Even great startups sometimes need to pivot (feat. Francisco Cornejo of Theo) | E2214

25:49I'm a night owl. If you're scared, if something's terrifying or inspiring, just text me. Say, Jcal, you up? And if I am, I'll call you back. Great job, Francisco. Thank you for that. Christmas is coming. That's our best season of the year. So looking forward to seeing you using the app for the next weeks. And it's an invitation for everyone to download Theo and get to the Advent event with your kids. Black Friday, Cyber Monday. People don't realize that. People do a lot of gifting and gifting the Theo app. Hey, that's a beautiful thing you could do for somebody in your family. So go gift the app and look up Theo and go subscribe to the app.

26:28Get a little more Jesus in your life. If you need more Jesus, Theo's waiting for you. If you got enough Jesus, you don't need it. but maybe, maybe you want a little more Jesus in your life. All right. It's the Theo Prayer app. You can search for it on all your different social media and theopray.com. T-H-E-O-P-R-A-Y.com. Thank you, Jason. Thank you, Alex. All right. Next up on the show, we are going to talk to On Verite's Colin Sebastian. This is a company, Jason, that builds software for both startups to get their data rooms and diligence information in order and also helps VCs parse that information, do the busy work of deal making.

27:09And Colin also has a couple of slides for us talking about the state of investing that his company sees so we can better understand the pre-seed and seed market. Everybody, please welcome to the show, Colin. Hey, Colin. How are you? Hey, I'm good. How are you guys? We're well. My team saw your product. I think you applied for funding or somebody introduced you to us. And my team, I always tell them, if you see something really interesting or weird, either of those two things or traction. I have like a small set of things that we want to know about. Just text me. Text me the transcript. Text me whatever you got.

27:39People, when they saw Inverite, were like, this is incredible. Explain to the audience what you've built and why it's important. I'll start with the founder side. A lot of people don't realize this, but 80 % of new founders will fail due diligence the first time they try it. And how we define fail is a VC will actually walk away from the deal without getting to a due diligence questionnaire. So they look at the data room, they say, we're going to hard pass. So we've got a platform that helps founders build their financial cashflow and fundraising models, get their data room together, and just get really thoroughly prepared to talk to investors and actually pass due diligence.

28:15We can typically shave about 50 hours of due diligence prep off of a founder's time. And right now we're knocking about two months off of the average fundraising cycle. And then on the investor side, this is a horrifying statistic, but 85 % of early stage investors don't perform confirmatory due diligence before they cut checks. Explain that word confirmatory due diligence, as opposed to regular due diligence for people who don't know due diligence is basically confirming what the founders told you. So when you put this word confirmatory, and I've never heard that before, did you come up with that term?

28:50No, so it's actually, it's something that we typically use in private equity. So we've got exploratory due diligence where, you know, we're going to take a look at the data room, we might take a look at the financial models, more mature funds may actually assess the assumptions that are being made in the financial models, if they're realistic at all. but confirmatory due diligence is actually the process of doing the reconciliation between the P &L and the balance sheet and the bank state cap table and the you know deal docs and it's becoming increasingly more evident how important that is like if you paid attention to builder AI that's a half billion dollars worth of venture capital that got written off if you remember Castle from a couple of months ago, that's$540 million of BC that got written off, right?

29:36In those cases, they didn't actually check that the numbers were correct. It is possible for a founder to commit fraud. It is possible for a founder to spin and weave a story that uses some correct information, but maybe is not as honest or might omit things. So if you're not listening to your customers and iterating based on their feedback, your startup will fail. So if you're drowning in feedback from support, reviews, calls, it's time for Interpret. Interpret is the customer intelligence platform that helps you turn random comments and feedback into actionable insights that help grow your company.

30:21Their AI system is already trained on your business and your product. It then reads all your support tickets. It reads all your reviews, call transcripts, and surveys. Then their agents actually update your team in Jira, Linear, Zendesk, and Slack. So this feedback doesn't just sit in some email or messaging thread, but it actually helps keep your team moving the ball forward. Find out why Canva, Notion, and Perplexity are already using, interpreting, stay on top of what they need to fix or build next. So if you're ready to turn feedback chaos into customer intelligence, head to interpret.com slash twist to book a demo and see it in action.

30:57That's E-N-T-E-R-P-R-E-T.com slash twist. Examples of this in my experience might be somebody literally makes a fake bank statement. That has happened in our industry. Another one is they say they have a contract and they have a customer and the customer is spending this amount of money and there is no contract. It was a verbal and the money's never come in. But in a presentation deck or in a statement or a sales report, it might show that that money is coming in or it might give the appearance that that money has already arrived. And in my book, Angel, I literally gave an example of somebody told me that they had Google and Facebook as a customer.

31:44We made a commitment. We went into diligence. We asked to see the contracts. He said it was a verbal. And I said, okay, well, who did you make the verbal with? And he said, well, I don't remember the guy's name. It was actually at your conference. He verbally committed. And I said, do you understand what the term securities fraud is? You told me you had these two people as customers. That's like a really perfect term for they pay you for a service and you don't even know the name of somebody who was a sales lead. Explain to us this infographic from your website, because I think this shows where you get all the data from.

32:17What here helps end fraud like that? The thing that we do that is particularly special is, again, that reconciliation between all of the financial documents and we get down to core data. So, for example, we can actually integrate into the bank accounts of these founders and pull the statements directly from that digital API. We have access on the founder side. When a founder joins our platform, they're typically using us both to get prepped for due diligence, but also as real-time business intelligence. So they're integrating their accounting suite. They're integrating their cap table management software, all of that.

32:51We actually end up having a unique data set, which is granular transaction level detail across the lifespan of a company. And so we can actually watch and see how a pre-seed company matures into a C, matures into a series A and an exit, which is not a data set that's really commonly available. But Jason, to your point, there are two things that I would want to say to that. So the first is, you know, there are a couple of things that often get overlooked. So as an example, trial revenue, one of the things that we see is revenue from trials often getting represented as annual recurring revenue. You know, the other thing that we see is sales contracts that are recognized as ARR that have out for convenience clauses.

33:33And so it's not, you know, it's not technically by gap definition annual recurring. But the thing that actually I think is more, I want to say dangerous both to the founder and the investor is the financial models. Even if you never get to the bank statements, I think a lot of investors are really not assessing financial model credibility as well as they should be. You know, you probably know this in your career. What's the first thing that a VC does when they get a financial model? They give it a 50, 75 % haircut. That is, I think, very problematic on both sides of the equation because things like financial models have become more akin to marketing assets than actually like financial planning tools.

34:15And so we're trying to correct that on both sides of the cap table. Am I correct that the platform will authenticate with the bank? And so when the bank statements are in there, you've had them authenticate or if they had using fresh books or whatever, QuickBooks, you're authenticating in your due diligence platform with the founder. So if I look at it as an investor, you've said, hey, this came from QuickBooks. This came from the bank statement. Yeah. Yeah. And that saves you from this potential screenshot editing that people have done in the past, where they put a different number in the bank account.

34:51And it might also protect the founder from having to give complete access to their bank account. What we did when we started doing this is we do due diligence training with founders in our accelerator. We'll just have them pull up on the Zoom and say, OK, yeah, go to your bank, log in. And we watch them on Zoom, log in. And we see the URL. So for them to fake that would take, you know, a lot of theatrics. Is it possible? Of course, they could make a movie that played exactly what we asked them to do and opening up their bank account. But that would be pretty far out there. And again, you know, when you're doing diligence, you're just trying to do the best you can to reduce the chance of outright fraud and the best you can, I think, to understand as much as possible to make an informed decision.

35:40And depending on the stage, this stuff becomes more important. Yeah. So which stage are you targeting for your ideal customer profile for your initial market as a startup? So about 70 % of the deals that come through our platform are pre-seed through series A. So you can say early stage. The other thing that we do is we're automating the generation of deal memos. We're automating the generation of deal docs like safes and term sheets and side letters. and the deal docs that we produce are actually customized based on or tailored based on the findings of our due diligence. So for example, you know, if it's a high risk company, we might have maturation clauses that we stick into a side letter.

36:20We may have, you know, certain board rights that wouldn't normally be there. What we're trying to do is de-risk these deals for investors, but we're also trying to build better relationships between founders and investors. And I think one of the things that we were trying to address, and I don't know if you were briefed on this, I come from SoftBank. Oh, really? It's a fascinating place to come from. They had some very robust, vibrant investments at robust valuations. I loved my time there. But when I was at SoftBank, I used to joke that we in Tiger Capital back then were both the cause and cure of every problem in BC.

37:00And I think one of the things that the like mega valuations did is we pushed we pushed business principles to focus more on the narrative and the potential of the company versus the likely outcome of the company. And so, you know, valuation multiples of four twelves, they started increasing. You know, we gave out like 100, 150 X sometimes. But I think as narrative and optics became more important, the relationships between the typical investor and founder deteriorate. And that's actually one of the things that we're trying to fix with this platform. I mean, if people don't use a platform like this, that would be a bit of a tell, right?

37:37So what does it cost? Just brass tacks. If I'm a founder and I want to use it, I'm a seed stage founder. I haven't done my series A. I'm coming out of Y Combinator or Launch Accelerate. How much are you charging me? How do you charge me? On the founder side, it's$30 per user per month. On the investor side, it's$150 per user per month, unlimited use. So it's basically free. Yeah, that's how we designed it. If I was an investor in your company, I would tell you to double it. No, I would make it$30 a month for a founder. And at that level, if they had co-founders, they'd be like, yeah, fine, we'll do two accounts.

38:08I would just make it a flat rate of, for Series A or below,$500 a year. Yeah. I would just say it's$500 a year. You can have two or three members of your team on it. Just make it easy, peasy, lemon squeezy for them. I think Carta and Cake and a bunch of the cap tables, they just say, hey, if your company's under$10 million raised, I think that's actually a way to do it. Like if you have a startup program, if you just have a startup program, you say, if you're under$10 million raised, under 100 employees, under$10 million in revenue, any of those,$500 a year. Then it's like, oh, well, it costs nothing.

38:45And then for the VC side, you know, yeah, you're probably should just do firm based pricing. If you have whatever your last fund is, if your fund is 10 million to 50 million, it's a thousand a year. If it's 50 to 250, it's 5 ,000 a year. And if you have over a billion in management, it's 50 ,000 a year. Boom, you're just done. So anyway, lots of interesting things you can do with pricing, Colin. Appreciate you coming on the show. Continued success. And how can people learn more if they're a startup or an investor and they want to meet with you or hear more about the product? Yeah, you can email me directly.

39:19It's Colin, C-O-L-L-I-N, onverite.ai, or you can visit our website. Well done. Very excited about what you're building. It's one of these things we all need help with. and if we can build a standard here and you can help the industry build a standard and just make it super easy for all of us to just pay for it, I think it's going to be really interesting. So I'm very excited to use the platform. Next up, we're going to talk to Jake Triton from Pitch Perfect. He's here as part of our Gamma Pitch Competition. Jake is building a way to send out text messages, Jason, en masse without annoying the hallowed of everybody And without breaking the law, there's quite a lot of regulations here.

40:03Jake, welcome to the show, man. Hey, Jake. How are you? Thanks, you guys. Good to see you, Jason. Nice to see you. How's everything going in the accelerator? You in the current class or the last class? You're in the current. Yeah, current class. Yeah, we got SF coming up next month. So looking forward to that. You know what to do. Share your screen and we'll have you pitch. And then I'll give you a little feedback here on your gamma pitch. Three, two, go. Hi, I'm Jake, co-founder of Pitch Perfect. We help salespeople and SMBs send compliant texts that close deals faster. Meet Mike. He spends more time dealing with texting rules than selling.

40:38His current SMS platform is stuck in compliance review, stalling his outreach. This isn't just Mike's problem. Phone networks now make businesses register something called A2P 10DLC before sending texts. Approvals can take weeks, so Mike loses momentum and wastes money. We simplify 10DLC. Mike enters his business information once, and we automate the rest. What took three weeks now takes just three days, getting Mike back to selling faster. On top of that, Mike spends Mondays and Tuesdays filling his pipeline, then runs appointments on Wednesdays and Thursdays. To save time, he paid an appointment center$25 an hour to handle texts and book calls.

41:16But now, our SMS appointment center does it automatically, saving him thousands a month while he focuses on closing deals. competitors charge two to eight cents per text and we deliver at 0.7 cents cutting monthly texting bills considerably while maintaining higher deliverability we're growing 300 percent month over month we made 115k in october and we're on pace for 170k in november which will put us at a two million dollar run rate and we're profitable just off reddit posts old emails and a referral program alone and we haven't even gotten started on paid ads yet. We understand both sides of this problem.

41:52I've pushed 6 million insurance sales and built apps for 5 ,000 plus users, while Roman was a lead engineer at Sonix, building enterprise AI. So we're called Pix Perfect and not Text Perfect for a reason, right? Texting is just a wedge into a$350 million market, but to get to 100 mil, we can't just stop there, which is why we're building the first end-to-end AI sales platform for high volume outbound reps, which is 2.8 million agents in insurance, real estate, and solar who are price agnostic and will happily pay $2 ,000 to$5 ,000 a month to double their sales. The category is wide open and we're already in motion.

42:27Work is perfect and we help salespeople and SMBs sanctify techs that close deals faster. That's a great pitch. I think you figured out some level of product market fit here and you know your customer base. The question I was having the whole time is, okay, who is it for? Who's it for? And at the end just said, hey, insurance, solar, all these annoying salespeople who grind it out and who, you know, it's a considered purchase. The type of sales you're talking about are not like I'm selling you a pair of jeans. It's, hey, if you're going to get solar on your house, this is a thoughtful, multi-step process.

43:06or you're going to buy insurance, life insurance, we're going to do real estate, you're going to buy a home or sell a home. These are things that are relationship-based and they're multi-dimensional, they're multi-step processes, correct? The typical workflow, like what you just mentioned with e-commerce or something like that, you might have like abandoned cart workflows or different types of flows for that. But when it comes to more like B2C sales, like solar, real estate, insurance, Most people are going online and they're submitting requests and nobody really wants to talk about insurance, right?

43:43So it might take multiple follow-ups before you get that person on the phone to talk about insurance. So that's kind of where the drip messaging comes into play. And that's how most of our users. Really interesting to me as a boomer, Gen Xer, that these conversations have actually moved to people's SMS, right? Like I think for some folks are like, I can't believe people want to do this on SMS. And for the people who do it on SMS, they're like, why would I do it over email? That's annoying. I got to have my phone right here. And if I want to stop talking to the person, I can just block them or just unsubscribe.

44:17So this has been normalized, I think, and you get less complaints. People love submitting their phone number to somebody selling them insurance or solar. That's their preferred communication method today. Yeah, typically most customers prefer being contacted over SMS up to a certain point, obviously, right? Like when it comes to email automation, we notice that the reply rates are much lower compared to SMS. So that tells us enough right there that SMS kind of moves the needle a little bit better. Jake, what's the differential between the open rates on SMS versus email? I'm really curious how much more active people are in their text message inbox.

44:56It really depends on the campaign, right? and like the purpose of messages. But I see five, typically five times, you know, reply rates when it comes to SMS. You can't track open rates on like through SMS API. Like typically it has to be through a cloud if you're going to track open rates. You can't track that with SMS, but like the one reliable metric I would say would be reply rates. And we typically see about five times higher reply rates on SMS. All right, that's a lot more. The key piece to this is being able to build your script and the workflow of an SMS conversation, like step one, ask them what their needs are.

45:34Step two, book an appointment. Or step three, send them pricing, whatever it is. The person on the other side doing solar needs to know, is this a single family home? Do you own the home? You know, have you gotten a quote for solar before? Do you have batteries? Whatever it is, who's your energy provider? There's a bunch of steps that go into this. And then a key piece of this is you have an AI builder that helps people build those scripts. Yeah. Right. So we should have the AI workflow builder done by Q1. So that's something that we're still working on. Essentially what you do is you'll just go on the AI builder and write a prompt.

46:10So I can say something along the lines of, you know, write a five sequence SMS campaign that follows up about solar or follows up about real estate. And then you can give it a little bit more context. And you can also tell it like, what are the delays between steps? So like send the first message and then wait, you know, one day or seven days or, you know, whatever the case might be, like depending on, you know, what your typical like follow up processes. So you go on, you write a script, you write a prompt, and then it'll automatically generate the workflow for you. And then as a user, you can just go in and you can make edits by yourself.

46:40Awesome. Really, your pitch is amazing. You know, the feedback you'll get from some venture capitalists is, oh, it's a small, you know, vertical idea. Yeah, it's never going to get to a billion in revenue. You know, when we look at that, we always look at founders and they kind of start putting the wedge in, things crack open and they find more opportunities. What do you think if you nail this use case and you get to tens of millions in revenue, which, you know, seems completely probable given your progress that you could get to 10 million in revenue. If you get there, what do you think the sort of next markets, feature sets, you know, where does this all wind up?

47:22What can we see happening if you get to$100 million,$200 million in revenue? What would cause that to happen? I think just from those verticals that we talked about, like real estate, solar and insurance, those markets are big enough to achieve a billion dollar valuation. You look at a company like Follow Up Boss, for example, who sold to Zillow a few years ago, and they were only focused on real estate. So I believe those verticals should be plenty. The way that we're going to get there is, of course, not just by SMS, by building a more robust and agentic CRM for our customers. But then also the majority of insurance agents and even some real estate agents, they have VAs.

48:05So there's a huge market there to be able to replace VAs and appointment centers. In tech, we call them, what is it, SDRs, right? Insurance agents, you know, they don't, they don't use these, like this jargon. They'll just call them appointment centers, right? So building AI, you know, appointment centers through AI voice, SMS. VAs being virtual assistants like Athena. Yeah. They, they use virtual assistants to do their scheduling, to get people on the phone, et cetera. So you're saying, Hey, we might be able to do that agentically as well. Yeah, exactly. So it'll, it'll take all the context from all of your conversations, SMS, phone call, and then it'll essentially use that, aggregate all that context and set the appointments for it.

48:46It's interesting, Alex, you hear founders now talking about building software and it's like, yeah, we'll just add a CRM to it. CRM used to be like, okay, that's like a two or three year project to build a CRM company. Now it's like, yeah, we can just build a CRM. It'll take us like two months to just add it. The pace, Jake, of development has sped up in your experience. Yeah. Oh yeah. Yeah, absolutely. So, you know, we were just talking about, you know, Gemini, Gemini 3 earlier and how excited I was to, you know, get to playing with that. So hopefully that'll speed it up even more. You know, we've seen like really, really fast growth using some of the AI coding tools, like, you know, Cloud Code and Cursor.

49:26So I know you guys do SaaS and usage-based pricing. I'm curious about the revenue kind of mix split right now. We have a monthly subscription model. And then also it's pay as you go, right? Our pricing is the most competitive in the industry. We charge 0.7 cents per message. And the way that we were able to accomplish that is we negotiated with our tier one aggregator, which is basically like our SMS wholesaler. So we negotiated better texting rates and we just don't take like crazy, we don't charge crazy markups on those SMS. So your margins on the SaaS part are much stronger than your margin on the extra SMS capacity.

50:02So those are more at cost. and then you have software margins on that hack. Okay, cool. I just wanted to better understand that part of the business because you said in your last slide, you had 13X LTV to CAC and I was like, hot damn. That's impressive. I'm curious how they're getting there. As far as customer acquisition, like I mentioned in the slides, we started kind of off with Reddit and then, you know, cold email as well. And then we've really been able to expand by like offering a referral program, right? So I don't know if you guys are familiar with like the new Sora app. You have to like send your friends a code and then they signed up using the code and there's no other way to use the platform.

50:33We've actually kind of like deployed something similar where, you know, you can refer to your friends. It's a pitch perfect. Otherwise, just pitch perfect. They have to schedule a call with us because we have to be able to scale. We have over 4 million messages being processed through our system every single week. To be able to scale effectively, we kind of have to control the amount of users that come on the platform. I also feel like the quality of users. When you have a high volume texting platform like this, you need to make sure it's not the wrong people. You have to have to kind of like a know your customer process as well.

51:00Yeah. So yeah, that's been pretty effective for us. Yeah, you don't want to get caught up in some crypto scammer using the platform to, yeah. It will happen at some point. You'll have some bad actor, you know, fake that they're using it for insurance and then they'll do something gnarly or whatever. So you just got to be vigilant. All platforms get abused. It's really just the percentage of abuse in a system and how you react to it. So awesome. Well done. Continued success, Jake. And I will see you on December 5th in the Bay Area. We'll get some dips up. Sounds good. Pleasure, guys. Thank you for having me.

51:34The URL, in case you want to take a closer look at Pitch Perfect, is pitchprfct.com. And everyone, if you're feeling inspired, head to gamma.app and start working on an idea of your own. And maybe we'll see you here on a future episode of This Week in Startups.