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Founded and Funded: Knock’s Fundraising Journey With Demetri Themelis


In this episode of Founded and Funded, Madrona Managing Director, Scott Jacobson, and co-founder and CEO of Knock, Demetri Themelis, team up to talk about Knock’s fundraising journey. Deciding when to raise and who to raise capital from is a big decision for any startup founder and company. Listen in as Demetri and Scott talk about Knock’s decision to wait to raise venture capital, their early days of establishing product and market fit and more.   And, then Demetri turns the tables and asks Scott about his thoughts on how founders approach term sheets and fundraising.


Transcript (this is machine driven transcription so expect some typos)

Erika Shaffer: Welcome to Founded and Funded. My name is Erika Shaffer with Madrona Venture Group. Deciding when to raise and who you want to raise from is a big decision for founders. In this conversation with Demetri Themelis, the co-founder and CEO of Knock, and Scott Jacobson, Managing Director at Madrona, they talk about Knock’s decision to wait to raise venture capital.

Madrona led Knock’s first institutional round, which was their Series A in 2019. But this is well after the company had established their market and product, and Demetri talks about those early days.

Knock raised a Series B financing of 20 million in early 2021. Knock had originally planned to raise their B round early in 2020 and the company had a lot of interest and term sheets on the table. Scott and Demetri talk about navigating through 2020 and how the raise actually ended up coming together.

And then Demetri turns the tables, just a bit, and asks Scott about the approaches that founders take when looking for financing from venture investors and his thoughts on their approaches. Knock is a CRM for multifamily managers. In regular language, that means large apartment buildings that are often owned by ownership groups and professionally managed.

Knock, like many companies, scaled back right at the beginning of COVID 19. But as people were stuck in their apartments, the communication between tenant and manager became increasingly important. An area that Knock excelled. And Knock had their best year ever.

We pick it up with Scott and Demetri.

Scott Jacobson: All right, Demetri, great to see you. Thank you for spending time with us today. Yeah. I know we’ve got a lot of ground to cover. Why don’t we just start with the very beginning of the origin story. Tell us a little bit about how you and Tom got started with Knock.

Demetri Themelis: Good. Thanks for having me, Scott. Yeah, the origin story of Knock. Myself and co-founder, Tom Petri, we’re both graduates from University of Washington. We graduated with finance degrees in the middle of a financial crisis. So really prescient on our parts. I think that both of us, we’d been friends at University of Washington and colleagues at a big Swiss bank, UBS, and became really fast friends. And the kind of global economic conditions at the time, a career in banking didn’t seem like it had a lot of much of a future. And so, we’d constantly talk about striking out on our own and starting a business together. And five years into our careers we both felt comfortable taking the plunge and quit our jobs to found a company. The pain point that led to the idea, that led to the company, that is now Knock was started from our experience as renters. So, we had both been renters in really competitive markets around the country, in Seattle, in New York City, San Francisco, and our experiences as renters was like, like most people, rather painful.

We felt like the customer journey for a renter looking for a new apartment, communicating with landlords and property managers, moving in, and ultimately continuing that relationship with your landlord or property manager as a resident, there was really nothing about that entire customer journey that was modern or positive in any way. And so, we thought that there were many opportunities to modernize that customer experience. And that was really the pain point that got us started.

Scott Jacobson: [00:03:58] All right. Great. So, you decided you, you found a pain point, you started bringing on landlords as customers. You build some software to help them manage that process, started charging them money, and then ultimately decided to raise capital from what we would call, in the business, strategic investors, in this case, actually your customers. And the seed capital came from big multifamily owners. Tell us about how you made that decision. If you had it to do over again, would you make the same decision? Tell us about that journey.

Demetri Themelis: [00:04:30] Yeah very early on, when we started meeting with property management companies and showing them demos of software that we wanted to build, we hadn’t even written a line, lines of code yet, but we’d ask for meetings, ask for feedback and we’d show them mock-ups and design ideas. And after 20 or 30 or 40 of those meetings, our mock-ups were getting pretty well-developed and they were, they looked like real, fully developed products, even though we hadn’t written any code.

And so impressive that by like the 20th or 30th meeting, a lot of those property management companies asked us, hey, this is pretty cool, how much does it cost? Or, hey, this is pretty cool, who’s funding you guys? And so those conversations started pretty organically. And I don’t think it was with a whole lot of intention at the time, other than well, gee if you’re a potential customer and you want to invest in us that, that sounds like pretty good alignment.

And just so happens that real estate owners happen to be pretty deep pocketed and often times are involved in making angel investments themselves.

And so, I think it was a pretty good fit.

Scott Jacobson: And looking back on that, was it all goodness, was there anything you’d, hadn’t expected by having your customers or investors that, that if you know somebody who’s listening to this might want to think twice about?

Demetri Themelis: There’s some pretty funny stories about people who ignored me for my meeting requests like 13, 14 times until I finally showed up at their office with a six pack of beer. And I said, I’m not leaving until, you take a meeting and by the time we got halfway through the beers that you are asking if they could invest in the business.

But no, generally speaking, it’s been great. I think having customers as investors is a tremendous benefit and I think maybe the caveat is that we didn’t have one dominating investor who was totally funding our business.

And they also were our biggest customer and therefore con controlling our roadmap or trying to control our destiny. In this case, the customers that invested were, several individuals that were made up a portion of our investors. And so, they, collectively, they were, a big chunk of our seed capital, but none of them individually were, in a, in any position to try to, with intention or without, try to dominate our roadmap or how we were building the business.

They were really there to help.

Scott Jacobson Got it. So, you built a pretty compelling, call it single digit millions of dollars, ARR business, on the back of investments by strategics and customers and had a really good thing going. Why did you decide to raise venture? Why did you decide to veer on your financing strategy?

Demetri Themelis: Yeah, Tom and I were both very apprehensive to go to the venture capital community to raise money early on. I think we both, whether we’re right or wrong, this, it was our first time founding a business, but our preconceived notion at the time was that venture capitalists, they’re all about growth. And so, from the moment that you take their money, it’s going to be, are you making my money? How is my return looking? How’s my return profile looking? And I think we were pretty nervous early on that until we felt really comfortable that we had great product market fit, that we wanted to make sure that our investors were going to be patient with us while we figured out product market fit. And so, once we got to a point as a business where we felt that we had achieved product market fit, then our goal was to grow as fast as possible.

And so, we went to the source of capital where our idea of venture capital was that you would want us to grow as fast as possible. And so, we wanted to make sure that like our goals at the time we raised venture capital aligned with our ideas of what a venture capital investor would bring to the table.

And so that’s why we waited as long as we did to approach the venture community. But we were actively trying to stay off the radar of the venture community early on.

Scott Jacobson That’s a, that’s probably good counsel. Now that you’re on the other side of that, what preconceived notions did you have that or that have been born out? And what did you think that maybe you’d have a different opinion about sitting here today?

Demetri Themelis: While we work with Madrona and here, we are in Madrona’s founded in funded podcast, but not to blow too much smoke, but it’s been an awesome journey. And I feel like any horror stories or ideas that you have about venture, like kind of the greedy venture capital partner, coming in and changing the way you run your business. Like we’ve experienced nothing of the sorts, just like 110% support from everyone in the Madrona family. And I can’t really think of any facet of our business that hasn’t been positively impacted by Madrona’s participation in our business.

And when you guys led our Series A and joined our board, we didn’t know how to run a board meeting and we didn’t know how to behave as a portfolio company. And so, everything was new for us, but it’s really just been an awesome experience. So, I don’t know, maybe we just got like really spoiled and this is how it every Founder or portfolio company relationship is like with their venture partner. But I guess like any nervousness that we had, that was definitely, quickly removed and that preconceived notion that our interests wouldn’t be aligned, was quickly shattered, and replaced with, these guys are truly our partners and are wanting to help in every way, in any way they can.

Scott Jacobson: Yeah, that’s great to hear. I appreciate the that you feel that way. And we do the same, I think it’s interesting as an investor and, and maybe I’ll make it specific to Knock. I think it’s fair to say that we all are interested in building really fast growing and great businesses. And rolling up our sleeves and helping each other, figure out how to do that. And ultimately the way to have the biggest impact is to go build a really big business. And I know that you and Tom have that ambition and are well on your way to do that.

I remember when we sat down, a couple quarters in, the question I asked you is what are those limiters to growth? If we wanted to grow at 3X or 4X or whatever it is, like what are the, as an investor, you never understand the business nearly as well as the operators, the people in the seats do.

And what you’re really trying to understand is what are those things? And if there are natural limiters and those are just the, the pace at which a company’s going to grow, then that’s the answer. But if there’s roadblocks or things you can get out of the way that can enable that kind of growth, why wouldn’t we all want to do that? But to do it in a way where the wheels don’t come off. And I remember in some of the early conversations you and I had, that was really what I was trying to get my head around is, when you’ve got great product market fit, and I should mention, when we did diligence in the process of making an investment in Knock, customers love the products, it’s a great product, in fact, I’ve shared this with you. Several customers said they’d pay 2X or 3X, what you were charging them, which we love to hear as investors.

But when you have great product market fit, that is the question, right? Which is, what do we need to unlock as a business to get to a much broader segment of the market, not just to build enterprise value, but because you can have real impact on customers. And I think that’s been a fun journey for us and it’s something we continue to ask each other and try to figure out what are those impediments that we can remove and, or investments we can make to increase that philosophy.

Demetri Themelis: Now that we’re talking about it, one other story that I remember from the weeks leading up to Madrona’s investment in Knock was we were getting to know each other and I can’t remember if it was at your office or at a, at our office, but Tom and I had a question that we were debating whether or not we should ask you.

And the question that we were debating was how would Madrona feel if after six months we decided we wanted to sell the company? And, our debate was well, does that send a sign of like weak, weakness or that these guys aren’t committed to building a really big business and like taking a path, to some, big IPO someday.

And is that a signal that we want to share with a potential investor who’s considering investing in our business? And ultimately, we decided that we did want to ask the question because we wanted to see how you guys thought about that. And I don’t know if you remember Scott, but your answer to the question was like, we’ve invested in a lot of companies and sometimes the founders have decided to sell their businesses much earlier than we think they could or should have in order to maximize value. But ultimately, we would never want to get in the way and try to block a transaction because often times, even if we felt like they left money on the table, or there was growth that was, not realized.  But a lot of times those founders, they start other businesses.

And then because we have such a positive relationship with them, or didn’t create contention, we’ve ended up invested in their second businesses and then those have become, the great success of the next fund or the next story. And I just remember that was something that was funny.

Like even, it’s funny thinking about it now that we were even nervous kind of asking those kinds of questions, because we weren’t sure what kind of signal that would send. And that, the answer was so like obviously supportive of us as founders in our business is just funny to think about.

Scott Jacobson: Yeah, I probably said it was okay to for six years, maybe would be okay, but not, to maybe not six months, but I definitely, I do think that is, the best entrepreneurs you ended up working with two, three, four times. And. Yeah, the first one might be a devil, but that gives everybody the opportunity to go for the home run the next time, for sure.

All right. Let’s get back to, let’s get back to business. So, you raised the venture round, the venture capitalists aren’t as evil as you thought they might be. I think you tripled the business or roughly that in, the sort of first go round that we had together, great product great market fit, and it was about time raise capital. And this was in see the early kind of I think you came in actually in and pitched Madrona the update December of 19, 2019. And then in January we set out to raise a B round and maybe just give us kind of the high level on that. Obviously, nobody knew we were three months from a global pandemic talk a little bit about the series B fundraise journey.

Demetri Themelis: yeah. It started out, fantastic. I think we had, we had a great year of growth behind us. Like a record year of growth behind us, was the first time we were raising a round a financing with a venture partner already invested and already on our side with a strong board member.

And starting the process we were in as strong of a position as I think a company could possibly be, all of our SAAS metrics were in great shape and we were getting great feedback on our deck and our story, so we were really excited, to, to raise money again and put together a, an awesome growth round.

I remember in the middle of the, in the middle of the process, we were taking our time and, meeting with lots of different firms and we were flying to Los Angeles and flying to San Francisco and meeting with all kinds of different companies and sharing our story and gathering feedback and ultimately, several term sheets. And coronavirus started to unfold, and it was really interesting.  I was giving an update to one of our angel investors, who’s a really successful Seattle entrepreneur and angel investor, John Keister. And I remember it was, I remember I was in a phone booth and talking to him and he said get your round done quickly because you know, Corona virus and I, he goes election year and coronavirus. And I remember when I got off the phone with him laughing thinking, I said, Hey Tom, I just got off the phone with John. And he said, we should get this run done quickly because of coronavirus. And we had a laugh about it thinking like, okay.

Meanwhile we’re getting so much interest in our business and as it turned out, John was right. No, we, we certainly couldn’t have predicted the impact that COVID would have on, on the capital markets and, within a matter of weeks, the public markets totally deteriorated and shortly thereafter, the private markets totally deteriorated.

And we had to really alter strategy and instead of chasing a really big round, when the venture markets and the valuations just really weren’t as strong, we ended up totally changing tact and doing our B led by Madrona, an inside led round.

And we changed our operating plan to really use that capital to operate and, buy time and put as much space between where, where we could be in a, in the pandemic and approach the capital markets again, when things were more normal for a bigger growth round.

And so, it really was an interesting time to raise money. And I think the two big lessons for me are there’s that school of thought that says, raise money when you can, not when you have to, and I think that was definitely evidence for that school of thought being correct.

I think the second thing is just the importance of who’s on your cap table and the strength of the partner and their reputation. And in our case, just like you guys didn’t even hesitate, and you said, hey, like the markets are changing. No, we’re not sure about what path we want to take with fundraising.

And our business was doing fantastic. Like we were having a record quarter and ultimately, COVID, I think really validated our business. But it was awesome to just see the support that came through from you guys who have been through many ups and downs and it was just unwavering.

So those two old, old school adages are raising money when you cannot, when you have to and make sure the people that you’re investing, are going to ride out any storm with you. Like both of those were really validated last year.

Scott Jacobson: I think as an investor, just to, to take the other side, when you’re looking at a business from the outside and, there’s a shock to the system, and maybe you have a public portfolio, maybe that’s way down.

And even though you’re hoping that this is a counter cyclical business that should perform well, it’s never been tested. And I really liked these founders, but I don’t really know them. That’s that is, I can understand, how, sometimes fear overcomes greed in the context of that environment.

But as a board member, who’s, gets the opportunity to see the ins and outs of the business. Every day, you have an information asymmetry, you have an information advantage relative to the investor because you do know the founders, you do know the management team, you know how they handle adversity.

You have a trust-based relationship, and you understand the ins and outs of the business, or at least the best you can as an investor. And, I think that, at least in this case, that gave me and my partners a lot of confidence that we wanted to double down, independent of the capital markets, but also to help try to figure out how to navigate, right? Because on the one hand Knock is a product that helps multifamily with occupancy, and there’s nothing more important than occupancy in the context of potential vacancies that happened in, in dislocated markets, but also, it’s a CRM product that helps building owners talk to tenants.

And, when you’re locked in your, or you’re not going out much, that’s actually a really important product. And we had a lot of confidence in you, but also felt gosh, we have an information advantage sitting on the inside of here and it’s just the right thing to do.

I appreciate the, we were there for you, but I think we also have information asymmetry that made it an easy decision for us. So, let’s talk about, what it was like navigating not necessarily from a, so you raised a small round, then you get intended as you mentioned.

And, we had a growth plan as a business that was more aligned, the size of that raise versus a bigger raise. But why don’t you just talk a little bit about navigating the company in a completely remote environment, but the pandemic, navigating with customers, that w what’s the last 12 months been like in that sense?

Demetri Themelis: Yeah, I think talk about looking at it from two perspective.  One from like the company’s perspective and operating a business in the pandemic. And then the second from our customers and our product and how we managed things that way, in the market that we serve. To the first, coronavirus it was a big curve ball, of course, for everybody, I think, for us, I think it was the first real adversity that we’d faced as a company, not to say that we hadn’t been through all kinds of growing pains and challenges and, all the usual things that I think a company struggles to find product market fit and start to achieve early scale.

But it was really the first true adversity. And as we did the prudent thing of changing our operating plan from totally growth oriented to more of an efficiency-oriented path, and operating like, optimizing for operating efficiencies, one thing that was really interesting to me, and I’m still thinking a lot about is the, the cultural change that, that, had to the organization. Where when you hire a group of people that are joining a company and all you’re talking about is, growth, and now, you’re in a pandemic and you’re telling everybody, man, your battle stations, we’re very fortunate, things are going well for us and all the signals are positive, but we don’t know what the future looks like.

So, we’re going to be more cautious in how we invest and what kind of culture that is to work for and recruit in, what that kind of feels like in an organization. And so, I think overall, our team responded really well and that’s probably one of the things I’m most proud of over the last 12 months is that we were able to shift our culture from, myopically focused on growth to total focus on efficiency and not to say that those wheels didn’t come with challenges, but we responded really well.

And ultimately, put up a best year ever for us. So, I’m super proud of our team the way we changed, but I think it really was a reminder of how the culture and how you describe what your company is focused on and what your goals are impacts the overall working environment.

And when that changes, not every one of your employees is going to be up for that kind of that switch. And so that’s something that was really interesting.

Scott Jacobson: I was going to just chime in about the growth versus efficiency and it’s I think there’s a lot of companies out there, for whom growth is a mantra and they don’t think about things like unit economics, or how long does it take to payback customer, lifetime value of that customer?

And that’s not the case here. You can be in growth mode with a fundamentally sound business with really great unit economics and make aggressive, growth investments, but also see a good return on those investments. And when you have a fundamentally good business and then you hit some headwinds or at least you hit some uncertainty choppiness in the water and say, hey, let’s pull back.

But it’s easier to pull back when the core is strong, then when, than when it was growth to hope to get at some point in the future to a reasonable unit economic model. And so, I think that an important element of your business. I do also think to your point, which I loved about the mindset shift and whether people can make the transition or not.

There’s also the challenge of making the transition back to, hey, let’s go be aggressive, right? Because you’re in aggressive growth mode, you’ve got a great product, you’ve got a great business, you get smacked in the face, and you say, hey, hunker down. And I think resilient, not just founders, but teams, early-stage company teams are actually pretty good at that. But then, once you slam on the brakes or even, just pump the brakes, deciding that you want to push the accelerator hard, it’s not always a natural kind of thing, but I think maybe now’s a good time to talk about the next fundraise as like at least an external signal that, hey, we’re ready to put our foot on the gas.

Demetri Themelis: Yeah. So, as I’d mentioned, we ended up putting together, through it all a best year ever. We had known that like multifamily in general, it’s, long-term housing, it’s a shelter, it’s a basic human need. We expected that the category would hold up pretty well compared to retail or office.

When you have hundreds of people living in an apartment building, it’s high density, living area. There’s a lot of things you need to manage, but you can’t just shut it down like an office. This is where people live. And so, we knew our customers were going to have to continue to operate and stay open through the pandemic.

And I’m really proud that we were able to support like all the changes that they needed to make and help them adapt to operate in that environment. It was great. And the result of that was, as I mentioned, like we think we really validated our value to our customers and, that was rewarded with what are our best year ever in, in every way from a growth standpoint.

And so, as we started, as we were finishing the year, the 20-year 2020, and we started to do our forward-looking planning and budgeting process. And we were starting from a blank slate and thinking about the future, we know all of our signs and signals from our business and have been very positive.

And the markets had recovered tremendously probably faster than, than anybody expected. And we had the idea in our head that, our story hasn’t changed, our results have been strong, we don’t need to raise capital right now, but we also know that it’s sometimes it’s a good idea to raise money, even when you don’t need it.

So, let’s go out and raise a raise a round. And that was the thinking that got us into the mindset of that we’d even want to raise a round right now, when we still had a fair amount of capital from the series B that we’d closed earlier in the year.

Scott Jacobson: So, if I remember right, this is late December, you always have this consideration as a board and as a management team, when you go do a fundraise, hey, we can go do the traditional, let’s go talk to 15, 20 plus investors.

Or you can do a more targeted raise. And I think in our case because we had narrowed it down or whittled it down to a relatively small list, when we’re going to have externally led financing back in the beginning of the year, how did you decide that was the right thing for the business, how’d, you narrow in on ultimately who you decided to bring in as a new lead?

Demetri Themelis: So, a couple of motivating factors for that approach. As you said, in the past, we’ve, and I think it’s the right approach most of the time, is to cast a wide net and talked to a ton of people and make sure you find the best possible fit and have as much data points as possible into making sure you’re going to get the best financing deal as possible.

In this case we changed that approach and we went for more of a targeted approach and there were two, two primary drivers for that. Number one, as we talked about, it was, not 12 months since we had gone through that process and we’d gotten pretty deep with a number of folks that we felt like we had a really great chemistry with and possess some really great strategic qualities as potential investors in the business.

And number two was, come to find out, that fundraising is, it’s a pain in the ass. It’s a full-time job for not just, like the founders, but for the finance team and for a lot of people. And it’s fun to tell people about your business and I like selling and I like telling our story and there’s part of fundraising that’s pretty fun. But it’s also a full-time job. And right now, like I want to spend all my time with our customers and our team and growing our business and keeping all of our energy on keeping and building our momentum there. And we opted for the kind of targeted approach as opposed to marketing, starting with a big list and marketing that, and whittling our way down.

And we went to a few folks that we got really deep within the last round, who we really liked, and said to them, hey, we’re we don’t need to raise money right now, but we want to. And if you have a pretty good understanding of our business from the last time that we spoke.

So, if you’re interested in getting ahead of the crowd, cause we’re going to raise money. And if we do, it’s going to get competitive. If you’re interested in getting ahead of the crowd, here’s what we, here’s what we’ll need to make a deal work and offered that to a few people that we really liked.

And we were very fortunate. We had a lot of interest and ultimately got a deal done with the I kind of the ideal partner for our next round.

Scott Jacobson Yeah, it’s in the, on the other side of that table, it’s giving somebody a preemptive opportunity, and sometimes investors will try to create preemptive opportunities for themselves. And sometimes they can be invited to create preemptive opportunities, which I think you did a nice job of creating for the company.

And as you said, sometimes minimizing the time you spend raising capital, even if you might raise it at a slightly lower price than if you did a big process, and you save yourself all that time and energy and effort that you can pour into the business, which probably is the enterprise value maximizing thing to do sometimes.

Demetri Themelis: One question, Scott, I think a lot of founders have, and we certainly have had in, in rounds in the past was, should the company tell investors what terms you want the financing to be at? Or should you let the investors tell you what they think your business is valued at? And I’m, I’m curious, I think a lot of times in the past when we’ve started a big process and a big round, we’ve talked to lots of firms and waited for term sheets to appear to let the market tell us what our company’s worth, for that, at that particular point in time. In the more targeted approach, going to investors and saying, look like this is exactly what we’re going to need in order to make a deal work.

We did that was a bit different for us from putting your investor hat on, like, how do you feel about companies coming to you with a target valuation in mind and letting you know this is the, this is what the deal, this is what the deal needs to look like in order to work versus waiting for you to make the first move on valuing the company.

Scott Jacobson: Yeah. I think it’s an effect. I think it can be an effective tactic in a buy it now context. If you say, if you come to an investor and you say, listen, we’re only talking to you or we’re talking to only a few people, which hopefully is the truth. And we have a valuation in mind and we’re not going to go do a broader market check, if you’re, if you can meet the buy it now price. You’re, what you’re saying is, hey, I’m willing to trade price discovery, right? Because I can go out to the market and I can find out that all the people think the company’s worth a lot more than the number I have in mind, or I could find out that it’s less.

But I’m willing to trade that the value of that price discovery, in order, in exchange for simplicity, and I already liked you and all that. And I think that’s a perfectly valid strategy.  The, the downside or the potential risks of that strategy is if you’re way off base with your expectation, that may make people less excited about, as opposed to, instead of hurting your feelings and saying, gosh, you’ve got, unrealistic expectations.

I might just say, hey, listen, we don’t need to be preemptive, we’ll be happy to jump in when you run the full process or something like that. And yeah, there’s a downside risk just around if that price is too high, and how somebody might think about that.

But I think it’s relatively low risk. I think the bigger question for the entrepreneur is how much one, do you have conviction around it and investors such that you would give them a buy it now price, like it’s hey, if this investor were in, this is the right amount of dilution for us, it’s the right amount of capital we can take, and we’d love to have them round the table. To me, then that’s a relatively easy decision. But you’re giving up the opportunity to meet other investors you might like more, or might have more chemistry with, or at a higher price. And so, as an investor, I’ve got no problem with it. I always ask entrepreneurs if they do have valuation expectations or what their valuation expectations are, because I don’t think either of us wants to spend a whole lot of time getting to know each other, doing diligence process, et cetera, if we have very different views on, on, on price. I think it can work anyway. I, in, in any transaction, it’s worth whatever somebody is willing to pay for it. When you sell your house, you don’t put it up for auction, you have a list price. That’s okay. I think it’s fine for entrepreneurs to tell, venture capitalists, and others, this is what I think the business is worth. The same could be asked about, M&A transactions, do you say, Hey, this is the price we want, or do you say you tell me what you think it’s worth and there’s validity to both approaches.

Demetri Themelis: Yeah, I think that makes me think of another, another question, a lot of founders think over is, you know what should I be shooting for? The highest valuation possible or is, is that the important thing too, is that the important metric to be optimizing for in a fundraise?

And I think it’s so interesting how many founders seek to find, that, get the highest valuation possible in a financing and try to minimize dilution, as a result. But one great piece of advice that we had early on was to always be thinking one round ahead. And I think that’s been really helpful for myself and Tom, as founders, as we’ve navigated financings, and to think about, not to think just about the round that you’re trying to get done, but the round ahead, and ultimately your valuation and a financing is it’s just a paper mark.

It’s not your exit valuation, the one that really matters. And if you train yourself to start to think one round ahead, that’s been really helpful for us to, because you’re not getting so caught up on necessarily getting your highest valuation possible, but one that’s truly in a, there is a market, there is a range you want it that’s fair.

And you want the investor that’s joining to help, you want them to be feeling really positive, incentivized, to help add value from the mark that they’re investing in. And anyways, it’s just another thing I feel like a lot of founders don’t always think about is that round ahead mentality.

Scott Jacobson: Yeah. I think that’s good counsel. Valuation, as you described it, definitely is a vanity metric in some measure, although it is it is an estimation of other, people’s either view of where they think you are today or where you can be in the future. And so, there’s some good, there’s things to feel good about when you get a good valuation.

Yeah, my, my view on it is the capital markets are what they are and in some cases the valuations will be higher, and multiples will expand, and it’ll get, a higher valuation. You might get other cases and somewhat independent of whether valuations are what you would consider to be reasonable or not.

If you have the mentality of every dollar demands a return, and, if you got $30 million in the bank at a $300-pre because the valuations are extremely favorable to the founders, then you treat that $30 million like it’s the last round you’re going to get. And you grow into that valuation and you make sure that you spend those dollars wisely.

So, I certainly don’t begrudge founders of the capital markets and, those are going to rise and they’re going to fall. But I agree with your point that, valuation is one of many inputs that you should think about when you’re deciding, ultimately, who to take a term sheet from. And I’ve seen many founders, you guys certainly fall into this category, where, you know, the highest price, wasn’t the one that won, and, within reason, because there’s lots of other important things when you’re talking about building a company over the long term, so I agree with that.

Why don’t we talk about the future for Knock? So, you’ve got, you had a good balance sheet before you decided to raise this incremental round of capital, you raised another $20 million. That’s a great place to be as a business. How do you think about this next vector of growth for the business?

How are you thinking about the go forward?

Demetri Themelis: Yeah, definitely. There’s two really cleared growth vectors for us. So, we, again, we sell our core product today as a CRM and we sell it into the multifamily real estate market. And so, for those of you that aren’t familiar with the market, there’s, let’s just say about 20 million apartment units out there in the United States that we’re selling to. And of those 20 million apartment units that could use a CRM, we’re currently servicing about 1.5 million of those apartment units. And so, Knock can grow by adding more apartment units to our platform. So, when we think about growth, we want to bring in new management companies and ownership groups. And those management companies and ownership groups have portfolios of properties and those properties, each have some number of units. And so, as we bring on units, more units that use our platform, our revenue grows as a result. And so that’s something that we’re always focusing on growing fast.

The other really exciting thing is, if you think about the assets that we’re serving themselves, on a large apartment community, it’s really like a city. You’ve got, 200 or 300 homes stacked on top of each other. There is an awful lot, there’s an awful lot of complexity in making that city run and keeping the lights on so to speak. And so, there’s an awful lot of technology that’s used in order to help manage that complexity and all of those different various operations.

And so, every apartment building out there. And you don’t think of them as businesses, but they are businesses and renters are their customers and they have to successfully attract renters, convert them, and retain them.

And operating that business, there’s just a lot to do. And there’s a lot of technology used to help make their operations as efficient as possible. Our belief is that there’s all kinds of other interesting technologies that kind of sit adjacent to a CRM that we plan to bring to market and build out what we call the, an intelligent front office.

Maybe a simpler way to think about that is like the tech stack within, for our customers. They really, they’ve not there, there really isn’t a, like a dominating top of the funnel tech stack like you might see in other businesses, so we want to really build that out for our business.

So, to back up again, there’s two big growth vectors for us. There’s, adding more units, but then there’s adding more modules and increasing the price per unit that we sell to our customers. So, I hope that provides a little bit of context for anybody on just how we think about growth.

Scott Jacobson: Demetri, thanks for spending time with us today. It’s really fun to relive some of the old stories and to hear about how you’ve thought about fundraising and company building. And just say, I wanted to say how much I’ve enjoyed the journey thus far and looking ahead.

Demetri Themelis: Thank you very much for having me Scott and the feelings totally mutual. Love working with you guys. And I’m very happy that they say there’s a lot of money out there and it’s all green, but I disagree, it’s like having the money from the right partners is really everything.

And we feel very fortunate that we landed with Madrona as our partner for this journey. And definitely looking forward to the next chapter and those after that. So, thank you.

Erika Shaffer: Thanks for joining us for Founded and Funded. If you liked this podcast, please subscribe. And share it with your friends.

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