With Itxaso Del Palacio, Partner, Notion Capital

Investing in product-led founders building rocketship businesses

With Itxaso Del Palacio, Partner, Notion Capital


  • Good PLG businesses have a very short time to value, bringing users to the “aha” moment right from the moment they try the product
  • Founders should think of fundraising strategically; it is important to define a strategy and a process to close a funding round successfully
  • Lead with the excitement for your vision, backed by the metrics that bring that to life

Setting the scene

Understanding a VC firm’s investment strategy – focus, stage, thesis and so on – is critical as a founder develops the investment proposition, but so is understanding the individual strategy of each partner in a firm. This allows a founder to tailor the pitch and to get the right investor excited and committed as soon as possible.

For product-led founders, looking to raise a funding round, Itxaso Del Palacio is probably their best fit. Itxaso is a Partner at Notion Capital, which specialises in B2B SaaS and Enterprise Tech, investing across Europe at Series A. Itxaso was formerly with M12 (Microsoft’s venture arm) where she led investments in Beamery, Onfido and Unbabel. She has more than a decades experience working in the startup ecosystem building and investing in software companies. Additionally, Itxaso is a Senior Teaching Fellow in entrepreneurship at University College London (UCL) and she has taught entrepreneurship to more than 3,000 students in the last ten years.  

In this podcast, Itxaso describes herself as a ‘product-led’ investor and lays out her thinking on what this means and why she thinks this is so important.

Product-led investors seek out founders driving growth through their customers and users

I define myself as a product led investor, which means that I look to invest in founders that are building product-led businesses - they build their businesses in such a way that their products are pivotal to how they acquire new customers, build loyalty with their customers and drive further growth. Those companies have a product that users can test, i.e. self service, and can grow their accounts over time based on their usage. Overall, the traditional Enterprise SaaS model is led by traditional marketing and sales go-to-market strategies. In the product led businesses, marketing and sales teams are not driving the revenue. Those are the companies that I'm looking for, and those are the founders that I want to back.

Product-led founders are obsessed with building products the customers love

I am always amazed and hooked by founders and companies that are obsessed with building the very best products that their users love. Those products are usually beautiful to look at, easy to use, easy to test and easy to get onboarded. In the past, it was a requirement for B2C companies to have a beautiful app, which I could sign up to seamlessly and could use immediately. Today, having a fantastic UI and providing a seamless UX has also become a requirement in the B2B environment; more and more, users in the business environment are looking to have that same user experience. The time to value should be very short, which is also comparable to a consumer business. We get in, we sign up, and we start getting value out of it straightaway. I look for the above when I'm evaluating a business.

The excitement when I meet an exciting founder for the first time is contagious

If I meet a founder who is excited, then they can draw me in quickly. I want to feel that excitement and be able to back it with data so I can bring my team on board with that deal. In general, I get excited about founders, who are convinced that they can build a massive business. I need to then build conviction around the possibility of that happening. I then want to understand how they are going to make it happen. As a product-led investor, I look for founders who can very easily articulate metrics related to a product including engagement metrics, time to value, net retention rate- which demonstrates how much your customers love the product and how much they can grow their accounts. There are other important SaaS metrics, like CAC or payback, but I would say that if the product-led GTM strategy is working and the product metrics (i.e. engagement, retention) are strong, then the SaaS metrics should follow. I really like founders who can, right on the spot, provide a fantastic demo of their product and they are able to prove that they have a good product, easy to use and well embedded within the workflow of their customers.

Impatience is a virtue in startups!

I don't have many turn offs when it comes to investment opportunities, but I would say that I am a pretty impatient person! When I come to a pitch or a meeting, I need to feel the sense of urgency from the founders. I like to move fast and if I don’t get that feeling then I get a little bit disconnected with the founder and the opportunity. I need to feel that we (founders and myself) are on the same page, willing to move fast to take advantage of the opportunity. We need to be both in the same rocketship; otherwise I get really frustrated.

The investment pitch is critical - it needs to stand out and appeal to the firm and in particular the individual partner

The pitch is incredibly important. A founder needs to understand that I can see over 1,000 or even 2,000 opportunities each year, and I will make two investments. If you want to be one of those two, you really need to have a very clear value proposition and you need to engage me with that and infect me with your excitement and conviction. I think the pitch should have three main elements - the what, the need and the progress:

  1. The what: What do I do? Who am I? Why am I doing this?  What is my product?
  2. The progress: What are my metrics right now? What did I achieve in the last six months? Also, the stage of the company, the metrics and the financials  
  3. The need: What am I looking for? What are the next steps? What can I build with this?  

Regardless of how many slides you need, you must make these three things crystal clear to me. Therefore, entrepreneurs should know how much time they have in the meeting and how much time they want to spend on each of those. Entrepreneurs should approach the meetings in such a way that they can bring out the areas that they really want to focus on. They should ask themselves: how much time do I have? Do I want to emphasise my metrics, or my progress? Do I need to focus much more on what is the vision for the future? What do I need to get there? Then they should prepare the slides (or no slides) to follow that conversation. Then, you can go as deep as you want in the areas that investors want to discuss. In each of those, depending on the stage of the company, you will make much more emphasis. For example in the earlier stages, you will focus more on the team, the vision, etc. Whilst, if you are in a later stage, you’d probably focus much more on the KPIs and the progress that you've achieved. Those are the three elements that every pitch should include.

What are the best pitches you have seen?

The first one is Vasco Pedro from Unbabel - a fantastic presenter! Vasco is the founder of Unbabel, one of our portfolio companies. He's incredible at presenting, and there is a great video of him presenting at the Web Summit in 2019. He's very clear, well articulated and good at sharing their vision. He’s great at explaining where the company is going and what he wants to build in the future. Also, Vasco takes you through examples, so you can relate to them and  have a better understanding of what’s going on. If you go to the pioneers presentation, he does a demo live in front of 1000s of people, which I think is fantastic!

Then a completely different style comes from YuLife, who I invested in last year. Their pitches are done by two of the co-founders, Sam and Sammy. They do a double act and I think it works very well. Sammy is the CEO and he's very good at setting up the vision of the company, the big picture, the strategy. Sam, the COO, gets deeper into the metrics and he's really on top of all of those. They also bring Josh Hart, who is the CTO, and he does a great demo of the product that reaches the higher level - this company is a great example of product-led and Josh is a big proponent of this.

A team presentation has a different style, but if it’s well coordinated it can work well. I think when you do a team presentation, you need to be very clear on who is presenting what, so that it doesn’t look like everything is owned by one person. I prefer it to be a collaboration with a good structure or division of responsibilities within the presentation.

Every VC thinks about the deals they miss and importantly what they learned from the experience

There have been a couple of deals I regret missing, but not too many. I think the one that I really regret is Tessian. In fact, they rebranded from CheckRecpient right when I was taking a look at them when I was with M12, Microsoft's Venture Fund. I was looking to do an investment in their series A. I very much liked the company, but it happened to be that Microsoft, where obviously I was investing from, was building a similar product at the time. I really like the founder Tim, he's absolutely fantastic. Overall, the C level team was fantastic, but the product somehow conflicted with one of the products that Microsoft was building internally, which probably would not be as good as Tessian. Balderton ended up doing the round, I think it was Suranga, and the company went to raise over 50 million. That’s probably my biggest regret, but I'm happy for them. They are doing well, and we are happy for their success.

Fundraising is a process- the best founders get this

Fundraising is a process and it should be well planned, strategised and branded in order to be successful. For example, I advise my founders, as soon as I put money into the company, to start building a list of investors for the next round. They could already have introductions with these investors or they have been in touch with them in the past but the company didn’t invest. So, start building a database from that, and share that list with the current board. Then you can tier them into 'Tier One', 'Tier Two' and include a couple of comments. The comments can be as simple as ‘I had a great connection, but I was too early for them’ or, ‘I would love those guys to put money in my company because they have three other companies in the same space, and clearly they know the ecosystem’.

If you tier them, it distinguishes what investors are best for you e.g. other people might consider and suggest an investor in 'Tier Two', but you can see from the database that the investor at 'Tier One' is better suited to help you build a global business. So, start from creating a database (pipeline); in the same way you sell to your customers, you are selling to those investors too. The investor should also be selling themselves to you; both of you should be nurturing those relationships. As a founder, you should take at least 10% of your time to keep nurturing those relationships. You can't leave it for the last six months before you want the money. You should select a set of investors that you would like to have on board and nurture them. It can be a very short call, once in a while you touch base with them or send them an email to update them with what you’re doing. Also, if you’re ever in their countries, you are able to pop by their offices or for these days where everyone is working remotely, have a conversation online. It is very, very important to keep them updated, and as I said, it should be at least 10% of the founders time.

After all, I think founders should be focusing their time on: one, building the strategy and the vision of the company for the future, two, hiring and looking after the senior hires, that are people who have been there before, and three, fundraising. I think these are the three priorities for the founders overall.

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