Jameson Toole’s investors for his first company, Wherehouse Inc., must have been surprised to see him again only three months later with a pitch for an entirely new venture, Fritz.
But Jameson’s quick pivot didn’t stop him from quickly raising $2 million for Fritz. In fact, Jameson thinks his experience with Wherehouse, and the small but dedicated team he built there, helped him raise money for his new startup.
On an episode of the “How I Raised It” podcast, I asked Jameson to share a few insights into what led him to pivot and how he was able to secure funding for two consecutive companies without getting his wires crossed.
So what is Fritz, and why did you start this company?
Fritz helps developers put machine learning or artificial intelligence models into their mobile apps. We’re seeing all of these advances in these fields — in neural networks for image recognition, and voice recognition, for example — and there are accelerated AI-specific chips going into devices. If you bought a new iPhone or a new Pixel, they’ve actually got special chips to process the data structures behind these machine learning algorithms.
So, we can actually start taking these neural networks and these models out of the cloud and put them directly on the devices themselves. They run a lot faster and more cheaply, and it’s a lot more private.
How did you come up with this idea?
I studied physics and economics at the University of Michigan, and then did a PhD at MIT, where I combined the two disciplines. After I graduated, I worked at a consumer mobile tech company here in Boston, building and running a data science team for a little over a year. Then I just had an itch to go off and try something myself. That’s what led to Wherehouse.
How did you get it off the ground?
My co-founder and I started about two years ago. We spent the first year commercializing some of my PhD work and bootstrapping the business, and that was a lot of fun.
But after about a year, we decided there might be another market we should go after with higher growth potential. So the idea for Fritz came into our mind when we started seeing some amazing things people were building, like what Snapchat was adding around augmented reality, or developments with self-driving cars. It was really after about six months of bootstrapping before we were in a place where we felt comfortable raising.
How much have you raised?
We did one round, a formal seed round, and we raised $2 million from institutional investors in about six months.
Did you have a lead investor?
Yeah, it was Eniac Ventures out of New York. They’re awesome guys. Then we had Uncorked Capital, and two syndicates filled out the round.
This is actually a piece of advice I would give people. We made a point of not trying to fill out the round until we had a lead investor. Some people like to go out and try to build some momentum with soft commitments, and we tried that with the first business.
We actually went through two separate processes. You still have to do the same amount of work to get a commitment from a small syndicate as do to get the big check, but it was just too much. With Fritz, we specifically said, ‘let’s get a lead investor in place first.’
How did you establish which investors to talk to and who not to?
We were pretty narrowly focused on investors that do seeds as their main business. Occasionally, larger funds that do As and Bs will write seed checks, but there’s some signaling risk there. It’s sort of expected that an investor will then do your A, and if they don’t, that’s a big negative signal to other investors.
It also helps in terms of the amount of time they can spend with you. If you’re a larger fund, and you’ve put $100 million into one company and $2 million in another, guess who’s going to get most of your time?
How did you identify people who were usually leading deals?
Don’t avoid talking to an investor simply because their website says that they’re in a space that you’re not. In most cases, they’re looking for a good deal and they’ll talk to you regardless. We went through each of the firms we were interested in and found partners by looking at their bios, their backgrounds, and the previous deals they led. Then it was just about finding a warm introduction.
How many firms were in your funnel?
Between our two companies, there were probably 50 firms, I would say. It was good that the second time around, we knew who to target better. There were fewer firms, but still a lot of them.
Did you go back to the same guys you pitched the first time?
Yeah, that was a positive experience for us. On one hand, investors might be a little bit worried that you worked on an idea for a year and then gave up on it. But most VCs thought it was great that we were really committed to making something work, so we didn’t have any problem going back to them.
How much time was there between pitching the first company and coming back with 2.0?
I would say about three months.
How did you pick Eniac as the lead? Was it a competitive process that you ran and did you have good competition for the deal?
That’s actually a funny story. Vic Singh is our partner there, and he was actually the first investor we pitched Fritz to, with the very first version of our deck. I’m sure it was a terrible pitch.
But Vic had decided a while back that he needed to understand the entrepreneur side of the table. He had actually started a company. As it turned out, his company had exactly the problem that we were trying to solve, so it really just clicked right away. We still ran a very formal process, but having an investor who was also a founder made it really obvious.
Then what did you do?
We syndicated the deal. It’s certainly true, in my experience, that all the dynamics flip after that. Getting the one ‘yes’ for the lead is the hardest thing you’ll ever go through, and then the rest falls into place relatively quickly. All the firms have relationships with each other. They have firms they like doing deals with, and firms they don’t. We got synced with a lot of them through our lead investor.
I would be careful taking intros from investors, though, because there’s a signaling risk. If an investor passes you from their firm to another firm without investing, that can raise some red flags.
When you got Eniac as lead, what kind of metrics did your company have? It sounds like you were almost conceptual, correct?
We had a prototype, and we had already identified a team of three other engineers that we’d worked with in the past. They were ready to go, just sort of waiting until we could pay them. I think having a really strong founding team and an engineering team that was ready to hit the ground running immediately with a working prototype was enough.
Obviously though, if you’re a founder, wait as long as you possibly can in terms of traction. If things are working correctly, your company gets more and more valuable every single day. In our case, we had been bootstrapping for long enough, and we saw where the market was headed. We really wanted to get out in front of it.
What was the hardest part about raising that round?
The hardest part is getting a ‘yes,’ getting the lead in place. There’s a lot of work that goes into running the process and really honing your story. We were up to, like, version 14 or 15 of our pitch deck for each of our companies.
It was great to go to the founders and write down all the questions they asked, debrief afterwards, and change the deck every time. As an entrepreneur, you need to be doing that constantly, and it takes a ton of work.
I think I’ve got you beat! By the end of our seed round, I was on version 42 of our pitch deck. Any thoughts on a general capital strategy for the future? Do you anticipate having to raise a lot of funding, or will you keep this as lean and mean as possible?
We raised our round to get us through 12 to 18 months, and that’s what we’re working through right now. We will obviously look to take on more capital if it makes sense, but the goal is to get to a place where we raise when we can actually efficiently deploy that capital. That’s the best time to raise.
Are you thinking of that in terms of getting a certain level of customer traction?
When you have so much traffic that you’ve got to get other engineers in there to make sure everything stays up and running, when you have so many requests for features that the backlog just can’t get turned down fast enough, or when you have a marketing channel that’s working so well that every dollar you spend is giving you back $3, $4, or $5 in return.
Those are clearly cases when you should be throwing gasoline on the fire and ramping up. Until then, be as lean as possible and keep your burn rate down as low as you can.
What one piece of advice would you give yourself if you were doing it all over again?
Oh, that’s a good question. Don’t try to raise money in the summer. Maybe it’s just a Boston thing. Everyone’s out enjoying the nice weather, so it is noticeably harder to track people down in July and August. We started all these conversations in June and July. At one point, I was like, “I’m going to rent a boat, find all these VCs in Nantucket, and pitch them there.”
That might make sense. If people want to check you out, it’s just Fritz.ai, right?
Yep. We also have a community publication called Heartbeat. If you’ve got a heartbeat that fits that AI, we post anything to do with the intersection of machine learning and mobile development. We’ve got a great contributor program, so we will pay you to write a great post, like a guide for other developers to get started with this stuff.
My great-grandpa from Germany was nicknamed Fritz. Is there any story to the name?
It was a five-letter domain name we could easily get, and there’s definitely an aspect of our tool that helps you figure out what’s wrong with your machine learning algorithms when they’re on hundreds of millions of devices. Hopefully it’s easy for people to remember, and we’ll make sure your app is not on the fritz!
Nathan Beckord is the CEO of Foundersuite.com, a software platform that has helped users raise over $1 billion in seed and venture capital since 2016. This Q&A is based on episode of Foundersuite’s How I Raised It podcast, a behind-the-scenes look at how startup founders have raised capital.