I’m Josh Muccio and from Gimlet, this is The Pitch. 

A little over a year ago, we had a founder on the show who set the bar pretty high as far as her presentation. But there were flaws in her business that gave some of the investors pause.

And where we left things in that episode, felt rather unfinished. Because after her pitch Margot Schmorak, decided to hit pause on her fundraising. But for a different reason than you might expect.

So today we’re going to play you the original pitch for Margot’s startup, Hostfully. And then in the second half of the show, I’ll pick up where we left off last time to see how things played out.

Okay here’s the original pitch.

Phil: Hi!

Margot: Hi. I’m Margot. Nice to meet you. Daniel.

Margot Schmorak is here raising 2 million dollars for Hostfully. A company that she says will usher the stodgy vacation rental industry into the 21st century.  

After working at two other Silicon Valley startups, Margot discovered that she loves the process of bringing new companies into the world. Even though it can get a bit messy. Today, she’s hoping the investors will roll up their sleeves and join her.  

Here’s who she needs to convince: 

I’m Daniel Gulati 

Daniel is a serial entrepreneur turned vc with Comcast Ventures,

I’m Jillian Manus

Jillian is a partner at Structure Capital and an angel investor on the side.

I’m Phil Nadel

Phil is with Forefront venture partners where he has over two decades of investment experience.

I’m Nicole Verkendt

Nicole runs a software company and in her spare time she’s an angel investor.

Alright here we go.

Margot: So can we get started here?

Jillian: Yes.

Phil: Please.

Margot: So, let’s see. So I went to business school at Michigan, I went to work for Apple. And I was on the worldwide developer relations team. I left because I really wanted more visibility into what was going on at the company, and I knew that wasn't going to happen at Apple. So I went to an early stage startup called Coveroo. We did some really fun stuff there and realized that I love the fast pace of startup life. Like I just love the challenge, I love the new problems.

She loved the challenge so much that two years ago she decided to start her own company. 

Margot: And I actually had two kids at the time, and I thought that I would be done. Like I'd be tired and I'd be not wanting that. But it was the opposite. I was like, no, I want more.

Now, with her third kid on the way, Margot’s here to pitch her startup

Margot: The company name is Hostfully.

Margot: My cofounder, it was my cofounder's idea, he's an Airbnb super host, he lives in San Francisco. So we started out with the idea that one of the biggest stress points when you're a traveler is like how do I get to where I need to go when I go there? Where's the grocery store? Where's the coffee shop? How do I make sure that I enjoy the local things that are going to make this stay really special? But we went to the Airbnb host conference a few months later to validate this idea. And we built a prototype, and it was an iPhone app, and we said if you had a guidebook that you could send to your guests, a digital guidebook like this, would you pay for it? And we interviewed 200 people and 197 of them said yes. So we were like, wow, there is something here.

Hostfully started out making these digital guidebooks that property managers could share with their guests. And Margot and her cofounder saw a lot of success with that model. But that’s NOT the company she’s pitching today.

Margot: This is the really exciting thing that just happened, we merged with another company in our space.

Jillian: Who?

Margot: It's called Orbirental. Orbirental had a very feature rich platform solution. And Stefan, the CEO/CTO or Orbirental. We had been integrated with him for over a year. Our products had been integrated. So we popped the question around July or August of last year. I can't remember the date, actually. It was at a coffee shop, and it felt very much like dating, because I was like, hey, what do you think about a more serious relationship? And he was like, yeah, I'll think about it. And then he came right back within two days and he said, I'm really excited about it. I would love for you to be the CEO. I need a team, you guys are an awesome team, I've loved working with you, let's do it. So we just did that about three weeks ago. And our revenue went from $11,000 to now $25,000 monthly revenue.

Nicole: Congrats.

Yep heard that right. The Hostfully that Margot is here to pitch is just three weeks old. This is the first time any investor has gotten a peek at this new version of the company. And this, is their new pitch.

Margot: It is a platform for vacation rental companies - not Airbnb hosts - like, companies that manage multiple properties to manage their business. And what I mean by that is it helps them take multiple properties and put them on different bookings platforms. We put them on Airbnb, VRBO, Homeaway, Booking.com, TripAdvisor. And then we also help them with streamlining the operations of their business. 

Phil: What's the interface like, though, for the property manager?

Margot: So the interface, it's like a SaaS product. They log in, they get a pipeline of the incoming reservations that they can see. They can assign it out to their team members, they can book those reservations within the tool. They can also integrate with a lot of third-party solutions. And so when the booking is made we say, hey, there’s these automatic guest communications that need to go out so that the guest knows how to reach the property, how to actually get into the property. All those things that actually are kind of stressful for vacation rental travelers.

Nicole: This is pretty cool.

So that’s why Margot decided to merge with their competition, instead of just providing a digital guidebooks to guests, Hostfully can now help property managers run their entire business from one central hub.

Daniel: What’s your view on barriers to entry? My view on it is kind of just so ingrained. I think the answer is like you’re so ingrained in the workflow of these property management companies that it’s kind of hard to rip out. 

Margot: Yeah.

Daniel: But I was just wondering whether there’s something more around defensibility.

Margot: Yeah. There’s definitely the first mover advantage, which is what you’re talking about, where if we get in we’re super sticky.

Daniel: And you see that in the churn numbers?

Margot: Well, on the Hostfully side, the churn is zero. The original Hostfully. There are two companies, right. On the Hostfully side the churn is zero. On the Orbirental, the churn is, it's not low. It's actually, we have a lot of inbound customers that are coming in with the APIs are a little bit funky, they leave. But we still have a lot of growth in that business.

Phil: Well, what is the churn on that business?

Margot: Um. It's probably 30% right now.

Daniel: Annual?

Margot: Yeah.

Daniel: You had eleven.

Margot: I'm not happy about that, that's why I.

Nicole: Yeah, one third of all customers.

Phil: Yeah, that’s really.

Margot: And I sighed, because this is a business we inherited and we’re working on. So I know we can improve that.

All these numbers Margot’s talking about - that 30 percent of customers that Orbirental is losing - represents what’s tricky about a merger. You get all the other company’s flashy new features plus any problems that might be lurking under the hood. 

Daniel: If you just think about the listings side, the Airbnbs, the VRBOs - on one end of the spectrum you’ve got a world where there is one listing monopoly. On the other end of the spectrum you’ve got complete fragmentation on the listing side. What is reality?

Margot: I’m so glad you asked this question.

Daniel: And how does that change over time?

Margot: So okay. If you have a pie chart, Airbnb has 4% of the market, Homeaway has 11%. The rest of one half of it is online. Other online providers.

Jillian: What?

Margot: The rest is offline. This is in 2015, so the data is a little bit old.

Nicole: No!

Margot: This is a Piper Jaffray report. I can show you the slide. I have it in my deck.

Jillian: But 2015. That's 2015. That's three years ago.

Margot: It's changed. But Airbnb hasn't, they haven't even doubled their business since then. It's still just, it's a cottage industry. It's been neglected by technology for a really long time. And Airbnb, thankfully, has pushed all this forward. And the reason why they've pushed it forward is consumers now are demanding hotel like responsiveness when it comes to price and when it comes to time to book.

Yeah, this is crazy. In 2015, only half of all vacation rental properties were listed online, leaving the market wide open for someone to come in and snatch up all those analog listings. And Margot thinks Hostfully is the company that can bring all those property managers out of the stone age.  

Phil: So when you think about your target market of managers of 50 to 100 properties, that's sort of your sweet spot, how large a market is that?

Margot: There are about 100,000 of these companies in the world. And they spend about a quarter of a million dollars every year on software. So it's a $25 billion market.

Phil: How much are you raising?

Margot: We are raising, we’re just starting to raise a seed round, $2 million, with a, it’s a convertible note with a $10 million cap.

Phil: How’d you come to a $10 million cap when you’re doing $25,000 a month in revenue?

Margot: Um. Okay. Well the $10 million cap comes from two things. One is we raised before, when we had about $3000 in revenue on a $5 million cap. And we were one company. And now we’ve doubled the company in terms of the value proposition. But certainly the revenue has grown 10x since then. So I felt like a 10 million cap was a reasonable amount to raise right now. And I haven’t had any questions about that yet. What do you feel about it? 

Jillian: But you’ve only pitched to one person.

Phil: I disagree with you. 

Jilian: I agree with that.

Phil: I disagree with you. Based on my experience, and all the companies that we look at and invest in, that’s not market. That’s just not competitive with the deals that we see. A company doing $25,000 a month in revenue. Everything else being equal, a $10 million cap is just way high.

Daniel: So what would you do? Would you do flat to the last cap?

Phil: I mean, that’s what’s closer to market for sure. 5 million cap. 

Daniel: Would you do flat to the last cap? 

Margot: Another $5 million round? A cap at five? No.

Phil: If you can $10 million cap then go for it. I still don’t think it’s the right thing for the company in terms of long term. But if you want to go that route, and you can raise $2 million at that then.

Margot: Yeah, see, the goalposts are moving and it’s really hard for me to know. To be honest with you.

Jillian: I think 7 makes more sense.

Phil: I would invest at 5 or even 6.

Margot: Okay.

Phil: But I don’t think I’d go beyond that.

Nicole: Go for 7.

Jillian: I think 7 makes more sense.

Margot: I don't think I'd take anything less than 7.

Jillian: No.

Nicole: Anyway, if we're talking about a $2 million delta on your cap. But overall, I think you're really on to something.

Phil: No, I agree. Otherwise I wouldn't be interested in talking about the cap.

Daniel: Do you, what's your ambition as a founder? What does success look like for you here? What are you trying to build?

Margot: I want to build a big company that makes our customers really happy and makes a lot of money. I, I don't like to put numbers around it, because I think it's early days about what that looks like, but my goal is to reach as many property management companies in the world as I can with the best solution. My other goals with this startup were, I want to see what it's like for me to make the decisions once in a while. I've worked for other people and I'm like, I think I can do this. And so now I'm doing it and it's going really well. And I see that continuing. My goals with the company are to build a great team that I love to work with. I want to have a great product that our customers love to use. And I want to contribute to value in the world. And I think startups are kind of magical in that they can create something out of nothing, and I see that we've done that for some of our clients already and I just want to continue with it.

Nicole: You just seem like such a good leader.

Phil: I agree.

Nicole: I get this vibe that you’re just a really, really good leader.

Margot: Thanks.

Jillian: Really knowledgeable.

Nicole: And calm. And this is how we solve the problem. I have two kids at home, a third one's coming, this is nothing. Everyone calm down.

Jillian: I actually think people who have children use their time more wisely. Women who do. Because they really have to. They don’t have a... 

Margot: I totally agree.

Jillian: Because they don’t have a choice, right?

Margot: And you just don’t have the energy to spin out over something at work. You get into a conflict at work, you resolve it and you move on. Because it’s like, you gotta work. And you’re not going to think about it at 9pm at night because you’re going to be putting your kids to bed.

Jillian: Yeah. Kids to bed. Absolutely.

Margot: It’s actually, I considered that an advantage of having children. Because it balances you in that way. And it’s sort of an unspoken thing. I remember being young and single and not being married and not having kids, and having all this time to spin about what happened at work and what should I do differently. And it’s not very productive.

Phil: Well here's my feeling. I think you can tell that I really like you, and your approach, and the company that you're building. I think that you're onto something in terms of offering a real solution to property managers. And I always look for founders who are solving a real pain point, and I think that's what you're doing. I think there are probably some more direct competitors, but you've made the point, I think well, that it's a huge market and it can probably support a few companies doing the same thing. I have a really good feeling about you. And I'd like to invest. The only issue is the valuation for me, as I mentioned before. Seven cap, which you said you would do, or seven price round, either way is certainly at the very high end of where I would go. So what I would do is I'd invest 250 as the final 250 in a $2 million round. So you get the rest done, because I want to make sure you have that runway. If you can get the rest done at 7 million cap or price round, then I would do it. But I will still be the last check in.

Daniel: I um. So where I'm at is, I came into this kind of hating the business. I think that like, I think that like, you look at this business and you're like this is like a niche SaaS as you said. This is a zero network effects race to the bottom commodity business with no defensibility run by a founder that has just merged with another pre-product market fit company that's trying to figure out.

Margot: Like what kind of a crazy person are you?

Daniel: Yeah. But, during the course of the pitch, I've come to really respect you. And I think, um, I think you could potentially be a great founder. And like quite frankly, I think this space is more interesting than maybe I initially thought. I think it's huge. So the next step for me is, I'm not a no, I'm not a yes. So I think, you know, if you're up for it, would love to kind of walk through the product with you and just kind of hear your updated thoughts on the round.

Margot: Yes.

Daniel: Yeah, that and feedback on you.

Margot: Okay.

Daniel: So why don’t we take those next steps?

Margot: Okay. Awesome. Thank you. Jillian?

Jillian: Um. What I see is a tremendous founder with all the IQ and the EQ that’s important to us. Your execution and your ability to really assess the challenges and be very transparent, I was struck by that, the transparency. So I would like to see a deck. I’d like to show it to my partners.

Margot: Okay.

 So, with 3 investors interested in learning more - it’s on to Nicole. 

Jillian: Drum roll.

Nicole: So I'm a founder as well. So I was in your shoes five or six years ago. And I'm actually in, I actually call it a niche SaaS play.

Margot: Oh you do!

Nicole: Yes. And so I kind of want to put it back to you in terms of how I could help you. I'm not going to show up with 250 or 500k. My check sizes are 25. And there's just a few friends in this angel fund that we run. So I'm happy to get involved. But I'm not sure, I think you just need capital here. 

Nicole: But look, I think you rock. And to me, it's all about the founder at this stage.

Jillian: Agreed.

Margot: My team is really great too.

Jillian: So I think what we're all saying is we're all in pending the due diligence. And this has been a real pleasure. 

Margot: Thank you so much.

Phil: Yeah, you were great. Great job.

Margot: It was really a pleasure to meet all of you.

Daniel: Thank you.

Jillian: Absolutely. Nice to meet you.

By the end of her pitch, Margot had hooked all the investors. Which was impressive. But what’s happened in the time since she came on the show It’s been more than a year. Did things work out as well as it seemed they would? 

We’ll find out after the break.

BREAK

Welcome back to the show. 

Right after Margot made her pitch to our investors we talked to her. She said she had this terrible meeting with Daniel. She wasn’t on her game. And that prospect, it fizzled out. 

But what about the other investors? Turns out Jillian didn’t end up going in either. Margot told me and producer Heather Rogers about it. 

Margot: She said that her partners and her didn't want to, were not interested anymore. Um. Which is kind of weird, but that’s fine.

Heather: And did she give you the reason?

Margot: I can go back and look it was something really vague like, My partners and I are not interested in this space or something like that. It was like a one sentence reply.

Heather: Okay. 

Margot: Um. Yeah. 

Heather: Was that frustrating?

Margot: Yeah.

Heather: I don't know if you want to talk about it but if you do.

Margot: No not really. 

Heather: Okay, that’s fine.

Margot: Yeah.

We talked to Jillian, by the way. And she says she thought Hostfully was too early. And she said her firm Structure Capital had a conflict of interest because of another startup they’re invested in.

So in the weeks before Margot went on maternity leave she and her co-founders were sort of scrambling to finish out their round. And the clock was ticking.

Margot: It got to be like eight weeks before my due date. And like this is my third kid so it can happen any day, you know, like at that point. And so I just decided like the best thing for the company is not to try and go crazy and jam in a bunch of fundraising and maybe do it sloppily and also maybe not negotiate the best terms for my company. So I decided to just put it on hold and go and have my baby and come back when I was ready. And so that's what we did.

Margot took two months off from Hostfully. No emails, no calls. 

And for some founders this might feel risky because of the hyper-competitive world of fundraising and venture capital that never, ever sleeps. 

Heather: What was it like having to make that decision? Because I could see that being a really scary thing to do for a founder.

Margot: I mean listen. Like two months in the span of the history of a startup’s nothing. It's nothing. People go on vacation for a month all the time, you know. I mean it's just two of those. Like, it's really not that big of a difference. So if, if the company's going to derail or the fundraising situation's going to derail because someone takes two months off because they're having a baby like it's probably not a good company.

Margot is getting at something that’s a hot topic in startup land these days. The established culture of startups is for founders to make their company their life. Being available 24/7 is a badge of honor. And now there’s a growing backlash to that. 

Margot: We’ve been unapologetic with investors when they ask questions about it. And if they don't believe that we're gonna be successful because we won't work on a Saturday and Sunday or that we won't like not be around our kids when they need to go to a doctor's appointment or something, like, they're just not the right investor for us.

Heather: Hmnn.

Margot: I. I think that people. I think it's great when people work hard but I don't think that more hours necessarily means you're getting more done. I'm not one of those extreme like four hour workweek people either. Like I work a lot. I probably work 50 hours.. 

Josh: Are you throwing shade at Tim Ferriss? 

Margot: Yes. But anyway I, no, I just don't I just don't think it's required I don't think it's required for people to work 80 hour weeks to, to build a great company.

Heather: It’s really intense. I mean I’ve heard in some pitches I’ve heard founders say I got divorced, you know my marriage fell apart because I work so much. 

Margot: Oh, I know. Or I waited to have a kid because I didn’t want to get pregnant during a startup. Or, yeah, or I didn’t spend any time with, yeah, my spouse. I've totally heard these crazy stories too. I just feel like oh my gosh like your life is so short our lives are so short.

So Margot took her two months off after having her baby. And then, after that, she went back to Hostfully. Once she was in the office, she started reaching out to investors, setting up meetings. And her first VC meeting, was with Charles Hudson. Although he’s often on our show, he wasn’t in the room during Margot’s pitch. She’d known him for a while through other connections. And she really wanted Charles to invest.

Margot: I think I emailed him. I may have even texted him at this point. I know how to find him. But I think it was an email and then I. Yeah. We set up a meeting at his office. It was on a Thursday. 

Charles was interested. So Margot cut right to the chase, and asked: 

Margot: OK well how much do you typically invest? And then he gave me a range and we sort of discussed tha because his typical size is 250 for the first check. Um. I wanted to basically get him to invest something more than 250. And and he said three hundred thousand. So it was great, yeah.

But there was another issue that pesky question of valuation. This had been a big concern in her initial pitch.

Margot: I think I said six to ten on the original episode.

Heather: You said 10. Yeah. 

Margot: Yeah. And then they were like You're crazy. And, hey, might as well you know try, try your best. 

Heather: Uh-huh.

Margot: And so then with with Charles I was like seven and he was like I think six and I think actually six was a good suggestion from Charles because he knew that we would have success in raising from other people.

Margot agreed to the $6 million valuation. And they had a deal! Charles would come on as the lead investor.

Margot: I totally remember that moment because it's a huge emotional high when you have like one of your dream investors is saying yes to you. And you're kind of like be cool, be cool because it's just like this moment you’ve been trying to get to for a long time.

Margot had a lead investor! She had terms! And now she could go back to her other potential investors to finish out the round. Here’s what happened with Phil.

Margot: Where that fell apart was that he, um, he just wasn't satisfied with the amount of metrics that we had in the business, like the amount of data. And that was partially due to the fact that we were combining the two companies into one and partially due to the fact that we just like weren't mature enough with our analytics and tracking for Phil.

But Margot did land cash from one of the investors in the room! Nicole Verkendt. She put in $25 thousand dollars and then things really began to heat up. Nicole connected Margot to another investor who had just started a new fund, Elaine Kunda and she kicked in $375 thousand dollars. And then THAT investor introduced her to another VC, who put in $250 thousand dollars! And that wasn’t the only valuable connection that came from Margot’s pitch on the show.

Margot: Elizabeth Krauss who's a partner at Merge Lane heard me on the show and it was it was so awesome actually because she sent me an email. It was like in early September. And she was like Hi. I heard you on the show and I just wanted to wait until after your maternity leave before giving you reaching out. But we're really interested. And so then we had a few calls with her and they ended up coming in which was amazing.

Heather: Wow.

Heather: And how much did they come in for? 

Margot: A hundred thousand.

Heather: Not too shabby for somebody who heard you on the show. 

Margot: Yeah. Yeah she came in and it's like she already knew me because she listened to the show.

Margot ended up closing her round with over $1.3 million. She’s totally crushing it. 

And as we talked it became clear that Margot actually has a kind of fundraising philosophy which could be a big reason for all this success.

Margot: You really have to believe and put yourself into this mindset that you are giving people the opportunity to ride this wave with you. You're giving people the opportunity to grow their money with you. That's the mentality. So there's no like, Oh, oh we got it. Thank you so much! I mean of course you say thank you. But you don't. It's not like you feel like indebted to them because they did it. Like, you feel like it's a business transaction like this company is going somewhere where we're building this great amazing business and you get to come along for the ride and we're in this together we're part of a team.

I agree with Margot 100 percent here. In fact, when founders come on the show, I tell them the same thing. It may seem like the investors have all the power in the room — after all, they have the money. But as a founder, you have power too. You’re the expert on your company and the industry you work in! And the investors, need people with that expertise. Because they want to put their money behind a founder who knows, I’ve got the power. mmm I’ve got it!

Our show is hosted by me, Josh Muccio, Heather Rogers, Kareem Maddox and Molly Donahue. We are edited by Blythe Terrell with editing help on this episode from Devon Taylor.

Theme music by The Muse Maker. Original compositions from Breakmaster Cylinder and The Muse Maker. We are mixed by Enoch Kim. 

Lisa Muccio planned the recording of this pitch.

And as a reminder, no offer to invest is being made to or solicited from the listening audience on today’s show.

Be sure to follow The Pitch on Spotify, or find new episodes wherever you listen.

All right -- you’ve been listening to The Pitch from Gimlet Media. We’re taking a break to record more pitches! But we’ll be back with our next episode on July 17.