'Founders Who Fundraise' is a new blog series highlighting founders in the Bowery portfolio and their origin stories. Have you ever wondered how founders come up with their ideas, how they approach testing and validating, as well as their approach to fundraising? This series will share stories from the founder’s POV and provide insight on the inner workings of starting a VC backed business.
Ryan Denehy is the Founder & CEO of Electric AI, a SaaS IT support company that uses automation and AI to provide fast and efficient support to clients. Ryan discusses the origins of Electric, how he tested market validation before raising money, his approach to fundraising, and the challenges of balancing both fundraising and day-to-day operations. He also reflects on personal changes since starting Electric and the importance of taking care of oneself in order to lead effectively.
Ryan is a serial entrepreneur with over a decade of experience building and scaling successful startups. Prior to Electric, Ryan co-founded Swarm Mobile and worked in venture capital.
How did you come up with the idea for Electric?
I was running a previous startup in San Francisco in 2013, and I was managing a lot of internal IT (such as setting up computers for new employees). When I looked at other parts of the business (like HR and finance) and the software they were using to manage it, they used really neat tools that automated things we would have to do manually otherwise, which gave us a lot of time back. However, in IT, there wasn’t really anything. If I needed to set up a computer for a new employee, I’d have to do it myself. There was so much vertical SaaS for back office responsibilities, but the only option for IT was to work with a local IT consultant or do it ourselves.
So, I researched and found that venture investment in IT software was directed toward corporate IT departments because that’s where people thought all the money was. There were millions of businesses like mine where we likely would never have an IT department but we have an IT budget, so there was really no solution. So, I spent a lot of time thinking about this and when my first startup got acquired and I moved back to NY, I knew this was on my top 3 list of ideas I wanted to pursue.
At the time as well, Mike was the only VC I knew, and so it just worked out that the only VC I knew in NY was a B2B software investor. I started showing up at the Bowery offices in March 2016 and just met with Mike and Loren periodically and just talked with them through different ideas. Some were different ideas about Electric and some were different ideas where we thought there needed to be a new solution but by June 2016, it became pretty clear Electric was the thing. I actually remember this moment like it was yesterday: there was this restaurant on the first floor in which Bowery had its old office and Mike and I went downstairs and talked for 5 minutes and said we are going to do IT support for people but we are going to write all this software to automate all the password resets, hardware inputs, etc. So we kept going back and forth on what we could automate and said, “Great cool, that’s the business.” And the rest is history.
Had I known others, I would have still worked with Loren and Mike. But it was still really funny, the only people I knew were the best equipped to help me think through the idea of Electric.
Can you share how you approached the idea of starting Electric AI by yourself?
I had a co-founder for the first two (the same co-founder) who I have a great relationship with to this day. When it came time to start our third company, he had a very different business he wanted to pursue in the consumer space and I really wanted to do Electric, so we both said, “We had a really good run (10 years, 2 successful exits), we will invest in each other’s companies.” He was on the board of Electric in the early days.
As a first-time founder though, it is important to have a co-founder because the psychological drain of being a founder for the first time is huge. 95% of what will make you successful are things you have never done before and situations you have never been in before. Even if you are a seasoned business person you need that support system to get through the hard times. If nothing else, that is the most important role the co-founder plays — having someone equally invested in and being in the trenches getting through the tough times.
By the time I started Electric, I had been through enough of the same things over and over, I didn't want to have a co-founder for the sake of having one. Unless I can find someone that can materially change the business from day one, it is not worth the added risk of bringing someone into the fold and giving them a ton of equity if I am not totally convinced they can bring value to the company. It is definitely a risk but there are more solo founders today than there were 10 years ago. A lot of VCs wouldn't invest in solo founders 10 years ago, but that’s totally different now.
The benefits of being a solo founder is the speed of decision making. I just make decisions and then we go and do those things. There are downsides though because sometimes I would have liked to have someone else in the room to present a different view on strategy.
All in all, my advice: Don’t go find a co-founder just to have one; start the company on your own unless you really think you have someone who can make the commitment because if that relationship goes sideways, that introduces a whole level of complexity on top of the already impossible job of being a founder. If you are a solo, non-technical first-time founder with no MVP and can’t prove you’ve gotten a product to market, that will be challenging, so really try to find a co-founder or someone who takes on some parts of the responsibilities.
What was your process for testing market validation before raising money?
Initially, I looked at different ways of capitalizing it, one of which was going to buy an existing IT company to start with customers and data and build software around it. I realized that would be very expensive and come along with a lot of baggage so I figured starting with a clean sheet of paper was the right way to do it. The reason we had such an immediate market-product fit was that we weren’t creating a new solution or product, but rather, we were looking at an existing part of how a company operates and saying I think we can offer something significantly better and more modern by doing it with technology and not with old school services. The product market fit and market risk was taken out of the equation on day one because I as well as investors knew there is a huge industry of local IT consultants who charge a monthly retainer to manage IT for you. So, the question became, “Can you build a software for IT management to take manual processes over?”
I was able to get my hands on IT support ticket data because I knew local IT consultants I had worked with previously and I went through support tickets and recognized you can reasonably automate 80% of them — password resets, account creation, computer setups, etc. When I sat down with Mike and Loren, we knew there was a big market, and you could create a software-centric product in that space because of all the data I went through. So, I went around NY to my friends’ companies and asked about IT support and their satisfaction with it. I had about a dozen companies saying we would give you the contract if you could deliver this. So, that summer it came together really quickly, but on the other hand, I was thinking about this problem since 2013 doodling on it in the background. It would not have come together so quickly had I not been thinking about it over the last 3 years.
What was your approach to fundraising?
Even though Mike and Loren gave me the term sheet and put up the money for about half of the seed round, I still had to find the other half, and I didn't know anybody. Mike made introductions to other people he co-invested with and I had gotten an introduction to Primary. What I was looking for were investors that understood what we wanted to execute and could take a long-term view on the big vision. 2016 was an interesting time in NYC tech - the market was really starting to come into its own. There were a lot more success stories and more VC money funding companies, but there was also just more hype and new people entering the market wanting to get involved in NY tech. What I cared about was as a multi-time founder who had a level of experience and maturity, I just wanted to approach this in a more sophisticated way and partner with people who had a track record and wanted to work with a more experienced founder that is chasing something bigger.
I can tell you what I wasn’t looking for, and that was an accelerator or incubator. At the time, there were party rounds where 50-60 high-profile operators in their seed round looking for party rounds. I wanted to keep a list of investors small and work closely with more influential people. But this varies for every company. For my first and second company, we had different thoughts on this.
The advice I give founders is to be very clear about what you want out of the investor because this is going to vary per company. I wanted investors who were going to be hands-on and therefore I wanted a smaller group of investors who had a track record of being hands-on and helpful to their founders.
The job is so big early on, so if you have investors who are willing to help, then that is worth almost as much as the capital they are giving you. Several of our first customers came directly from introductions made by Bowery, which is a huge compounding effect. We launched Jan 2017, and 2 of our 4 customers came from Bowery intros, so one can argue our growth rate would have been lower had we not signed with Bowery. Every hire and every customer is a huge percentage of a company when it is in its infancy.
What is it like balancing the fundraising process but also the day-to-day operations/responsibilities of your role?
The most important thing is you have to divide and conquer because fundraising is a full-time job, particularly early on. When the company gets larger and you have multiple executives it is a little bit different, but in the early days fundraising has to be treated as a full-time job, which can be really frustrating for founders. So you have to know that going into it. You are fundraising or you are not - you have to run a dialed-in process, and it needs your full attention because if the company runs out of money, nothing matters. On the other hand, fundraising can take months and months and so if you are fundraising but no one is running the company, that is really problematic. No investor wants to hear you didn’t hit your sale projections or didn’t ship the product because you were fundraising — a huge red flag! So for a lot of early-stage founders, it’s really confusing to understand how investors expect them to be out there fundraising but expecting to see all this business performance. And that’s the hard truth: you have to find a way to do both. What worked for my co-founder and I at my second company was very early on we decided he would handle the fundraising and I would run the company. At first, I was offended since I wanted to be in the room with the investors, but it just wouldn’t have worked any other way. If we were both pitching to investors, we would never be building the company.
So with Electric, because I was raising money pre-product and off a PowerPoint presentation, it was easier to get away with that. It was a deck and a dream; I didn’t have any data and metrics, so it was fine. It made fundraising challenging in other ways (because I didn’t have a tangible product). Once I built my initial team and had the first head of product and engineering, and first head of revenue, I was really clear that in the future, they will not be directly involved in the vast majority of fundraising because the only way to grow the company and get the capital we need was to split the responsibilities. That’s one of the biggest mistakes founders make when both of them are pitching to venture capitalists.
Reflecting on your journey so far, what is something that has changed in your life since starting Electric, both professionally and personally?
The biggest change personally is that by the time I started Electric, I started thinking about my health and taking care of myself. It is really important to get sleep, exercise, and make time to spend time with my wife and my dogs as well as on my hobbies. At the end of the day, the job is really hard and demanding; it is really easy to get caught in a trap feeling like you don’t have time to do anything but work. In reality, though, there is an unlimited amount of work and if you aren’t healthy and have some productive ways to unplug, the job will be way worse. Mentally you will be with a ball of anxiety which no one wants to work for. No one wants to work for a founder who is a tired, anxious mess all the time plus you can't think strategically if you are rundown all the time. I still go through phases like this and have crazy weeks, but if every week is crazy, then that means you are not managing your time well, and that’s really hard. It took me 10 years to figure that out, but that is one of the most important things I got wrong in the early days of my first 2 companies. And yes, they were successful, but I think they were successful DESPITE the fact I didn’t take care of myself and didn’t have balance.
Professionally, the biggest change in the way that I run my business is that I am relentless about getting people around the table who have done the things that I need to be doing. When Electric was doing one million dollars in revenue and we wanted to do ten million dollars in revenue, I went so far out of my way to talk to people who built and run companies from one to ten million dollars in revenue to think through the pitfalls of sales, marketing, hiring, and product engineering. For me, I’ve done a lot wrong, but one thing I’ve gotten right is that I’ve gotten good at asking questions, filling in blind spots, and coloring the map in with answers for questions that I don’t need to be asking right now, but I know are going to become important later on. I ask questions for the future in order to understand scaling a business. And those mentors and advisors are changing over time — the people I have on speed dial calling for advice have changed as the company has grown.
Ultimately, someone always has the answer - there are very few unknowns. The only thing separating a Fortune 500 CEO and someone managing a restaurant is what you know and what you don't know — it’s all about how.
Conclusion
Ryan Denehy's experience in building and scaling successful startups provides valuable insights for other entrepreneurs. His approach to market validation, fundraising, and balancing day-to-day operations with fundraising demonstrates the importance of strategic planning and prioritization. Additionally, his emphasis on personal well-being as a crucial aspect of successful leadership serves as a reminder to entrepreneurs to take care of themselves, both personally and professionally.
If you liked “Founders Who Fundraise - Ryan Denehy (Electric AI)” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.
