New Investment Series: Catalytic
The Hyde Park Angels “New Investment Series” profiles our most recent investments by examining the investment process and the individual company’s future trajectory from two perspectives: the portfolio company’s CEO and the HPA leader who made the deal happen. This edition focuses on Catalytic.
We recently invested in Catalytic, a SaaS company automating business processes across workflows and teams, in a seed round led by Boldstart Ventures and Pritzker Group. HPA member Andy Bokor (CEO and Founder, Truss and Co-Founder, Trustwave) led our investment efforts. We spoke with Catalytic’s Founder and CEO, Sean Chou (formerly CTO, Fieldglass), and Andy, about their experiences as seasoned entrepreneurs and what they learned about the fundraising process that all early-stage entrepreneurs should know.
Sean, what were your motivations in seeking venture capital for Catalytic? What was the advantage of taking on seed capital?
We were initially self-funded but ultimately decided to raise venture capital. Our primary drivers were a combination of capital and relationships. From a capital perspective, going the venture capital route will allow us to accelerate our product development timelines as well as make larger, earlier, and more bets on go-to-market strategies. These will hopefully translate into an accelerated product-market fit and expand our competitive moat.
From a relationship perspective, which is equally, if not more, valuable, I think of a few categories – advisors, peers, employees, partners, and customers. Although we already have a rich network, raising venture capital further accelerates every category. Venture capital is often a nexus of talent. Being a portfolio company puts you closer to that nexus.
Andy, as an investor, what attracted you to Catalytic?
There are two main reasons I invested in Catalytic. First, I have experience with the business pain points they are trying to solve. Trustwave is involved in helping companies address compliance and audits issues and I saw first-hand clients struggling with bridging the gap between systems and processes to achieve compliance. I like their concept of Pushbot and how the community will define solutions and contribute to the overall effectiveness of the product.
Second, I invested in Sean, who is a proven entrepreneur. Sean and I met while we were at Trustwave and Fieldglass respectively, and we quickly found common ground in our thinking and outlook. Sean’s experience at Fieldglass gave him incredible experience, from a startup to scale to exit. He intrinsically understands how to find and build a quality team. He’s been involved in product management, development, sales and operations, which are the same elements Catalytic will address with their product. He has great contacts and many willing corporate participants that are helping him build the product and the ecosystem. As a result, Sean understands what it takes to build a successful company.
Sean, as Andy mentioned, you’ve been part of the early-stage startup process before. What advice do you have for first-time entrepreneurs, especially those raising capital?
First and foremost, believe you are solving a meaningful, significant problem. If you do not believe this, go back to the drawing board.
When you’re raising capital, think about your business from an investor’s perspective. Most entrepreneurs think from the customer’s perspective. You have to take the time to learn and shift gears to the investor mindset while raising capital. Learn the lingo, read their blogs, leverage the multitude of templates and other tools.Believe you are solving a meaningful, significant problem. Click To Tweet
Don’t get defensive or demotivated by hard questions and criticisms. Use them as an opportunity to reflect self-critically and sharpen your story. Getting rejected by investors doesn’t necessarily mean you have a bad idea. Some investors just aren’t going to be a good fit with your idea or team.
Andy, you were also an early-stage entrepreneur and learned from that experience. Now that you’re an investor and have an understanding of both sides, what do you think is the most important thing for entrepreneurs to do to get an investment?
In order to get an investment, entrepreneurs must have a solid, well thought-out and nominally tested idea that can scale. They must assemble a capable executive team that ideally has a track record of success. The market conditions must be ripe for the idea. Success is often based on timing as well as execution.
Following up on that, is raising capital in an entrepreneur’s best interests?
Raising capital is a big decision. My initial preference as an experienced entrepreneur would be to bootstrap a company, building and growing on your own terms. However, many new entrepreneurs can benefit from the mentorship that comes with the money.
But adding outside investors comes at a cost in terms of equity give-up as well as complete control. Sometimes needing to answer to an experienced investor is beneficial. Sometimes it introduces conflict. Very often bootstrapping works initially, but in order to scale and take advantage of a market opportunity you need access to additional capital. The “winner takes all” mentality drives many companies to consider going big in order to curtail competitors and get the highest market penetration, which is essential for a successful exit. Most start-ups don’t have access to that kind of capital organically.Adding outside investors comes at a cost in terms of equity give-up as well as complete control. Click To Tweet
Picking your investment partner is essential. A thoughtful partner will ask good questions, help guide the executive team and challenge assumptions, allowing for better decision-making. They can make introductions and help with recruiting key talent. They have experience with certain industries and types of business models. However, the wrong partner can create a difficult work environment and derail a business. At times, investors and business owners are not aligned. Understanding the benefits as well as the pitfalls is important, and personality fit of is essential. So is an investor’s ability to grow with the company.
What is the one thing all entrepreneurs should do when it comes to fundraising?
Andy: Ask “do I need to raise money and why?” and then “who are is the best venture partner for the business?”.
Sean: Pitch, listen, learn, evolve. Repeat until you succeed.