
Neil Patel

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Uri Marchand has already raised tens of millions of dollars for his latest startup. He recently appeared on the Dealmakers Show to share the latest developments at Overwolf, and his journey building companies. His venture has acquired funding from top-tier investors like Marker, Ubisoft, Kevin Chu, and Liberty Media.

In this episode you will learn:

  • Picking investors and companies to buy
  • Monetization and building a sustainable business
  • Achieving product-market fit
  • The future of gaming
  • The best books for startup entrepreneurs
  • Team and company culture

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    Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).

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    About Uri Marchand:

    Uri Marchand is the CEO and Co-Founder of Overwolf, the guild for in-game creators. Built for creators by creators, Overwolf is the all-in-one platform that enables creators to build, distribute, and monetize in-game apps and mods.

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    Connect with Uri Marchand:

    Read the Full Transcription of the Interview:

    Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have another founder from Startup Nation. It’s amazing. What a machine of a country producing incredible founders. Unbelievable! Today, we’re definitely going to be learning when things work out and where things don’t work out, ups and downs, fundraising, and you name it. So without further ado. Uri Marchand, welcome to the show.

    Uri Marchand: Thank you. Thank you for having me, Alejandro.

    Alejandro: So originally from startup nation, Uri. How was life growing up in Israel?

    Uri Marchand: For me, it was normal, and I try to think about what normal means, and I think normal for a person growing up in Israel means what you see on television, an American sort of culture. It kind of felt somewhat similar. I know some people may be surprised, but living here is what you’d see on a traditional, normal American TV show.

    Alejandro: That’s amazing. Talking about TV shows, maybe you got bored of TV shows because you started with computers at age seven. So what happened?

    Uri Marchand: I did both, I want to say. Back then, we didn’t have a lot of variety. When I was a kid, a lot of television and a lot of computer games, then it started being more computer games and less television. But for me, as a kid, whenever a new game came out, we used to play it all the time and grind it until there was nothing to do anymore, and then wait for the next one to come.

    Alejandro: It seems, for some reason, that music opens up big time the creative juices we have in us. For you, music was a big deal. So what got you into music?

    Uri Marchand: I think my parents made me go to a flute lesson or a flute chorus when I was in second grade. This was when I started playing music. I always listen to music; I always enjoyed listening to music as a kid. I know my mother used to tell me as a two-year-old; I used to be obsessed with this record from a Spanish guitarist, David Broza. He’s a local. He lived in Spain, probably not as good as Paco de Lucía, but still a very good guitarist and singer. He sings in Hebrew. I was obsessed with his music. I always liked music. I didn’t really want to play the flute, but my parents made me, so I started doing that and switched to guitar when I was in fifth grade. Then that was a big part of my childhood alongside computer games. I also majored in music.

    Alejandro: Obviously, when you grew up enough to join the army, that’s what you did because that’s what you do there in Israel for the military.

    Uri Marchand: That’s the standard. Yeah.

    Alejandro: In your case, out of all the areas, how do you end up landing in becoming a helicopter pilot?

    Uri Marchand: I think since you have to do something, you have to join the army. What I wanted to do was something that I felt is significant and contributing, and I find that in being a pilot. It’s difficult to be a pilot in Israel because everybody goes to the army, and a lot of people want to do something significant. I felt like I was lucky enough to be able to get into this training course and graduate. I’ve done it for a few good years and participate in some interesting things. That was a really good experience for me.

    Alejandro: For how long were you piloting helicopters?

    Uri Marchand: I flew for about seven-and-a-half years on duty. Then an additional 12 years in Reserve. So over 2,000 hours and flew CH-53s, and Delta-12s, and Falcons a little bit.

    Alejandro: Wow!

    Uri Marchand: —and a few odds here and there, but mostly CH-53.

    Alejandro: You also ejected the torpedoes and all of those missiles and stuff like that?

    Uri Marchand: No. CH-53 is this big helicopter that does search and rescue in Special Ops. I did not engage with hellfires and missiles and those kinds of things. What I mostly did was things like Special Ops, which is really interesting but too confidential to talk about, but also moving troops from here and there and evacuating ones.

    Alejandro: So let’s avoid getting into classified information.

    Uri Marchand: Yeah.

    Alejandro: In your case, after the army, you decided that it was time to get back into the studies. You got your computer science degree, and at the same time, you were also venturing into understanding what would be that first company that you would bring to the world. Tell us about that process. What was the process like for you?

    Uri Marchand: I think I always have been somewhat of an entrepreneur. As I finished my army service, I had to Israeli SAT. I was really annoyed alongside my friends that there’s no good vocabulary building software, so when we graduated from the army, we built a startup that focused on helping you study vocabulary for the SATs. We didn’t understand as young entrepreneurs that the market is too small to build a successful company app. We thought that eventually, we would branch out to the SATs and GMont and those kinds of markets. But that didn’t end up happening for various reasons, partly from not being in the market, but also they’re being really competitive markets to penetrate as a bootstrapped startup. It was a really good experience for me that I’ve done while learning computer science. But as I finished and graduated, it was time for me to do something more significant than a small niche product for a super, super small market.

    Alejandro: What was one thing that you took away with you because out of this first company, I’m sure it was not fun to not see it come to fruition and to have to close down the business. As they say, you either succeed, or you learn. What was that lesson that you took away with you that you were like, “You know what, one day if I go at it again, I’m definitely going to be implementing this”?

    Uri Marchand: Yeah. I think time and category size are really important. If you start an entrepreneurial venture, and you want to grow it into something significant that you think about your total adjustable market. It’s not that it doesn’t make sense to do a product for a very niche market, but that niche has to be significant and prominent, and the process needs to be very well thought through before diving into building something for a super small market.

    Alejandro: Got it. Tell us about your next baby, your next company, which is the one that you’re running now. It didn’t take that much time, so tell us about that incubation process and how you came up with it, and how you brought it to life.

    Uri Marchand: Having played games, I discovered that there are needs that I need and my friends need as we play games and problems that we can solve as their party developers. This is what we had done when we started. Our thinking is that if we build a Swiss army knife with all of the features that you’re missing as a gamer while playing games, it’s going to be a very successful company that we can commercialize through media or through selling prime subscriptions and build a big business out of that. It took us something like a year and a half to release our first product. By then, we would have raised something like $945,000. It was really, really complicated at the same time to build a product for so many games focused on quality but also add a bunch of features. If you remember the Swiss army knife analogy, not a good idea if you’re a young entrepreneur building something. In retrospect, we should have focused on a single feature, a single game, and just focus on quality. But that took us all the way to 2013, where we understood that it’s not going to work out, and we pivoted to build a framework. So we started as creators. We wanted to build everything in-house, all the features in-house, everything by ourselves, but then ended up pivoting to build an open framework.

    Alejandro: Tell us about the business model of Overwolf. What has it become today? How do you guys bring value, and most importantly, how do you extract value and make some money?

    Uri Marchand: We thought that it makes sense to align the way we’re making money with the way the partners make money. Our business model is basically web share with people, building content, and then publishing on Overwolf, just like an app store. The reason for them to come on Overwolf is that we have a set of tools that are going to make developing gaming apps or gaming modes a lot easier. We have 20 to 30 different services that we provide for them so that a single person from their house can build a product that has been used by hundreds of thousands of gamers and monetizes with well over $100,000 a month. It’s something that otherwise would have been really, really difficult to build as a single creator. In a sense, we’re a framework that provides many services for creators. Creators can choose how they want to monetize, whether it’s through ads, donations, subscriptions, or whatever else, and we take a cut from how well they monetize.

    Alejandro: Very nice. In terms of the team, how did you guys think about assembling the team because I’m sure that with the last company, too, you also learned the importance of team and culture, so how did you think about it?

    Uri Marchand: Especially now that we’re 88, we’re putting such a strong emphasis on culture and having the right people because having the wrong people right now will just kill productivity and cause us to deal with politics and relationships and a lot of drama instead of building and being productive. I think in the very early stages, it’s all very natural. The company DNA is built based on the first few hires that you make. Those guys or girls need to be extremely strong like a Seal team would be picked like a fighter inside a top-quality team. I think this is eventually the foundation of the company. As the company grows, maintaining the foundation becomes more and more challenging because, obviously, it’s not the same thing sitting with everybody in the same room, and then having four or five rooms in the company to having like 100 rooms in the company—very, very complicated. What we do right now to maintain our culture is a lot of repetitiveness on our core values. It’s actually to write our core values down and explain them. When we onboard new team members, we explain the type of personality of the organization that they’re joining. What are the dos and don’ts? We’re constantly evolving on that front. One of the books I’ve read recently, No Rules Rules. I don’t know if you’ve picked that up. It’s Reed Hastings talking about the Netflix culture.

    Alejandro: Yeah.

    Uri Marchand: It’s one of the most inspiring books I’ve listened to on how they were built. Obviously, when you listen to something like that, you take a few ideas, you make them your own, and then you implement them and start a company. So I’ve done this a few times.

    Alejandro: Nice. In terms of capital, how much capital have you guys raised to date?

    Uri Marchand: To date, $75 million.

    Alejandro: I know that, especially during the early days, it was quite bumpy; you were running out of money, and if I remember correctly, the second time, which was before the A Round, was probably the toughest one, so what happened there.

    Uri Marchand: I think we were around about three and a half years in. We did a pretty good job developing a good technology, but we had zero traction. At that point, our existing investors were like, “You know what? It’s going to be tough for us to extend with another bridge, or with another CLA, or whatever. So you’ve got to find the right VC to fund the company. It was a critical point, a bit of a make-or-break-type point where we went to raise our A Round, which today, a VC would expect to see product/market fit ideally, a good level of traction, and some good validation that everything is going to be going the right way. We did not have that. We did not have product/market fit. We had technology. We thought the reason we don’t have product/market fit is that we weren’t focusing on the right market. But with the technology that we built through pivoting to the right market, we will find product/market fit and continue to grow the business. That was a really scary moment and a make-or-break, live or die, which I’m grateful that we survived. I think I’ve met around 50 different VCs, all of which said no, apart from one that said maybe, and then we worked hard in turning that maybe into a yes.

    Alejandro: Obviously, you’ve raised quite a bit of money and different rounds. In fact, you recently completed the Series C round. But in this case, you’ve met with many, many different investors. When you meet with many or when you do several things so many times, you develop pattern recognition for what’s good, for what’s bad. What are some of the things that you identify that would help you to disqualify very quickly a potential investor?

    Uri Marchand: This is a really good question. I’ve got to be honest and say that at the beginning, I would take money pretty much from anyone who would give me money, to be honest.

    Alejandro: Yeah.

    Uri Marchand: I didn’t really have that mechanism back then. It was non-existent. But I did, back then, meet arrogant people, people who weren’t attentive to the things that I was saying, and I was asking very nice questions. Not because of lack of understanding or me communicating poorly because they were on their mobile phones doing emails while I was pitching. At least my expectation is that if I’m spending time meeting someone, and they’re not engaged, that’s a bad sign. Either I’m not interesting, or it’s just not a fit. I think that is one. There’s a bit of sense that sometimes when you meet investors of sense of importance, that is a little bit overexaggerated, and I really like people who are down to earth. It doesn’t really matter how successful they’ve been or how big their bank account is. I think that eye-level communication in culture is something that’s really meaningful for me. I think, right now, it’s one of the core things that I focus on in interaction. I know that I’m going to work with this person for the next decade or decades or at least a few years. We’re probably going to have some ups; we’re probably going to have some downs, and I want to make sure we’re going to be able to communicate in the right way, that we have this rapport. But if it’s constant friction and all of that, then it’s probably not worth the time and effort.

    Alejandro: Going from a Seed Round to a Series C is different: different expectations, different profiles, or different skillsets that you’re looking for, also like different things that they’re expecting from you. How have you seen this shift from one financing cycle to the next all the way to the Series C?

    Uri Marchand: I think for us, the Series A was the most difficult funding round. Series B was in the context of—it’s was led by Intel Capital, and we were doing this project with Intel, and it all made sense, so we didn’t really do a proper process, so it ended up maturing into a round as part of the business deal. Then Series C was the easiest funding round. We made a decision in mid-October of last year that we were going to do a funding round, and we ended up signing a term sheet about a month later. The reason is validation, and you’re right. In a seed investment, you’re investing in the team. You’re always investing in the team, but pretty much a team in the duck because there isn’t a lot of validation beyond that. Then the more funding rounds that you do, the more validation is expected from you to drive as a business. If you’re growing your engagement metrics, your monetizing may be profitable, and you have a really big total adjustable market; it’s going to be an easy funding round for you, I think. This was my experience. The C Round was the easiest one in terms of the amount of people I had to talk to, the number of yesses, and the ability to actually close the round with really amazing investors.

    Alejandro: Series C is the easiest one and Series A the toughest one. If you could go back in time, is there anything that you would tell your younger self on how to make that hard round into something easier and smoother?

    Uri Marchand: It’s interesting. I would tell a lot of things to my younger self, but I think a general thing I would tell my younger self is that there are no silver bullets. Sometimes, as an entrepreneur, you look for that thing that is going to solve and figure out everything. I would tell myself that it doesn’t matter, and it doesn’t really exist, and what matters is persistence and incremental improvements. That’s one. With regards to the funding round, I would tell my younger self, back in the seed days, to not try and capture everything. Just focus on a narrow value proposition and make it super-high quality instead of space-shooting to everywhere and hoping that some bullets will hit.

    Alejandro: In your case, what was that day? There are a few really special days for you. One of them was definitely launching the app, and then the other one was generating revenue.

    Uri Marchand: Right.

    Alejandro: It’s funny because there are a lot of people who are only thinking, “Hey, we’ve got to grow. We’ve got to make this thing a success,” and they just leave revenue aside.

    Uri Marchand: Right.

    Alejandro: I think that, ultimately, you’re building a business. You’re not building a not-for-profit. How was that day for you when you were like, “Wow! Look. We’re making money on this”?

    Uri Marchand: Yeah. I think that was a super material moment in the lifecycle of the company because you’re right. It’s one thing to be an experienced entrepreneur and a businessman and know that you’re going to monetize because you’ve already done it in the past, and then to see it again. All right, you’ve done it again. Great. But it’s a whole different thing to see your idea come to fruition and then to commercialization. For me, it was extremely rewarding. You look at the screen, and you can’t believe you’re monetizing this thing, and revenue goes up and up, and we had done monetization when we already had engagements. So we had the ability to start it off on only 10% of the users, and then, we said to 30%. Then the growth in revenue is also quite impressive because you are kind of controlling it. I think all of that was fulfilling and important, and this peak moment in building the business because at that point, you know that what you’re building is sustainable, and it’s real, and now it’s your duty to keep on iterating. But this anxiety that you sometimes have with your bank account and the money going down and down and down and getting close to zero, and I’ve experienced that. Getting the situation in which you’re generating cash was really special for me.

    Alejandro: Was that the time where you realized, “We’re going to survive. We’re going to make something exciting out of this,” or when was that time?

    Uri Marchand: I think one of the most important times was when we launched our first app Overwolf, and we saw product/market fit as it happened. Regarding product/market fit, sometimes people ask me, “How do you know you have product/market fit?” I’m like, “You know. When you look at the data, you know.” You can define it by [21:24] to Dow ratio and N Day, whatever, 137 retention. Seeing the retention curve, not meeting zero, and whatever, there are multiple ways to define it. But if you need to ask, “Do I have product/market fit or not?” you may not. We really felt it when this happened, and that was a really special moment.

    Alejandro: Is that because things are all of a sudden like flying off the shelves? Is that like that?

    Uri Marchand: It’s because we haven’t seen an incremental change; we’ve seen a dramatic change. We went from, let’s say x, in terms of retention to 10x over a single launch, over a single feature. At that point, you know, our hunch was right. We won for ourselves, but actually, there are other people that won as well, and therefore, there’s product/market fit, and it’s going to succeed, and that’s iterating in quality and make those incremental improvements.

    Alejandro: That’s amazing. We were talking about dealmaking, and I’ll continue on the path of making money, but still on the transactional side, typically, at this stage in the game, we would talk about acquisitions on the sales side, but in your case, it was on the buy-side because you actually completed the acquisition not long ago, CurseForge, which you bought out from Twitch. How did that come about, and what was the reasoning behind that?

    Uri Marchand: As a rule, there are apps, and there are modes. We started working on our modes strategy, although it’s something that we wanted to do back around 2014, but I didn’t want to repeat the mistake of trying to do too much at the same time, so we were focused on our app side of the business, and then started focusing on our mode side of the business back at the beginning of 2020. Then as we mapped the market and the different players, we wanted to get in front of our different potential competitors. At that point, once we reached out to CurseForge, which we understood that Twitch was looking to sell the business unit, and we participated in the bidding process for acquiring CurseForge, and happily, they picked us. That was a fun moment.

    Alejandro: In terms of culture and building the team, as we’re thinking about acquisitions, I always think about integrations, and with integrations, it’s all about people. So as you’re thinking about people, how do you guys think about culture there at Overwolf?

    Uri Marchand: With regards to the acquisition, it was actually an asset purchase, so we didn’t have the people element in an acquisition.

    Alejandro: Okay.

    Uri Marchand: We worked with a team at Twitch to do the integration. They’ve been extremely helpful in helping us understand all the different bits and bytes of the business, and we were able to integrate it successfully. We haven’t yet done big acquisitions of taking an external team and making sure they’re a good culture fit. But, at the same time, I agree with you. Saying, “Let’s do an acquisition,” is way easier than getting it done. The fact that the business is doing great from an engagement standpoint or monetization standpoint doesn’t mean that the integration is going to work out because if the core culture and the fundamentals are not going to be a fit, it’s probably not going to work out for whatever reason. So yeah, being in a position where we are looking at different companies that we want to acquire, the interaction that we have with the people, the common language, the shared values, how they approach things—if it feels like it’s not going to be a good thing, it almost doesn’t matter how good the business is. It’s probably not going to be a good decision to acquire them—too much of a headache.

    Alejandro: Yeah. As we’re thinking about vision, too, and imagine you were to go to sleep tonight, and you wake up in a world where the vision of Overwolf is fully realized. What does that world look like?

    Uri Marchand: I think it’s a world in which there’s a new profession. The profession is called a moder or an app grader, and it’s common in every game that there is a community of creators that are building content around this game. It’s as simple as that. Just like YouTube came to the point where they built a new profession called the YouTuber. We want to do the exact same thing for people building modes around games and apps around games.

    Alejandro: That’s amazing. As you’re thinking about also looking back and looking straight-ahead too, there’s one question that I typically ask the guests that come on the show, and you touched on this a little bit when we were talking about the fundraising and what you would have done if you could have done the Series A in a different way to optimize the chances. Let’s think about the journey as a whole. If you could go back in time and have a chat with that younger self that was thinking about launching the first company, what would that advice be that you would give to your younger self before launching a company and why, given all the stuff that you’ve learned, whether it was shutting down your earlier business, whether it is now being at it for 11 years and raising all this money and having this impact. What would you tell your younger self?

    Uri Marchand: Think long-term. That’s probably one of the most important things I would tell my younger self. I think that every time in the lifecycle of the company that we thought and acted long-term, it paid off big time in the future. Sometimes, particularly as an entrepreneur and having not seen the cycles of thinking long-term and the impact that they could do, you’re constantly focused on short-term. You constantly monitor the competition, “Oh, they’ve don’t this feature. Let’s do it right away.” Or you want to do a PR stunt just to get a bunch of coverage so that maybe you can get an additional $100,000 from a seed investor. Sometimes, you have to do those things because it’s about survival, but when you can afford to think long-term, that is the most important advice I would give my younger self.

    Alejandro: In terms of also learning and execution, what would you say has been a book that you wish you would have read sooner?

    Uri Marchand: First, I think we’re very privileged to live in an era where there are so many amazing books you can either listen to or read. There are tech entrepreneurs that have built companies in the past five decades, and those guys just sat around and took their lessons and wrote really good books. One of the most special books to me is The Five Dysfunctions of a Team. I think dysfunctions in teamwork are something that, almost by definition, you’re going to experience as an entrepreneur. If you haven’t, you must be like one of those unicorns, but super, super [ 8:22] unicorns from a billion-dollar standpoint, just like super unique and lucky. But you’re going to experience challenges, and I think this book is amazing about talking about these challenges, but also, it’s a fun book to listen to or a fun book to read. It’s also really interesting and really well-written. I think it’s not as popular as some like No Rules Rules or some of the other books that are out there right now. I really recommend The Five Dysfunctions of a Team.

    Alejandro: I’ve heard you talk a lot about culture and a lot about books that have to do with culture. Why is culture so important? For the people who are listening or watching, why should they care so much about culture?

    Uri Marchand: I think when you start your company, then your ability to survive is based on the cash that you have roughly. When you grow a company, your ability to survive and thrive is just based on your culture—the set of values that unite the folks working. There are terms like Hedgehog Concept, or the things you do, the way you do them, how you build your culture to be the best in the world in that particular thing that you do. I think that’s going to be critical because you are a company. Maybe not when you’re a small team. Then you need cash, and it’s four or five people or whatever. It’s mostly you anyway with your founding team or with the core team members initially. But as you grow, instead of money, this becomes culture, and I think that’s the most important thing that otherwise would just lead you to failure. I think the huge failures that we’ve seen in tech companies that we thought were going to stay forever are fundamentally first and foremost culture failures because of either arrogance, or not asking the right questions, or being too conservative, or people from the field are concerned to express themselves in front of rank. Just cultural elements that eventually cause those pens to fall. That was a long answer, but I think that’s mostly it.

    Alejandro: I love it. Uri, for the people that are listening, what is the best way for them to reach out and say hi?

    Uri Marchand: Just my name, Uri@overwolf.com. That would probably be the best way to reach out to me.

    Alejandro: Amazing. Uri, thank you so much for being on the DealMakers show today.

    Uri Marchand: Thank you very much for having me, Alejandro. I had a great time.

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