Building a Venture Scale AI Developer Tool Company: Moderne CEO Jonathan Schneider (Part 3)

Sramana Mitra: So, what gave you confidence that you would be able to solve this problem and build a product? Did you have an architecture already laid out? Did you have the product design already in place?

Jonathan Schneider: We had it implemented. I had actually implemented it at Netflix, so we actually had a product in hand that we could show.

Sramana Mitra: You took some time to actually get customers going with it. You had something that could be proven.

Jonathan Schneider: That’s right.

Sramana Mitra: How much did Robin invest?

Jonathan Schneider: Robin did a $750,000 stake.

Sramana Mitra: That was not enough for you to take that product to some customers and validate it?

Jonathan Schneider: We were fundraising at the same time. We were three people and then we hired a fourth person. So we’ve got four people whose lives are dependent on the expansion of this company. You do have to worry about that. It may take a year or two years, so you start trying to raise ahead of being in desperate straits.

Both Robin and Puneet said that a lot of infrastructure products usually take two or three years to really get that initial traction going. This was true of HashiCorp, this was true of a lot of iconic infrastructure companies.

Sramana Mitra: So then in five months, what changed for Puneet, you think?

Jonathan Schneider: Well, I think early on, we really didn’t know what we were doing. If you just go read advice on how much should you be asking for, one theory is that you try to project what the expenses of the company are and anchor it around that.

That’s how we were thinking about what is the total cash amount to be raised. Over that period of time, I learned that the actual operating needs of the company are irrelevant to this question. The only factors that really matter for a lead investor are that they have a particular ownership target that’s unmovable. That can vary somewhat from firm to firm, but it’s typically to 20% percent for seed or Series A.

Then there’s the going market rate for a company of similar stage, vertical, and founder profile. At the top end at that time, it would be $7M or $8M Series A, and in the middle, it’s $5M. Then you can go down from there to lower pedigree depending on the situation.

Sramana Mitra: You’re not raising a Series A, right? You’re raising a seed.

Jonathan Schneider: Yes, a seed round at this point. That’s right.

Sramana Mitra: So is it Robin’s safe? What made the difference? Did Puneet’s decision get driven by the fact that Robin came in and validated that?

Jonathan Schneider: I’m sure that helped a bit. Most pre-seed investors have one or two key connections to a partner at a firm. You either get that one or you don’t. Robin had been a partner at Mayfield for twenty years and had deep connections across many different firms.

The great thing about Robin in particular and Mango as a pre-seed investor was that we were able to go down the list. It wasn’t just one or two opportunities, and we’re done. We were going through technical diligence with many firms that ultimately said no. We met the then CTO of GitHub, Jason Warner. I don’t even remember what firm he was doing technical diligence for, but they passed. Jason agreed to join our seed round. We didn’t do a safe. We didn’t do an angel investment. We made room for him to join a later round. We did the same thing for Olivier from Datadog and Kent Beck. We started collecting this group of …

Sramana Mitra: Angels.

Jonathan Schneider: They weren’t angels in the traditional sense. We didn’t safe stack, but we said we will allow you to join later as part of a price round. I think it just had more and more consensus around.

Sramana Mitra: You got validation.

This segment is part 3 in the series : Building a Venture Scale AI Developer Tool Company: Moderne CEO Jonathan Schneider
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