Francesco Simoneschi, Founder Truelayer

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Francesco Simoneschi is the Founder and CEO of TrueLayer, Europe’s leading open banking platform. TrueLayer developed an open banking payments network that allows banking institutions such as Revolut and companies such as Williams Hill (the betting site) to power faster and safer online payments.

Founded in 2016, TrueLayer is backed by a stellar roster of investors including Stripe, Tiger Global, Connect Ventures and Anthemis. It has received $272m of funding in total, with its latest $130m round in 2021 valuing the business at $1bn. 

Francesco is also an investor himself. Before founding TrueLayer he helped create an angel fund called Mission and Market.

EPISODE TRANSCRIPTION

Camilla Scassellati (00:00:02) - It’s still us: Camilla Scassellati and Ines Makula hosts of Made IT Podcast and this is our Masterclass Series created in collaboration with Italians in VC and powered by BCG and Bizplace.

Inès Makula (00:00:15) - In this series we speak with some of the most influential Italian investors and entrepreneurs on a series of topics that are key for any startup founder to master. These sessions were conducted live for a select group of italy-based startup founders but are now available for all to listen to on Made IT podcast.

This Masterclass was powered by BCG and Bizplace.

Unlocking the potential of those who advance the world is crucial for BCG, and this purpose has been leading the firm for 60 years now. Over that time BCG has supported companies and organizations in their process of growth and strategic transformation. BCG supports start-ups and scale ups with the same care, to help them scale faster. If you’re a founder and are interested in working with them you can email MILtheseeds@bcg.com.

BizPlace is a boutique financial consultancy specializing in the VC world. Since 2017, it has been supporting innovative startups and SMEs, offering entrepreneurs strategic consulting services, fundraising, and facilitated finance to enhance and grow their business ideas. BizPlace positions itself as a catalyst in the growing Italian VC ecosystem. If you are a founder or an investor interested in collaborating with them, you can reach them at info@bizplace.it. All the details in the shownotes.

Camilla Scassellati (00:01:27) - Let’s get started. We are honored to be starting this season with an amazing guest to talk about a topic every founder wants to hear about… How to Build your Fundraising Strategy.

Francesco Simoneschi is the Founder and CEO of Truelayer, Europe’s leading open banking platform. Truelayer developed an open banking payments network that allows banking institutions such as Revolut and companies such as Williams Hill (the betting site) to power faster and safer online payments.

Founded in 2016, Truelayer is backed by a stellar roster of investors including Stripe, Tiger Global, Connect Ventures and Anthemis. It has received $272m of funding in total, with its latest $130m round in 2021 valuing the business at $1bn.

Francesco is also an investor himself. Before founding Truelayer he helped create an angel fund called Mission and Market.

Francesco - we’re thrilled to have you with us today.

Francesco Simoneschi (00:02:42) - Thanks for having me, Ines & Camilla. It's a great honor. And, you absolutely laid out what we do at Truelayer, so nailed it. Thanks.

Camilla Scassellati (00:02:53) - I'm glad it's not the easiest business to describe, so I'm glad it made sense. This masterclass was powered by BCG and bits place. Unlocking the potential of those who advance the world is crucial for BCG, and this purpose has been leading the firm for over 60 years now. Over that time, BCG has supported companies and organizations in their process of growth and strategic transformation.

Camilla Scassellati (00:04:05) - I know you can't see everyone, but there's people behind us and lots of people listening. And we asked the founders who registered for this masterclass. Everyone registered is an Italy based founder to tell us what they wanted to hear from you and from us today, and a lot of a lot of people, almost everybody said how to plan your fundraising, how to plan your seed round, because a lot of these founders, I'm sure, are getting started and looking to better understand how to start, especially on the fundraising side, and how to find the right investors.

Camilla Scassellati (00:04:36) - So that's really what we're going to focus on today. And we have a lot of questions for you. And let's start with the for us, what was the most basic thing. Timing. So when is the right moment for a startup to actively start seeking investments before they need money? When they need money, what's the best starting point for you?

Francesco Simoneschi (00:04:56) - Let me say of course it varies, right? Like it varies in terms of what is your specific. So I would start with, say, there's nothing better than having a great product and just focusing on building the company. Like everything else, it's kind of optimizing slightly on, you know, like maybe it's going to be a little bit better, maybe it's going to be a little bit faster, maybe it's going to get you a something better. But it's rarely the answer. Right. Like, is this a set of optimization? I think that there are very successful fundraiser with founders that actually they are not even prepared to fundraise like they don't they don't have a data room like the standard, like maybe a financial model to be shared with the investor.

Francesco Simoneschi (00:05:40) - Not even a deck. I wouldn't say it's common, but like it's not uncommon either. Right. And the reason why they succeed is because they have just like great product. They just like our capable of articulating what is that they want to do. So I just don't believe that. Just to be clear, like you fundraise in October versus July and then you end up in a very different place. Maybe you're going to get there two weeks earlier, I don't know, or later, but like, it doesn't change really anything. My advice is that because everything at the end of the day always end up taking longer. Like unless I would say like, you really have all the stars stacked in your favor, like you need to plan ahead and you and plan it really means like building a buffer of time. I mean, in the camp of you need to move early earlier than probably what you think you need to do the work, which means you need to have a very, very clear idea. Doesn't have to be sophisticated, but you need to have a very clear idea of what is your financial plan.

Francesco Simoneschi (00:06:43) - And don't just model one single outcome, of course, just model a range of probabilities like, what is the probability I'm going to be here and going to be there and move in a way that is fairly conservative. And I think that, yes, maybe sometimes, you know, you can always like wait three months and it's going to be slightly better than before. But equally, I think that especially in the early stage, it's so much narrative driven, so to speak, that end is less like numerical, that I think that you want the investor that can look into the future in respect of whether, like you are two weeks or three weeks earlier or later, to really the point of like perfect leverage. I think like those are I mean, good advice, but like, it's very, very marginal, right? Clearly, the best moment of raising capital is when you don't need money. I mean, it's common to say it's very hard to be in that position. So I think that but but it's true that specifically in this moment of history strand comes from I do need to raise I'm in a position where I have either incredibly long runway or I'm even breakeven or profitable, and therefore investors need to pay the price to be on your cap table.

Francesco Simoneschi (00:08:00) - And then you need to think how you're going to spend the money in a way that is value accretive and not just, like throw them out of the window. But I mean, like, those are I mean, I hope that some in the audience like, is in this position is of course, like very hard to be and very hard to be in this position in the early in the early days.

Camilla Scassellati (00:08:19) - So especially yeah, I was going to say especially around seed, it's hard to.

Francesco Simoneschi (00:08:23) - Excel.

Camilla Scassellati (00:08:23) - To be in that position.

Francesco Simoneschi (00:08:25) - And sometimes I'm a little bit questioning also the merit of, you know, being insanely profitable, but you have little revenue and you're very profitable, but you're not growing like, I don't know, like I think that there is a reason why you need to invest. And the history of software and software companies in general is that you need to make an upfront investment and then somehow in some fashion that that allows you to unlock growth and product market fit. So you by definition, you need to, for a period of time, run at a loss in order to eventually be in profit.

Francesco Simoneschi (00:08:59) - Right. And so you need to have that courage. And maybe right now we are over staring into this, this other direction. But anyway, I think that let's put it this way, it's very important to understand what is your relative leverage in terms of like your point in time, I don't know. You are clearly, if you're completely running out of money and you have a week worth of runway, you're going to be incredibly worst off versus like you have 12 months of runway, right. And so I think that you need to kind of identify what is the point of, you know, we're like risk reward is at the peak. Like is this the better ratio of like risk reward, like how much risk you have of running out of money versus not versus the reward of like raising in that point in time and how much value you are going to create. It's very hard to do that in a extremely, you know, even numerical way. I think like in a way, you need to you also feel like you can educate yourself through numbers and financial model.

Francesco Simoneschi (00:09:56) - But eventually, you know, as founder, you need to make a call and have the courage of like being out and. And see what comes back at you.

Camilla Scassellati (00:10:03) - And you talked about the importance of product, and we'll talk about it a little bit more. But of course, you start the success of your fundraising is not just because you're an amazing fundraiser, but it's also because you have an amazing product or a good idea or something that investors want or the market wants. Right? That's important to always, always remember. But also we wanted to sort of break down. What else do you need to get started with your fundraising and really try to give some very specific hands on advice. And this one is maybe not as specific, a bit more high level, but could you talk about the importance of having a clear vision and mission when you approach investors, especially around seed, what type of storytelling do you have to have in place before you even take that first meeting?

Francesco Simoneschi (00:10:48) - It's important. It's actually fundamental.

Francesco Simoneschi (00:10:51) - But even before then, investors, I think, like the investors, are one of the many recipient of the story, one of the many stakeholders that are going to do something with that story. But frankly, you need to have that clarity of thinking that sort of like very clear plan in your head, or at least like have the best possible approximation to what is a clear plan, because you need to operate the company, you need to get on board employees, your co-founder, even yourself. You need to know what you want to build. Where is that you want to be in the future? What is that you are going after? And it's completely fair to have the known unknowns like, what is that? I know that I don't know, and I think building a startup is effectively a process of uncovering those known unknowns. Right. And so but but even with that, you need to have a number of opinions and you need to have a theory and people will agree with your theory. They will think that, okay, this is a good theory of a good model of the world.

Francesco Simoneschi (00:11:54) - And doesn't matter. Right? If important is that some people agrees with you and you execute. Right. And so the way you articulate all of that, it's incredibly important. So going back to the fundraising part, I think that it's important to have in mind the vision and mission. But again, it's not a problem of what is my vision and mission statement. Actually, I find that sometimes a little bit grotesque if you want, like when very early stage companies, they have this like super well thought, vision and mission statement. It feels like a little bit of like bullshit, frankly. It's more about what is that you want to do? What is the problem you solve? Can you explain that in practical terms, and can you clearly articulate what your product does, how you build a business around this product? What is the category that this product plays into and how eventually, over time, you end up winning most of this category or establishing a new category or something around those line.

Francesco Simoneschi (00:12:53) - Right. And I always find very useful for myself to frame, basically, like ask yourself the question, like what is going to be this company in ten years? Where is that? Like you think? It's not just the company, frankly, it's just the state of the world that you operate in, right? All your state, different stakeholders, whether it's partner competitors, the entire dynamic around you, how that is going to pan out because you exist and you fulfill what is that you want to do? It's almost like and probably more important, what is that you're going to accomplish in the next three months, three weeks even. Right. Like, is that sort of like sometimes hyper tactical mindset? Is it similar to basically say, okay, what is your strategy now? I mean, this is another just another way to basically say, okay, what is your strategy? Can you clearly articulate your strategy?

Camilla Scassellati (00:13:41) - We had a chat with the client from Sequoia, and he called that clarity of thought, just having clarity in how you explain your thoughts and your ideas and why you're doing what you're doing, I think is the way it absolutely.

Francesco Simoneschi (00:13:53) - Is, that sorts of clarity and is the, you know, how everything is consequential and derives from first principle and it may not turn out to be true, by the way, like you're making like gross approximation of the future. But that's that's not important. Like it's more important is that consequentially flowing and some people will believe it and some people don't, especially at fundraising. It's important that very few people believe it because that's all you need, right? So yeah, conversely, what is not right, like what is not this clarity of thinking? It's basically a perfect presentation, a perfect pitch deck. Like you are great on stage, like it's nothing like that. Like you can be in like completely awkward and kind of like maybe not an expert at this, but still being incredibly good at articulating your ideas and your vision. And b very, very simple, very straightforward of like how everything flows together. And it's okay. I think that, of course, like if you're also great on stage and you're like extrovert in that sense.

Francesco Simoneschi (00:15:00) - Like it will help of course. And. With practice, you get better, right? That's every everybody does that. But that's not in my view, that's not a hard requirement. The hard requirement is this sort of, you know, can you simply articulate what are the three things you're going to do and how that impacts your, your world right now? The other thing that that I would say is that we always think in terms of like mission, vision, you know, the problem statement, which is super important. But it's really like when we talk about storytelling, it all boils down to can you clearly articulate, also your business model, like your distribution channel, the way you're going to go to market? Like it's not just like the story, the need like build this product for this thing is also how I'm going to be successful with this product that I just built. And it's the whole plan, right? A clear articulation of your plan. That's really, I think, 90% of what we're talking about here.

Francesco Simoneschi (00:15:57) - That's like, if there is one secret, that is the secret, everything else is really, you know, marginal gains that could be helpful. Some probably not.

Camilla Scassellati (00:16:06) - And do you remember, just to take you back to your own true Truelayer experience, do you remember what your first presentation when you were trying to raise your first round, and how much your story, the story, part of your product change or your vision change, or the clarity of thought that you had at the time, whether everything panned out to be more or less in that direction or or things are now very different. For instance.

Francesco Simoneschi (00:16:31) - Clearly, if I think about that, today was embarrassing, right? Like clearly like we we iterate it so much that it's totally normal that you look back and you say, okay, like basically pitched almost like a different company. And that's totally fine and probably like smart investor will will and at seed stage or Pre-seed stage will will understand that. I don't believe it was the necessarily the greatest presentation.

Francesco Simoneschi (00:16:59) - Actually, I think that myself, my co-founder Luca, were incredibly nervous at times. Like I remember this this partner meeting where basically I think that Luca like, I don't know, like basically broke the door handle of the meeting room or something because I was so nervous that, like, got stuck. Like, you know, you don't you do all those awkward, embarrassing things and you're so tense and you try to prepare for 100 things that actually not required. And then maybe that important thing that you don't think about, generally speaking, I believe that we we got it right. The probably like we got it right more the what we are going to do next. Then actually the long term vision, I think the long term vision, in a way, it's something that was we had a theory. But frankly, if you ask me, today was clearly more blurry than what it is right now. I think right now we know way better are place in the world. But we knew at that time incredibly well, what is that we wanted to do tomorrow, the day after, which in our case was what is the first problem? The problem is that there's going to be a fragmentation of basically the banks building their own, all their own infrastructure.

Francesco Simoneschi (00:18:15) - There are 3000 banks in Europe and you're a developer. You want to connect to all of them. You need to aggregate all of them kind of like an easy, an easy, straightforward effect of this regulation happening. And we were developers and we wanted to solve that problem. And so, so so I think like we got that right at the very beginning and we could clearly articulate what is that we wanted to do, even though I think that the space itself is quite complex because it's a lot of regulation, a lot of like intricacies that are not very visible and kind of like upfront too many the long term. I think that we changed that quite a few times, as we were learning, basically we learned, okay, what is that you're going to do with this bank infrastructure and where is that? We had a compelling product that we were evolving and we found traction. And also where is that we have conviction as founders. And I said that before is a process of finding the like, answering the questions about the known unknowns.

Francesco Simoneschi (00:19:17) - Right. And so the more you answer, the better is going to be your vision of the future. Right. But yeah, and in terms of like, you know, you ask me about exposition stuff, I think like we put together a slide deck really quickly. And so I think like one is actually online, like if you, if you Google it, I think Pedro bets put that online. And there is a little story of like how we met, but it's extremely rudimentary. But like the concepts are there and when I sometimes I look it back and I and it's, it's strange. It still feels incredibly, incredibly relevant, but equally incredibly old. And I think it's the, the right feeling to have. Yeah.

Camilla Scassellati (00:19:57) - You should always we always say you should always be embarrassed of your first everything. Right. Because it means that after that there was progress. If you still love it, it means that maybe you didn't go as far as you should have. Pivoting to the financial stuff, which I know is on everyone's mind, and it always comes up as a question.

Camilla Scassellati (00:20:13) - And this one is going to be a little bit specific. I don't know how much you have a perception of that because you raised internationally. You're also an investor mostly in Silicon Valley. But what type of early traction in terms of financials does a startup need to demonstrate when they're trying to raise a precede or a seed? And in particularly I asked this question because there seems to be a little bit of confusion because some Italian investors already seem to want to see some traction already at the pre-seed level. Generally, when you hear Silicon Valley investors or Silicon Valley founders, they say, I raise with a PowerPoint and that's it. I didn't have any traction, I didn't have any financials. But what's your view or experience and what is your recommendation? Maybe for founders, how much should they be able to show?

Francesco Simoneschi (00:21:03) - I think a good investor should try to find sign of product market fit, and that is often expressed in terms of growth rate more than absolute numbers and some sort of like maybe efficiency metric. On the other side nowadays is also very important.

Francesco Simoneschi (00:21:22) - But I don't believe that there is some sort of like hard threshold that qualifies you for product market fit. It's more about you may have found product market fit. Things are accelerating very fast. It's about understanding how much you can underwrite, for instance, of your future growth provided where you are in this point in time versus actually need to see the numbers, the hard numbers. Right. And it all boils down into your, you know, kind of business model B to B, b to C, right? So I mean, and especially at at seed stage, I find that sometimes there is a unrealistic portion of early traction that I think pushes founders sometimes even like in some sort of like short term thinking of, I need to get to this number so that I get funded and I can now really pursue my long term vision or whatever. And I I'll make an example in probably like I'm making an exaggeration, but, I've been at several Y Combinator, demo day and they all show like, pretty much like every single company on stage shows.

Francesco Simoneschi (00:22:29) - This perfect accelerating chart, probably revenues or at least like is some some KPI, right? It's mostly revenue, but it can also be monthly active user or number of contracts, number of customers, something like that. Right. And I am always like very skeptical, you know, like it's a real number and this is what is going to be important in the future. Right. It could be that for most of the companies, what is going to be really important in the future? Probably like different things that the very early I did 10-K this month and now I might qualify for. I mean, this is not the government, right. Like this is those are private investments. So you don't have to qualify for anything. Like you need to convince another firm to raise capital in your company. Now one thing that you were saying, like, what is the source of arbitrage of different markets? And this is an important point, and I think it has to do with the amount of risk investors are capable of taking, considering you a company, for instance, an Italian based company versus a Silicon Valley based company.

Francesco Simoneschi (00:23:35) - And the reason has to do that. If you look at the Italian ecosystem, like it's historically very hard to build, like companies that eventually end up being public or exit for large amounts and some. And so it ends up being very important if you play in the local ecosystem to build companies that produce revenues early on. And so that is the risk in feature that many investors that play more locally versus internationally. They will they will look because it's kind of like downside protection for them more than necessarily hard signal that you are similar. Like what like you qualify for a certain round. Like I think this is an important point, like the reason why in Silicon Valley that is not necessarily the case is because the M&A market or in general, like the whole ecosystem is much more fluid, like higher velocity. Things are moving faster, money moves faster. Number of transactions in terms of mass and exit is way bigger. the kind of returns that those investors are seeing is substantially more so. It's important to have companies that are really optimizing for the long like the big swing, the, the, the home run.

Francesco Simoneschi (00:24:49) - More than necessarily I'm kind of like a smaller outcome. But but I'm happy. And so you have this different nature in investors I think like Italian firms are starting to. You feel like more international. But it's also true that international firms are actually starting to notice Italy. And so I think this arbitrage of what is the requirement of like a local firm versus a more international established firm is going to eventually go on, close up a little bit. And that I think in general terms like this is going to be good for the Italian ecosystem.

Inès Makula (00:25:23) - Yeah, we're definitely seeing like a really good improvement in the fact that international VCs are now investing in Italy. Today, we actually just announced Futura just announced their series A round that has two international investors that had never previously invested in an Italian startup. So really great to see foreign investors looking at us and something we always like to point out on the podcast and when we talk to to different founders is how important choosing, you know, not getting money from anyone is.

Inès Makula (00:25:51) - You know, you have to really choose your investors because they're there for the long run. They're it's like another marriage, not just your co-founder. You'll have your investors that you bring on board. What would you give as an advice to founders in finding the right, you know, investors, beyond just thinking about the money that they're going to give you? Like, what are the questions? What what should they be really looking for?

Francesco Simoneschi (00:26:11) - So I mean really depends. Like we're talking about firms. We're talking about individuals. I think Italian companies tend to have a number of business angels owning a big chunk of the company very early on. And this is both I mean, it's good to the extent that you find some capital, I find. Fair enough. But generally speaking, I think that creates a problem the moment that you are trying to qualify your company for a more like institutional round of funding like you. And so it's not uncommon that later on, the new investor will want to probably go and change some of those decisions on the cap table to make it more like to just put back ownership to the founders, because eventually our founders create value.

Francesco Simoneschi (00:26:56) - Investors don't or is more limited, right. Like the like they provide capital and good advice, but that's where they stop, right? So I would say one is clearly try as much as you can to every single time you raise capital to the price terms dilution that it's within standard windows, let's say, let's say it is 20% for a seed round fund. Like that's kind of like rule of thumb, right? You can be 25, you can be 15, maybe 30, whatever. But like don't give 60% in your life first round. It's probably going to be the wrong choice when it comes to more like professional investors. I think in general, you should always do the due diligence for understanding the like. How reputable is the investor in front of you? Ask for introduction to their previous investments, especially like the the ones that have been going on for five, six, seven years. The one that will have some worse stories to share with you. The investor always tend to share the deal that they've done, like the month before.

Francesco Simoneschi (00:27:59) - And you talk with those founder which they tell you, oh, it's great, I got the valuation I wanted happy days, but it doesn't tell you much. I think you need to speak with people that have been building a working relationship for several years, and they will tell you, look, the company was going south, these investors stepped in. And this or conversely, we had a lot of problems at the moment that we had to do this and that. Right. So so those war stories are important. So go way back into the past of those investors and partners. I think you can get a fair share of information from the kind of questions that they ask you. My high level mental model is that whether is a generalist or an expert investor, like, I don't know, I work in fintech. There's a lot of fintech investors, right? Right. And there are also many generalist investors that are investing in fintech. So these all expertise I think it does matter. Like it builds the reputation.

Francesco Simoneschi (00:28:57) - But then eventually you need to figure out for yourself, are they asking me the right questions. Like if it was me investing in my own business, like are they poking at the right problems? Or are they asking you the question that you think that are the most challenging? The ones that are like, they're really nailing the problem on their head, and usually even if they ask three dumb questions in a row, I mean, you have the answer. That probably is not going to be a great investor for you. I'm quick at making those sorts of assessment. I think that it's important that investors do their own work before talking to you, and I think that you can you should read as much signal as possible into the quality of the conversation you're building with them.

Inès Makula (00:29:37) - That's very useful. Thank you. And I was actually speaking to an investor on an interview the other day, and he was saying how important it is for the founder to put himself also in the position where they're not like they're begging for the money, thinking that the investor is the most important person in the room.

Inès Makula (00:29:51) - But they without sounding obviously like arrogant or anything, but it's like the investor has is getting an opportunity to maybe potentially invest in your company. So to you know to also. See yourself like that and then listen to your gut feeling as as you said as well, right? You kind of can tell when, when the how the conversation is going in terms of networking and relationship building. After having interviewed like hundreds of founders with Camilla, we've seen like there's like the serial fundraisers who, you know, who are really like extroverted. They've built really like incredible networks. And then you really have the founders who have raised a ton of money, but who are never at events. We're really always heads down on their product. What's your take on like building relationship building network? How important is it to like, you know, be at the event, speak to the media and also tips on how to build like networks and relationships when you have none. Because obviously when you have a little bit of traction, you have a little bit of popularity like it, things come to you.

Inès Makula (00:30:46) - But when you have no one and you don't know anyone, like how do you start?

Francesco Simoneschi (00:30:50) - The fact that you see founders being polarized on this topic? It tells you that it varies a lot, and it depends on also the kind of company you're trying to build and your personality. I think eventually, also what you enjoy to a certain extent, I think that a level like when you start from the get to go, a level of network is quite necessary. It's not just for raising in investment, it’s just like for testing your hypothesis to know what you don't know, to know what your competition is doing, to hire people, to just get smart about stuff, to build credibility upon yourself, to sometimes, like me, maybe a completely new territory for a year where like, you had an idea, but you never work in the industry before. It's actually my example, right? I never worked in kind of banking or from a developer perspective. I understood what I wanted to do, but like I was new to regulation and all of that, right? So I think that a fairly good amount of networking to find the people that are reputable in your categories is actually quite useful for you as an entrepreneur.

Francesco Simoneschi (00:31:58) - And then of course, like if, as you're saying, like you're a little bit more extrovert, like you're going to enjoy the process a little bit more and probably you're going to spend more time naturally, because I understand to gravitate on the stuff that they like to do, and usually they hire people to do the stuff that they don't like to do. Now, the problem with network is that and I'm talking about like, this is, you know, first time founder may be fairly young with like limited professional network. I think you are coming across a problem that is kind of like cold start problem. Like it's not tough to build a network. It just takes time. And at some point it precipitates. So it's just like snowball, right? Because you build enough connection and everybody is adding another connection. And so it goes at some point it goes very, very fast and you can go very, very far in terms of like, I want to connect with these people. You find all the connection.

Francesco Simoneschi (00:32:54) - To get there at the very beginning is tough because you're disconnected. Right. So I think you need to think in terms of who do I know, who do I have a relatively good relationship, and it's also potentially a super node in my network, like someone that can connect me with way more people than I know and I can lean on. And I think that you need to be a little bit shameless when you find those people in your early 20s and you're trying to do one thing for the first time, you need to be a little bit shameless and upfront and say, look, I don't know much of this thing, but I would love those ten introductions, and maybe only five are going to come through and you're just like, rinse and repeat and understand over time, maybe building a strong relationship with that person is going to be a great investment in your network. You're going to catch investors inevitably and more frequently, our investors that nowadays are going to catch you. I think that early stage investors starting to really see, you know, an employee that leaves a reputable company, they immediately reach out to see whether they are going to do a startup or something.

Francesco Simoneschi (00:33:58) - So the investor is actually the master, the networking way more than any founder would do. So in a way, if you are in this Goldilocks zone of, you know, you have enough signal to an investor to be credible, I think our investor will naturally gravitate around you.

Inès Makula (00:34:16) - Yeah, they are the most professional networkers, investigators on LinkedIn and making sure they're on the pulse of everything. And in terms of the mistakes, the most common mistakes that you see, given that you're also an investor yourself when you see like early stage founders pitching or, you know, at the beginning of their journey raising money, what are some of the biggest mistakes that you see and how do you think they can avoid them?

Francesco Simoneschi (00:34:38) - I would say, I mean, the biggest mistake is always not telling the right story. I think that's kind of the big mistake you can do with an investor is always kind of not telling what is relevant for them to hear, and not being able to portray what you think you want to build in the in the best possible way, which is that clarity of thinking that we were talking before.

Francesco Simoneschi (00:34:59) - It underpins that you're. Of building the right product of course. And like your I think like you need to be critical with yourself and try to scrutinize your own ideas in the way an investor will do. So see the venture fund the opportunity. Am I growing the right way or I'm a reputable founder myself for this opportunity? If not, what else I need to build in order to have more credibility in what I'm building? So you need to be. Maybe it's that thing, like being critical enough with yourself and have that clarity of thinking. Then we said that at the beginning, I think every other mistake, frankly speaking, like you can give it a pass, Don, over the loo to yourself, you know, at the very beginning, like giving your uncle 60% of the company, even though what can I say, like maybe for some founders that was the only way to start, and maybe that's fine as well.

Inès Makula (00:35:55) - Talking about rejection, which is part of the process of basically being a founder, you're going to get rejected.

Inès Makula (00:36:00) - You're going to get nose. What advice do you can you give of how to handle rejection during the fundraising journey? And another question is basically, if you've received a lot, a lot of rejections, is there a time where you just have to kind of give up on the fundraising and just, you know, maybe keep on, iterate, change idea? Like, is there is there a limit?

Francesco Simoneschi (00:36:19) - Try to prepare yourself. Don't take it too personally, even though I think it's very hard to not take things personally. especially if you're passionate founders like the the all investors are looking for passionate founders. So therefore you feel things passionately. Therefore probably no, you're going to feel it. There's no way around. And you're going to think that is a judgment on you and your ideas. And I think that maybe it's more about how do you use that sort of negativity to propel yourself and to find motivation versus actually being completely overwhelmed by, you know, a week of no's and, and heart comments and, and people that are trying to, like, push you down.

Francesco Simoneschi (00:37:07) - So yeah, like just just be mentally ready for all of that. And on the other side, just understand that fundraising, which is different than a sales process, sales process is about making sure that you win most of the deals, right, like you want to have, let's say I don't know what it's like, you know, in sales, let's say that you have a 6,070% kind of like, conversion rate, like you're a great sales person, but you want to win, like more the majority of the deals that you have, the majority of the customers you are pitching. Right. And the stronger is your product, the more you're going to win with investors. Actually, that doesn't matter. I mean, of course, like it's great to always have like a lot of investors that want invest and like that drives competition and increases your leverage, which gives you better terms and all of that. But realistically, you need one or 2 or 3 to say yes and the other 97, or it can be no.

Francesco Simoneschi (00:38:01) - And you need one. And so it's really a different mental model when you're trying to appeal to the vast majority versus actually you're fine being appealing for a very small niche. And on the other side, investors are trying to be most often. And I'm not saying that they always manage to, but they try to be contrarian. They try to do basically to to believe something that another firm doesn't believe and have a differentiated contrarian thesis. And so it's all about finding that source of match, some sort of like an idea that is hard to believe, but some people will believe it. And you need to find and pinpoint who's this small cohort of investors that are going to believe you. Sorry. What was the other part of the question?

Camilla Scassellati (00:38:47) - Is there a moment where you give up and it's not the right idea? And maybe an add on to that too, is how defensive do you need to be? So when investors are asking those questions that sometimes they're meant to maybe sometimes they're going to prompt you. But sometimes maybe the investor didn't really understand what you're trying to say.

Camilla Scassellati (00:39:04) - So how defensive are you of your idea? And I guess then finally, when do you give up? if it's really not getting through.

Francesco Simoneschi (00:39:13) - I think it boils down to what is the amount of pain that you can suffer that that's really that? And how much is your conviction into your own ideas? Right. And I don't think there is a limit to that. Generally speaking, I think that you shouldn't give up very easily. And I think that a, some sort of like self-selection people that give up, they don't end up building great companies. And so you need that source of like resiliency in the process. Right? So I mean, the camp of you don't have to put on a hard cap, but equally you you need to learn throughout the process. A principle that I set for myself is that it's fine to make one mistake. It's not acceptable to make the same mistake twice. And I think you need to apply something like that. In your fundraising process as well. So if you understand that you're doing something wrong and you consistently receive a certain kind of feedback, ask yourself, is that going to change what you do? Is that going to push you into better your idea somehow or not? Or actually, they are all wrong and you are right, which is also an acceptable position to be, especially when you're building the future.

Francesco Simoneschi (00:40:26) - Not everyone will clearly see the future, right? and so but you need to have an intellectual, a level of intellectual honesty with yourself. And don't kind of lie to yourself the moment that you kind of like, you see that you are becoming some sort of like you're selling snake oil, like you don't believe your own lies. Well, that is a big problem. And that's probably like the moment that you should start giving up. You know, numerically, I would say if after you pitch 50 investors, nothing translates into a conversation that starts to get deep and deep enough. Then probably you need to start thinking, I'm doing something wrong in my approach, in my story, and try to see at this feedback and maybe some stuff. It's very easily fixable, actually.

Inès Makula (00:41:12) - Thank you. And I see somebody in the comments that wrote ask for feedback, which is definitely a good tip. we're going to finally open the floor to the questions from the audience. I'm going to start selecting the question. They'll come up on the screen.

Inès Makula (00:41:25) - Alex is asking any advice on how to reach out to international VCs being an Italian founders, which are the pros and cons.

Francesco Simoneschi (00:41:33) - Let's go back to this. You're building a network, right? So network is not just a problem of like people are connected together, but they are connected together with some intensity and some reputation one to another. Like people will not just be connected, but like there is a certain strength in that connection. So for instance, I think it's totally normal that an Italian founder, whether starting to Italy, actually even starting abroad, they have a certain representation of Italian investors at the very beginning, maybe like Italian operators working for international firms as well. But it's totally fine because it's part of the game that if you speak the same language, you grow up in the same kind of culture, probably in the early stages, you're going to pick up more signal in terms of like, who's this person that I have in front? And so you're probably going to be more compelled to make a determination and invest in a company.

Francesco Simoneschi (00:42:28) - So my advice here, for instance, is like, you can always reach out to international VCs. And if you have a great story, there's not going to be a big problem into that. What I find that is a common pattern is to have an Italian investor that is really that has a very international reach and can be the bridge between your kind of like local reality into the more international world. I think that is a model that starts to work quite well. So there is a lot of operators, whether abroad or in Italy, that are in a way specialized in this kind of arbitrage of ideas. Like I will get a little bit earlier the signal that this is a strong Italian founder and then take the risk and connect them. non-Italian operators and capital allocators around the world.

Camilla Scassellati (00:43:16) - This Francesco. This masterclass is organized by a group called Italians in VC, which are all Italian people that work in VCs around the world. So your perfect network for this. I would say based on your answer.

Francesco Simoneschi (00:43:29) - That's absolutely true.

Francesco Simoneschi (00:43:30) - That's absolutely true. Don't don't over indexing to that, because there is a point in which, like an international investor will probably say, oh, you're kind of too Italian or your too French or your too German or whatever. But the reality is that, look, it all boils down always to if you're a great company, you don't have to care about any of that, like capital, will, will, will, will seek opportunities and will knock at your door. But it’s it’s for very few people. Right. So the majority will have to work out a smart way to be connected to the broader world. And I find that exactly this sort of like linking in between is extremely important.

Inès Makula (00:44:17) - And next up we have a question from Felipe Hernandez. What would be your advice for cold reach outs in case there's not the possibility of a warm intro? What can be some current effective strategies and through which platforms?

Francesco Simoneschi (00:44:30) - So, I'm very old school that, our mantra is a warm mantra, and there's nothing better than a warm intro.

Francesco Simoneschi (00:44:40) - And so if you don't have a warm intro, fine. Like your problem is getting the word mean true or not, nothing different than that. So but let's say that I think that the world is changing a little bit. And maybe, I think that, for instance, ECS really opened up this sort of direct connection between investors and founders. And so I find that more and more you see this sort of open conversation about topics, and I think you can engage with, with personalities and, and outspoken leaders directly. And I think if you if you, I mean, you shouldn't try to sell things, but if you engage in a conversation, it's like in the real world, right? Like if you, if I, if I try to knock at your door in your apartment to try to sell you something, probably you're not even going to open the door. Right? But but if we engage for some topic that has some value, well then probably there could be a connection there made. I'm still very much inclined to believe that the warm intro is is important because it increases the signal head of the chat.

Francesco Simoneschi (00:46:01) - In a way, it comes from a person that is the reputation of the person that makes the introduction also very important. and your ability to find introduction in itself is some sort of like trial by fire. So I think that that carries some signal. So. So I think that you need to work out what is the shortest path to get there in a way.

Inès Makula (00:46:25) - Next up we have a question from Luigi Di Piazza. Do you believe founders should craft iterate their fundraising stories stories with non-target investors first before pitching to like, lead investors or leads? do you think founders should focus on lead investors first or last in the fundraising process?

Francesco Simoneschi (00:46:44) - Okay. So, certainly focus on, on, on lead investors instead of like, you're probably it's going to be easier to find people that tells you, look, I only want to put a small check in the round or whatever, but that's not what you need. Most likely you need a lead investor. So I think like, you need to have the courage to lean in into the big conversation and be very upfront with what is that you're looking for.

Francesco Simoneschi (00:47:12) - Like, I'm looking for an investor that can lead my round, and those are the parameters in which that could happen. in terms of like, you know, you need to graph the story. Well, probably yes. It's probably fair to say that, practice makes you better. And so would you want to practice with for, for some reason, like people that you, you think are less valuable for you than than not? But, you know, I think that sometimes, like, life happens and, you know, I wouldn't let's put it this way, I wouldn't refuse a peach with a tier one investor because I don't feel ready. I think that that's that's not the like. You go there, you show up, you try your best and and you, you you seize the opportunity quite aggressively. I, I wouldn't try to do anything different than that.

Camilla Scassellati (00:48:15) - And we have a few more questions from the audience. But we were just that time. So we might start wrapping it up.

Camilla Scassellati (00:48:21) - And we had just one last question for you, Francesco, which I think will be on the mind of most people, so worth discussing quickly. so we talked about the current market. The market has changed a lot since 2022 to the market. The market change changes every year. So in the current landscape, where are there specific trends or shifts that you think founders should be aware of when they're looking for founding? anything specific that you're seeing right now that you think is worth discussing as our last wrap up? a few points.

Francesco Simoneschi (00:48:57) - sure. And I'm, I think, like, I'm going to probably repeat what you know, everybody else is saying, so I it's going crazy. I think, like, we are certainly in a little bit of a bubble where no matter how everyone is trying to get smart of like what is the right way to approach it, it really feels like a huge technology trend. And everybody that in a way is, is, is trying to be in that race is some of them are actually going to get great benefit of, of that narrative.

Francesco Simoneschi (00:49:31) - So those are the usual like headwind and tailwind. In this case AI is an extremely strong, tailwind to your story. There's nothing to to to say that it will change. Don't expect that it's going to be there forever. I think like as every speculation there's going to be a start and end and but but now we are in the very middle of it, that this is not about encouraging you to start an AI company just because, you know, like there is a speculation, I think, like you need to have conviction. What you do then happens to be AI. That's great. But otherwise I think that, I'm not not much inclined in that, that that way of thinking. the rest everybody is saying that. I mean, it's true that the capital markets have changed dramatically. I think this is mostly true for growth stage companies and, late stage companies and maybe the series A and series B to a certain extent. But, the market is finding some footing. Right. Like it. The, the problem of investment is volatility when there is a lot of volatility investors, they don't know what is the right multiple.

Francesco Simoneschi (00:50:41) - What is the right narrative in the market. Where is the exit valuation benchmarks and all of that. So so those are the moments where no one wants to invest because the outcomes at the end are becoming a little bit hard to predict right now. I think like we are starting to be back into a stable market now. You compare with the past, then it's tougher because interest rate is at five 6% versus it was at zero. So it's a five fold six fold increase right versus before. So expect that cost of capital is going to be more expensive I think at the early stage frankly speaking because it's all momentum driven. And it's not like a real financial play. You're not really, really, really comparing things against public multiple just for growth and things like that. Then I believe it's all momentum based. And because entrepreneurship is still flourishing, cost of starting a company is keep coming down and there are more great companies than, than ever. there there's an abundance of capital from one side and companies to invest on the other side.

Francesco Simoneschi (00:51:48) - And so you have a very healthy, dynamic, very healthy market. what clearly investors are right now in a, in a more like predicting more discipline than before, financial discipline than before, which is great. we've been way more maybe number orientated, a little bit more conservative, expect that. But I think in the early stages. It's not that impactful at all. Like it's more later on when your benchmark starts to be public companies, that it becomes a slightly different game.

Camilla Scassellati (00:52:26) - Clear. And yeah, there has to be some sort of route to profitability. Whilst maybe three years ago you didn't have to prove that. Maybe as early on as you have to do today. For what? For the reason you were talking about. But, Francesco was really great to have you. He had so many more questions, but it's a dense topic. There's so much to talk about. And we also know that it's hard to talk about these topics in such general terms, because everyone has a different story and they're starting from a different starting point.

Camilla Scassellati (00:52:58) - But I hope that what Francesco said can serve at least as lessons for all of you listening and just ideas on how to start thinking about your fundraising strategy. And then I also encourage you to find more resources. There's a lot about this topic, so hopefully you can find the answers that you want, but also feel free to reach out if you have specific questions that we haven't answered, and we can try to help you out as well. and we have a lot more masterclasses coming, so stay tuned. On this channel we'll talk about a lot of interesting topic for founders with a lot of interesting, and successful entrepreneurs and investors. So we'll see you all soon in the next masterclass. And thanks again, Francesco, for your time. we really appreciate it.

Francesco Simoneschi (00:53:39) - Thank you. Thank you for inviting me. Such a pleasure. Thank you.