When it comes to digitally transforming any physical industry, there are many complexities and nuances to consider versus building a SaaS, marketplace, and/or consumer company. This is especially true when it comes to demonstrating progress to investors during a fundraising process. Founders are always navigating a pathway to unlock capital in an efficient way, but this year the world has changed and they now have volatile public markets and an ever changing global economic environment to contend with.
This topic was the focus of a recent panel discussion SV Editor at TechCrunch and Founder of StrictlyVC, Connie Loizos, hosted and moderated on behalf of the Eclipse team. The two panelists were Wayve Co-Founder and CEO, Alex Kendall, and Eclipse Partner, Seth Winterroth, who talked about how entrepreneurs transforming physical industries can incorporate fundraising into company roadmaps to help fund their big ideas. The two specifically dug into how Kendall and the Wayve team were able to chart a clear path to hit key milestones on a timeline that allowed them to actually execute on the tough problems the company is trying to solve.
“To give some context around our business, we have the complexity of about 10 startups within Wayve for autonomous driving, solving simulation, hardware platform, the neural network itself, training infrastructure scale, the visualization — all of these things are substantial problems in themselves,” Kendall stated. “What’s been really important for us is to have the right view on how we prioritize these things. How do we aggressively scope control — both in terms of resources and how long we work on various things — and what do we really need to understand and learn from to be able to unlock various milestones? It was critical to make sure we were building the right things with the right conviction.”
Fellow panelist Winterroth chimed in with, “The big question for founders to think about is how do companies that maybe don’t have revenue today — but are building in massive market opportunity categories with differentiated technology — charter a pathway that’s thoughtful, capital efficient, has a high degree of execution to get to the stage where they look like a business that can be underwritten by traditional later stage capital?”
For physical industry founders to be successful in executing a fundraising process, it’s essential to put structural rigor in place, according to Kendall. “We really focused on a few vectors around team, partnerships, go-to-market, and product for each stage. For example, going from our seed to Series A, we went from a couple of world class contributors to setting up an executive team that enabled us to scale. In addition, on the product side we were able to put together a proof of concept that demonstrated the feasibility of the system in a commercial setting with unit economics.”
He also added that time management is also critical during the fundraising process to enable focus and execution. “It’s important to find the time for yourself, whether that’s taking yourself out of the day-to-day, blocking out your calendar and getting the initial bit off the ground, but then also knowing where to delegate and let go.”
From Seed to Series A: Demonstrating Proof of Concept
Loizos asked Kendall to discuss how important demonstrating the proof of concept was in order to unlock Wayve’s Series A stage.
“Our proof of concept was actually a consumer laptop duct taped to the roof and we were running the neural network on a GP on that device. The day Seth came for his demo, the modem in the back actually broke down that morning. We had to run to the local hardware shop to get a replacement two hours before he arrived.”
Kendall mentioned that while the proof of concept was either breaking, had broken, and/or was fixed with literal duct tape, it was designed to do two things:
- Prove to the Wayve team that what they were doing was possible and the core technical risk was something they could demonstrate out of their lab in the wild.
- Communicate to and educate others why the problem they were trying to solve was important.
Kendall notes it is important to be clear about what you’re trying to solve with the proof of concept and having pride about it, while not giving it all the bells and whistles at the expense of other goals. He went on to say that the way you illustrate your thought process around purposely putting certain things out of scope is also key.
Series A to Series B: Building Confidence with Investors
When it comes to building a company with a hardware component, it can take longer to show a baked product versus a purely software business. Loizos was eager to understand how Kendall was able to give investors confidence that Wayve was scaling efficiently and effectively without a lot of comparables.
“Our Series A was a bit more about proof of concept — about showing a system could work where the core value was demonstrated, but everything else was duct tape and off the shelf components cobbled together. What we were able to put together from a product perspective leading up to our Series B not only showed proof of demonstration to the investor market, but also other stakeholders, in particular the partners we signed like DPD, Ocado, and Asda. I think how our proof of demonstration catalyzed the partnerships we were able to ink was a really important signal to validate that what we are doing can realize commercial value and actually have a pathway to development.”
Kendall credited the marketing team with developing a crescendo of announcements while fundraising to help showcase the momentum the team had established. “Our marketing team helped us build a sequence of events where we were able to initially drip feed and then really hammer the market with some really exciting touch points throughout our fundraising process.” Kendall mentioned that it took discipline in terms of holding things back, but then also sequencing the announcements in a way that built on top of each other and had a coherent narrative throughout.
Another selling point for investors proved to be the way Kendall structured the team and the level of talent he was able to attract to Wayve.
“We made the bet to have in-house recruitment from day zero and that’s meant we’ve had the ability to hire a mission-driven, high quality team. As we went through the Series A phase, we started to go from some very expert technical individuals to building out the management team with world-class industry experts. I’m proud to work with seven fantastic VPs that round out our management team in a way that covers not just technology, but is a full stack business in terms of partnerships, product, people, and culture.”
Kendall said this approach has been very important to the team and the investors they’ve decided to partner with. “The best investors dig into a team because it’s the people and culture that make a business at our stage primarily,” he said.
Busting the Myth of Capital Inefficiency
Winterroth commented that many of the investors Wayve engaged during its Series B fundraise were surprised by how capital efficient the business was while hitting key proof of demonstration milestones. He asked Kendall to walk through how he was able to keep the expenses price tag to $30M in an industry known for blowing through cash and how he drives this efficiency internally. In response, Kendall said capital efficiency came down to two things:
- Knowing what is strategic to you. In his case, Kendall said he is willing to throw all the capital in the world at things like compute, data, culture, and things that are real growth drivers for the team.
- Understanding the sequencing. According to Kendall, it’s really tempting to do everything in parallel, but it’s critical to serialize things and do them in a sequence that enables you to control capital. “Resource allocation and budgets are strong levers you have on headspace and where your team is focusing,” Kendall said. “It’s important to make sure you’re doing the right things in the right order to show the proof points that matter at that time and then aren’t afraid to let go of sunk costs and build again if needed.”
Navigating Today’s Chaotic Environment
To round out the panel, Loizos lamented how much the world had changed in the six weeks since Wayve had closed its Series B round — and not for the better — including on the fundraising front where things have gotten a lot tighter. She asked Winterroth how Eclipse is advising its portfolio companies during this chaotic time.
Winterroth acknowledged the path to fundraising had become even more difficult and said focus is more important than ever. “We are focused on tightening up all of the key execution criteria to drive a successful capitalization event for our portfolio companies. So, when you think about seed to Series A, Series A to Series B, having a good understanding of what those milestones look like and a crisp reflection of the execution that the company’s done in order to get there.”
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