Cristina Fonseca, co-founder of Portugal’s Talkdesk, angel investor and Venture Partner at Indico Capital shares her fundraising experiences with Stephen Millard at Notion Capital, as part of Notion’s Pain of Scale podcast programme.

Highlights

1. Securing the “right type of investors” is critical to startup success.
2. At Seed you are selling the dream, at Series A selling the growth and at Series B showing the spreadsheet!
3. Don’t go chasing unicorns.

You can listen to the interview in full here.

Raising funds is critical to the success of venture capital on both sides of the table: the VC firms ability to raise their own funds and the founder’s ability to raise capital through multiple rounds. Over the 50+ podcasts Notion has recorded, the ones that cover this topic are the most listened to, which is no great surprise and, as such, a subject we will continue to return to. Cristina is a Portugese tech entrepreneur turned investor. She co-founded Talk Desk which became Portugal’s 3rd tech Unicorn in 2018 after raising over $100m from Viking Global Investors in a round worth more than $1b. Cristina has been a prolific angel investor in Portugal and is now Co-Founder and Venture Partner at Indico Capital. She shared her thoughts and experiences on fundraising in a recent interview, as part of Notion’s Pain of Scale podcast.

Everyone was talking about fundraising, it was such a surprise!

As the founders of Talkdesk, Cristina and Tiago Paiva raised more than $100m in VC money between 2010 and 2018 and by Cristina’s admission learned a lot. “The thing that surprised me the most was, when we first joined 500 StartUps in San Francisco, how everyone was talking about fundraising! Back in Portugal, those conversations just weren’t happening. We just built products and sold them to customers. Customers paid and that’s how you raised money. Boom!.”

In Lisbon in 2010, when Talkdesk was starting out, there were no “friends and family” investors to turn to and no “business angels”. So, Cristina’s first shock was that there was a new way to build a tech company, “Well, new to us at least! This new way of thinking opened up so many new opportunities. We no longer needed to be restricted to Portugal and could build a global business from day one.” Which is what they then set out to do.

Not all venture capital is worth the same.

The biggest challenge Cristina faced was the realisation that - alongside the fundraising journey - every six months she effectively had a new company to contend with, with different talent, different structures, different challenges. “We were very lucky to have investors who were incredibly valuable to us but also very relevant to the challenges we were facing”. Talkdesk secured their first investment in 2011 and then a Seed round led by Jason Lemkin at Storm Ventures in 2014. “Jason was incredibly helpful, telling us the type of people to hire, when to recruit a VP of Sales etc.”

They soaked it all up as it was all so new, “The VCs we got on board made a big difference, and so one thing I tell entrepreneurs today is that not all money is the same, so make sure you get money from the right investors.”

Focus on building customer value, but make sure you keep in touch with the VCs.

It took Talkdesk a while to raise their initial seed investment, so consequently hired slowly and, in Cristina’s words, “got a bit stuck”. They had some great customers, however, and were growing organically. Cristina explains their dilemma: “We had no idea how to take the company to the next level, didn’t maintain relationships with investors and were on our own.” So it was another three years before they raised again. “We did eventually get a term sheet for $3m from Jason Lemkin (while he was at Storm Ventures) and that made all the difference. I just wish we had been able to do that earlier, as we could have done with the help to hire faster and put the right foundations in place.”

When Talkdesk raised that $3m round they had a lot to catch up on, but they moved fast, and a year later raised $21m in a round led by DFJ. “In that year had gone from 30 to 150 people, which was tough!”, says Cristina.

The lesson is simple, every business must start with value, but needs to be conscious of the great support that is available through the investment community, and then raise money when they are ready to grow: “VC money is best used in a business that is ready to accelerate, which is not always the case in our industry. That’s what made the difference at TalkDesk. We created value and then used VC money to grow faster.”

What changed between Seed, Series A and Series B investment?

At Seed stage, sell the dream: “It’s all about that vision, your team and any validation you have.”

At Series A, sell the growth and the opportunity: “Showing the curve going up and to the right. For us, our Series A was growth driven - we were growing fast, catching up on where we should have been - and that round happened really quickly.”

At Series B, show the spreadsheet: “It’s all about solid metrics. The types of investors you approach and the process you follow are quite different. You need an experienced CFO to be successful. Even the way you structure the company at this stage is completely different.”

Don’t go chasing unicorns.

Cristina is adamant that founders should raise from the best investors they can, “they may think they only need money, and that the money is their only concern, but the fact is there will be many concerns that a great investor can help with.” Founders should also be wary of setting the bar too high, “Everyone is chasing unicorns, but there is a threshold on value which - if you set the bar too high - can make the next round difficult. Raising too high can be a trap”.

Admittedly Talkdesk raised at some pretty high valuations but executed well and grew super fast, however it did cause some issues. Cristina elaborates, “If you look at the timings of our rounds, they are not standard, and that reflects the fact that, at some points, we pushed the valuation too high and so needed longer to catch up.”

Running ‘a new company every six months’ is tough

For anyone running a tech company that is growing super fast, then every six months they will invariably need new functions and new departments. Cristina learned this the hard way: “There are new divisions and teams you need to create; new executives you need to hire; new management layers you need to introduce.”

The experience at Talkdesk was that - post their investment from Storm Ventures - they needed to create so many new teams and functions that it felt as if every six months the founders were reinventing and replacing themselves, “founders need to learn to let go of things they used to do, and in another six months, they will need to let go again and hire a new person to take care of what they started.”

As a founder turned investor, what Cristina values most is the team and the way they approach their market

Indico Capital is an early stage fund, so first off Cristina looks for an amazing team, “we need to make sure the people in the driving seat are motivated to execute and are very good at what they do, in particular on technology.” There is great tech talent in Spain and Portugal so the latter is not a problem. But they also need to be coachable, “Every six months they will effectively have a new company, so they need to be able to evolve.”

Then in terms of markets, Indico looks for a solution that’s 10x better than the incumbent or where companies have an unfair advantage or an incredible edge in terms of execution.

Through the investment process, Cristina tests the ability to be coached and to reinvent. “It’s definitely more of an art than a science! We challenge founders a lot, we give them homework and through that you can learn about how they are likely to behave when they are asked to grow faster or maybe hire people they are not used to hiring, or even asked to leave their home country.”

What are the biggest differences between the European tech ecosystem in general, and Portugal in particular, and the US.

Cristina has witnessed a lot of change over the last ten years in Spain and Portugal in general and Lisbon in particular. “Ten years ago no-one in Lisbon even knew what an entrepreneur was. Now there are so many companies moving here that it feels completely different.” Cristina also asserts that Portugal has an unfair advantage in technical talent and in the way people collaborate. “The social system in Portugal is very caring, whereas in the US everyone needs to take care of themselves. That creates different dynamics at work.”

What was definitely missing ten years ago in Lisbon was capital and in Indico Capital is the first institutional VC in Portugal. “We are probably ten years behind London, but we are working hard to catch up.” Cristina is confident that there are two things in particular working in Lisbon’s favour (other than the weather and the lovely people!), “On the one hand there are multinationals moving to Lisbon and on the other hand it is getting so hard to hire tech talent in the US. At Talkdesk we envisaged building tech teams in Lisbon and the US, but it was simply impossible, so we doubled down on Lisbon.”

Lots of other tech companies are doing the same across Europe and in Lisbon, not least Unbabel (a joint investment for Notion and Indico). It will be exciting to see what happens in the next ten years.