Full transcript

Jason Kirby: Hey everyone, welcome back to the show. Today we have Lata Lapquina with us. I'm so excited to have you on the show today, Vlada. Welcome.

Vlada Lotkina: Hi Jason, so great to be here.

Jason Kirby: I'm excited to have you. So, a lot of you are coming to us from an EdTech company that raised about $12 million and fortunately was able to recently sell this last summer. I'd love for you to just tell the audience about you, your background, and what led you to starting ClassTag

Vlada Lotkina: Absolutely. Well, I'm originally from Ukraine and I got to US some 17 years ago to do my MBA at Wharton. And prior to that, I had entrepreneurial background, having grown in a family of entrepreneur. And so had a few sort of early juices in entrepreneurship flowing. And so of course, I wanted to do the opposite after MBA program. I went into corporate environment. I spent a few years at Boston

climbed the corporate ladder at Dell, two levels down from Michael Dell. And sort of that was a cool way to see what the big companies are up to and how different that world is. And at the end of it all, I decided it was time for me to go back to entrepreneurship. I had this entrepreneurial itch. And at the same time, my daughter started school in New York city. And so I was frankly shocked how outdated and fragmented parent communication was.

in the day and age when we know what our friends have for breakfast on Instagram, whether we want it or not, not having the same level of connectivity with your own kids seemed crazy. And so, um, I really wanted to use technology to help parents and teachers become partners in the kids' education. There is just so much research, decades of research that suggests that family engagement in kids' education is the number one predictor of student success. It is actually twice more predictive.

of that success than family socioeconomic status. So you can't really outsource that. And there are a lot of ways that technology can help parents become partners in the kids education. And so that's what ClassTech did. We allow teachers to have a free platform that democratize that access and communication across automated translation over 100 languages and multi-channel reach.

that allowed any parent, whether they have access to technology or not, become involved and a partner in the kids' education. And then we scaled to five million parents and teachers across the country, tens of thousands of schools raised venture capital three times or multiple times through that journey became profitable and ultimately sold class tech this past summer to a great company called School Status, which has...

Vlada Lotkina: an important mission to combine analytics and family engagement to truly become the platform for student success. And so that was a great home for ClassTag.

Jason Kirby: That was a very good job of telling a very long story in a very concise manner. That's impressive. So there's so much I want to dive into.

One, just the ed tech category in and of itself is a difficult category to scale. It sounds like you reach millions, which is incredibly impressive. Before we go into the usual fundraising story, let's talk a little bit about how you built the business and how you went to market because that is a tough category to penetrate and to scale.

Vlada Lotkina: Yeah, absolutely. And the funny thing was that one of the first people I met in my early sort of fundraising journey was Brian Coyne, who led the New York Angels at the time. And he said, listen, come back to me with any other idea, but not this, right? Not education, do something else. It's a really, really tough one to crack. And it's effectively a graveyard of companies. And.

And boy, he was right. It is a difficult category, but certainly it's also a category that has a lot of opportunities. And as I joke, there is no lack of problems in education. There is a sort of lack of funds to actually solve them, right? Lack of willingness to pay. And so I think that's what makes scaling these solutions so challenging. And so.

We went sort of the back door route. We figured out that we want to really start with the teachers who understand how critical that family engagement is, and that allowed us to scale really quickly. So for a long time, we didn't have any Salesforce, so it was all digital through word of mouth and, you know, Facebook groups, et cetera, sort of more viral and digital growth that allowed us to scale fast.

And then we leverage that footprint we've built to upgrade to schools and districts paying contracts with us.

Jason Kirby: It's impressive. So kind of like, I like to say I like the bottoms up, you know, kind of approach, yeah, no, had a similar experience at the no tech company I was at doing something similar bottoms up was how we kind of.

Vlada Lotkina: Yes, exactly.

Jason Kirby: made enough of a splash to then eventually have sales. So it's good to hear that's the strategy that works. So as you're scaling this business, obviously you got some very blunt feedback, like we like you, just not your business or the other market. So how did you go about raising capital for this? What was kind of your strategy? What did you look at? How did you find the right investors?

Vlada Lotkina: Yeah, that's a great question. So we had actually two bad things going for us. So one was education, which, you know, typically investors, there is a big group of investors that wouldn't touch, right? And then others would be either educational investors that are focused on impact or more maybe generalist investors who happen to also invest in education, right? So I think education was one challenge. The other challenge was...

actually our early monetization strategy, which was about more than half of our business, we effectively were a media platform. So we had parents and teachers, we monetized our sort of product-led motion, the B2C motion through brand partnerships. And so at some point, obviously, media became another no-no. So we had, we were winners. We had both. We had education and media in one. So...

Fundraising was absolutely fun experience. I would say in the early days, it was really tough. So, and coming despite sort of my business MBA and also being an immigrant founder. So my network wasn't that deep, right? I had to build it from scratch. I just talked to anyone who would listen basically.

I reached out to some people on LinkedIn who might know someone, someone who knows someone, went to a ton of meetups, events, et cetera, just to build that sort of breadth of connections and started to get angels. And then we also, interestingly, when I was starting, I actually talked to someone who was a founder and later became an ambassador. And so they ended up...

leading our early round because she saw me was a duck and she wished me luck and said, hey, 90% of people don't move past this stage. So if you move, you will actually be ahead of 90% of others. And so then a year later we came back with like 30k MRR or something like that. And she said, well, you're the real deal and let's kind of get behind it. So that was a big kind of breakthrough after knocking on many doors.

Jason Kirby: You know, it's great hearing this story because so many, especially once a founder or a VCE has gotten to a certain level of success, they really forget about this grind in the early days of you don't have the network, you don't have the track record.

and you have to just put yourself out there and shake as many hands as you can, take as many Zoom calls as you can. But one thing I think you did was important is you stayed in touch with some of those people and you kept them informed of progress. And two giant gaps for a lot of founders is they don't get the progress. They don't actually build something that is worth funding, but they still try to pursue funding or they forget to keep people updated and show the progress over time because that's

Jason Kirby: lean in and to look deeper into what you're doing and that seems to be exactly what happened here so I'm really glad you know share that story because I feel that's often forgotten especially if you know you have the exit you have the success and you just want to erase that from your mind you know that part of your life

Vlada Lotkina: Yes, exactly. The trauma of the past, you put it behind. But someone actually shared this, which I think puts exactly what you said in a very visual way, that investors are looking for a movie, not a picture. And so that what you're talking about, that motion and that progress and being

The witness to that is what an investor wants to see. And I think for me, not sort of jumping ahead, but for me, I did monthly updates for both investors and non-investors. And to me, that was the tool that helped me raise.

Jason Kirby: So we actually just had a newsletter go out about how important those monthly updates are and just the cadence of updates because Again, it's a lot of founders that don't do it. They're not showing progress. So they don't have the updates

And so it's important to kind of hold yourself accountable as a founder to do that. And so it's a great example as to the value of doing that. So can you walk us through the history of basically those first couple checks that came in, how they came in? Were you getting like a rolling kind of convertible node or safe type of thing? Or did you have like a formal round process in the early days?

Vlada Lotkina: Oh gosh, it was the first time I ever raised money. And so I, you know, you get a lot of advice, oftentimes bad, but you don't know better at the time. And so I think the good of that advice, we did raise on saves and notes and on rolling cap and discount. And so with more money committed, we actually moved, we moved the discount down and we moved the cap up or some combination of there off.

And so actually, so we raised a few million dollars like that. It ended up sort of the oldest role. And then when we came to actually do a price round, it was a complete disaster because then you had to, you know, had all this stack of notes that had all these different discounts and whatnot, but anyway, this is, you know, technical mode, the lawyers problem, but the problem for the founder is that.

until it all converts, you actually don't know where you stand because the calculations of all these stacks, if you have different terms, are really complex. But it did, I think, help us sort of maybe save some equity because of the strategy we were doing, but it also, I think, doesn't allow you to actually sit down and say, okay, now we raised, we stop. And then.

and then you just plan for the budget you have and the runway. So I think that in the hindsight that extra few bits of equity that we got was not worth it. Worse than sort of the variability of this budgets and decisions that you have to make in flight, depending on the budget.

Jason Kirby: I hear this story more often than I think most people realize. It's so true because again, especially first time founder, as much as it'd be nicer to have that one round, do you think you would have been able to pull that off at the stage that you're at? It's a hard burden.

Vlada Lotkina: That's a hard burden. And I think, well, the reason I sort of went that round is I think, that route is I think, because it was so hard to do. And I think, you know, that early days had to be this sort of what they call party rounds, right, when no one really leads and you have to figure out how to. And those rounds are really hard to navigate because nobody wants to be the first check. And how do you...

actually talk to people in a way that makes them all comfortable to come in. And so it's a lot of dancing.

Jason Kirby: So what were some of your dance moves, to kind of get into the tactics? How did you kind of overcome that? Because that's everyone's problem. That pre-seat, seat, stage, that early, kind of first time founder, you don't have that track record. Whereas the next time you go to do another company, it might just all flood in at once, or easy, it's done, you have a track record, exit, it's easy. But that first time, it's tough. So what were some of the dance moves that you used?

Vlada Lotkina: I'm going to go ahead and close the video.

Vlada Lotkina: Yeah.

Well, the first pirouette that I used was the fact that you have to have a number of plans. Right. And so I think many times, and I get this question a lot from founders, it's like, well, you know, I will want to raise $5 million and then they go and talk to an angel. I was like, that makes no sense because an angel is never going to write a check big enough and then they will wait for the rest of the round to come together. So if you're going.

I had two or more plans at all times. So if I went to talk to an angel or someone small, I did have an interesting path forward for me with a smaller round that allowed me to do X, Y, Z and show certain level of milestones and outcomes if I were to raise, let's say, I don't know, a million dollars in total, right? So then when I'm talking to an angel who can give me 300K,

Well, I can see how we can put together this party round, right, really quickly at this early stage. But if you're talking to a large fund, then, you know, and talking to them about raising a million, that's also wasting their time. Because if your appetite is only to get that far, then it's not it's not how their fund works. They need to deploy large amounts of capital and they need to show the return on that.

they need to see a whole different plan. It doesn't mean, and so I think that duality is really important. And I think that many founders from my experience find it difficult to actually think in two dimensions or a number of dimensions at the same time.

Jason Kirby: Yeah, it's a tough journey navigating that, but it seems like it worked out successfully for you. You were able to trickle in, I guess, what was the stages of the rounds? You raised kind of that first conglomerate Frankenstein round. What did that conclude at when you raised the, was it a seed that was the formal price or was it a series A?

Vlada Lotkina: Yes.

Vlada Lotkina: Well, it's so it stayed as an as notes. And so that was C, then we had sort of something we called, I think, C plus, and then we had an A. So those two were priced rounds. So they kind of cleaned up the notes.

Jason Kirby: Gotcha.

Jason Kirby: Yeah, yeah. And so after you get to, let's say, the all to the C plus, where it's more of a formal round, I guess, what point were you at the company at this stage, like in terms of traction and velocity? And what was that fundraising cycle like compared to the previous?

Vlada Lotkina: Yeah. Well, it certainly, I think in the early days, right, it was a question of network because I just didn't know any investors at all. And so I had to really build that. Once I had investors, I was really lucky to get a couple of really connected folks, brilliant founders

the journey and what it takes. And so they were really instrumental in later stage fundraising and introducing me to the right people. And so from that point on, it stopped being a question of getting in front of the people I wanted to get in front of and started being a question of more, continue to overcome these structural barriers that we had such as education and media.

And then just having a great business that's, you know, is hitting those two X three X expectations. So whatever, you know, users or revenue, especially increasingly revenue, the closer to today we get and, and then, you know, just building a great business.

Jason Kirby: That's pretty much what it is. It is coming down to that point of just making an attractive business for people to come into and having those relationships early days to nurture and get to that point. So what's something that, knowing that the knowledge you have now and the experience that you have now, what are you gonna do differently next time for your, if you ever do it again?

Vlada Lotkina: Well, I think that when I started building a tech company, somehow the idea that I had to fundraise was just the only option forward, which I don't think it really is. Especially if you're building something that's B2B, you have to work really hard on getting that those customer checks and getting customer funding, as I would call it.

before you can spend the same amount of effort in your investor funding. Because that just really proves the business model. It saves you so much time going after investors, especially if you're a first-time founder and you don't have an existing track record. So I think that thinking about monetization

at the foundation of the business and ideally getting those customers signing the checks before you actually go to fundraise for a first-time founder. That's really key. And then actually questioning whether you need that funding or not, or thinking about various other options. I think I just didn't, for me, it was, oh, you're building a software company, so that's what you do. But...

You know, I didn't put a lot of thought into sort of what other optionality exists.

Jason Kirby: I really hope you're mentoring other founders. I feel like the lessons you're sharing, the experience you're sharing is so valuable that I hope you're finding a way to give it back to other founders. I believe you mentioned you have your own podcast, so I'd love to talk about that towards the end for other founders to kind of learn more and stick to.

Vlada Lotkina: Yeah, absolutely. Thank you, Jason. That's a good entry for me. But I, yes, it gives me a lot of joy because I did learn a lot of lessons. And I know that folks that I invite are all founders, COs, and they learned a lot of lessons too. But most importantly, the show was called CO Unboxed. And it's really talking about the humans, the leaders behind those hum-

company headlines and how did they persevere? What brought them to entrepreneurship? What empowered them to power through all the roller coaster rides that everyone goes through? There is no such thing as a smooth ride in entrepreneurship. And so how do you keep your head cool and how do you still stay happy and well? Or maybe they had some crisis moments, most of them did.

everyone did and so how did they actually turn things around? And so that's what the show is about. So it's a CO unbox on Spotify and all the other podcasting platform and YouTube as well.

Jason Kirby: We'll make sure to link those in the show notes. So before we kind of introduce you on the show, one thing I want to go back to is the exit. That's a pretty critical event for any founder. And I want to understand at the point of basically, when did you start engaging the idea of the sale? Where you approached? Did you guys pursue it? And kind of walk us through that journey and what that looked like.

Vlada Lotkina: Well, I hope that I don't get in trouble for saying it, but I think what defined actually the exit journey and the fact that for me it was extremely smooth. Because we had the first process that blew up in my face and that was a very painful and important learning. And I definitely want.

Vlada Lotkina: as many founders to learn from it as possible. I certainly know there are a lot of close founders who learn from it firsthand, but I think that the actual process of selling Classstag was very smooth. We had reached the board decision to do it in fourth quarter of 22. And then we hired a banker. We had interest in...

parties that we knew were interested from before. We reconnected with those parties. We had new parties come in. We ran a pretty smooth process, a lot of meetings, a lot of conversations. Then we got the LOIs. We selected the party. We went to exclusive agreement and then voila, the company was sold. So it was pretty smooth.

Jason Kirby: Was it really that smooth? That sounds too smooth. That sounds pretty clean. I guess, you know, I guess taking a step back then is like, what made you go to the board or what brought the board together to even want to just, you know, pursue a sale?

Vlada Lotkina: Yeah, I would say from a sort of a market landscape perspective, there were a number of things that were happening. And so obviously COVID was a very important catalyst for many things, including education, right? And in one way, the all of a sudden family engagement became more important than it's ever been, which is good for us because we're a family education, family communication platform.

But what happened was that because we were building a bottom-led motion, all of a sudden these districts said, Hey, this is actually our decision. We want to be in charge because this family engagement is a key priority and key function of our district. And so that's how we started doing, and actively growing our B2B SaaS motion through kind of the product led side, but it also meant that

We, all of a sudden, to actually do the things that we wanted to do if we were to stay independent, had to build a brand new go-to-market focused on these districts. And so that means massive sales team, long sales cycles with the districts. It's going to take a long time to materialize. That meant raising more capital. And so we...

looked at that and looked at frankly what's best for these districts. What's best for these districts is to have best of breed together. And so given the consolidation in the market, it seems like the really a thoughtful opportunity to become part of this bigger ecosystem that has other components such as attendance and analytics that we didn't offer and has this big

and powerful go-to-market muscle to bring our solution to many more millions of people who need it.

Jason Kirby: No, it's a very thoughtful approach in terms of looking at the market and kind of what your options might be and being able to pursue it. Did these firms, in terms of the potential acquirers, they kind of come at you cold? Did you already have relationships with them? Did you kind of pursue them? What was that experience like?

Vlada Lotkina: Yeah, I would say over the years I've gotten, I've talked to many of them because they reached out, their investment bankers reached out, their funds reached out. So over the years I've been pretty much picking up the phone when they called and so meeting them at conferences and like any industry, it becomes actually small over time if you're out there and meeting people, right? So

I do know a lot of people in education and they knew about the company and certainly knew that it's a great platform that so many teachers and parents love it. And so I would say it was, and it was also quite unique because it was sort of a new generation solution that's really built for the modern world as opposed to sort of a lot of.

old school solutions that are still out there and have a pretty large install base, but they are old school. So that was a great opportunity.

Jason Kirby: Yeah, I think the underlining theme here, what I'm hearing is constantly expanding and maintaining your network and building a great business. I think those are the two key takeaways of what you excelled at really, really well.

Yeah, I think that your insights have been incredibly valuable to any founder that's thinking about it, because I think this is something that a lot of founders struggle with in terms of how to allocate their time. They'll say, build a great business. Yeah, have happy customers, generate revenue. It's easy, right?

Vlada Lotkina: 100%. Yeah, exactly. Build a business, not a startup, as they say.

Jason Kirby: Yeah, well said. Well said. You got some good nuggets in here. The investors want to see, they want to watch a movie, not see a picture and, you know, build a business on a startup. I think that's the underlying sentiment of this market right now. It's treating a lot of called startups not very well, but favoring businesses, real businesses that have real revenue, real margins to grow and scale.

Vlada Lotkina: Hehehe

Jason Kirby: That all said, what would be some parting advice to our founder community? What should they be taking into consideration beyond what you shared to this point?

Vlada Lotkina: Yeah, I want to spend just a moment on what not to do in the M&A process. I think that's quite relevant for the audience. I think one thing is a lot of founders get excited when they get these calls or emails from private equity firms or whatnot interested in you. That's their job, right? Their job is to reach out and even sign this

Jason Kirby: too.

Vlada Lotkina: LOIs and go into diligence, they are doing their job. Your job is to continue building a great business. And so I think it's really important to, even if they're not bad actors, but their job is this and your job is that, right? And you cannot afford for you or your team to get distracted, especially if it's inbound. And...

The other thing I would say related to it is there are a lot of private equities who would reach out and they don't have a champion within. If it's a tech on acquisition, they don't have a champion as a CEO or leader of that main company. That's a huge red flag. Don't move forward unless you have a really good conversation and relationship and partnership with that CEO.

as a champion because the risk of that deal falling apart at various points is gonna be so much higher. So if you want to get on a plane, fly, see them, have them fly, whatever you need to do, don't get into the deals that don't have an underpinning relationship in them. So that would be my advice.

Jason Kirby: I think that's incredible.

advice and I kind of want to unpack it a little bit more to help some founders understand that haven't been through an M&A process, you'll kind of explain the sponsor aspect because every deals can happen in a bunch of different ways. There's, you know, a corporate deal where it's like corp dev team, and then there needs to be internal sponsorship inside the company, and then there's private equity that do a bolt on to an existing port code. There's all kinds of interesting deal making that can happen, but to be specific with what you brought up in terms of that, that kind of sponsor.

can you elaborate on what that person's role is, who they are, and why they're involved in the process?

Vlada Lotkina: Yeah. So I think it just talks about sort of as a way of qualifying the interest, right? So the interest comes from a sort of purely financial standpoint, which would typically be a CorpDev or a private equity fund, right? They're broadly scanning the market. Their job is to evaluate various opportunities. So that level of interest is, let's call it, has a probability of...

I don't know, 3% of actually materializing. Then next level is when you have a corporate sponsor who might be a CEO of this acquiring company or maybe head of that department, if you're talking about Google or larger organizations like that, who would have a specific request from that person, whomever that champion is, because during the diligence, during the negotiation, there's always something, right?

As you said, I don't believe you that it was smooth, right? There is always something that happens, right? Some turbulence that occurs and that sponsor and your relationship with that sponsor is what makes or breaks the deal. And most of the deals, I don't know if the exact stat, maybe you do Jason, but vast majority of deals, they fall apart.

Vlada Lotkina: And I was absolutely clueless about it going in. I wish that, so that's, so going in, you need to know that what you have is a great business and that's what needs to survive whatever deal you're entering.

Jason Kirby: It is well said and I've personally been through some deals that fall into part. I got all kinds of horror stories of deals closing the morning up, bottles of champagne, everything's ready on ice for like let's close and then we wake up to a text saying deals done. You know, that's it's very much a reality. I think that's very valuable advice of how, you know, it shouldn't be, you know, keeping the business going shouldn't be plan B. It should be plan A. And, you know, if you sell.

Vlada Lotkina: Right, pranay.

Jason Kirby: then you keep working on the business until that trigger point actually happens, and then you make the necessary adjustments as opposed to preparing for the sale and only if the sale goes through. So I think that is some wise advice for any founder that finds himself building something valuable and stay focused on that valuable asset.

Vlada Lotkina: Right. And maybe just last thought on this is as you think about presenting your plans and financial projections forward, you'll always want to think about how you would outperform the plan. So you want to be optimistic, but you don't want to be overly aggressive, right? Because as you go into diligence, the last thing you need is giving more reasons to renegotiate. Experience people out there tell me every deal is

You know, there is an attempt to renegotiate it. And if you're outperforming your plan relative to what you claimed, that's your biggest lever that you have in your pocket to actually suggest that renegotiation would be in your favor if, if they so desire.

Jason Kirby: Yes, that's good advice. So, Lada, it's been absolutely amazing having you on the show. We talked a little bit about your podcast. Can you remind everyone where they can learn more about just how to follow you, where to learn more about your podcast?

Vlada Lotkina: Absolutely. So I'm quite active on LinkedIn. So you can find me by my name, Vladilodkina. I also have a SEO Unboxed podcast that's on YouTube, Spotify. And you can find me there. I hope to connect with many of you.

Jason Kirby: No, no, I think any smart founder should be also listening to you because I feel your level of advice, you're fresh out of it too. So you're very, very much close to.

The details of what goes on and I think everything you shared was incredibly accurate to what is very common for a lot of founders to experience And you build a great business, you know people were coming to you And I think that's the number one thing that most founders should focus on So, you know really appreciate you joining us on the show today and sharing your amazing experience

Vlada Lotkina: Thank you, it was super fun. Thank you.

Jason Kirby: Awesome. All right, go ahead and...