SaaS Interviews with CEOs, Startups, Founders
Economics of a $37,500 Pre Seed Uncapped Convertible Note
07 Oct 2023
Chapter 1: What is a $37,500 uncapped convertible note and why is it important?
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Guys, in 2019, raised a $37,500 pre-seed round to launch his company, manageable.com, which helps teams get trained better, increases employee engagement. He got his former employer as first customer, now three customers. He's doing about $1,700 per month in revenue.
He supported himself for the past five years while they built the MVP with consulting work, but is now saying, hmm, do I go full time? Do I go all in? We sure hope he does. Hey folks, my guest today is Steve Petersheim. He's building manageable. That's M N G B L.com giving you accurate and useful appraisal. Steve, you ready to take us to the top? Sure. All right.
Did you come from real estate and say, I'm sick of fighting for a 3% commission every month. I'm going to go build software instead.
No, I, uh, I came from my original career was newspaper distribution. So operations is what I did for the early part of my career. That's way back in the old economy days, you know, anyway, then, um, Uh, then after that became, you know, not a thing, you know, didn't want to do that anymore.
And then I decided to get into HR, uh, because when I decided to change careers and I thought, okay, of all the things I did as a manager, what's the stuff I like the best. And what I came up with was generally what most managers hate, which was all the fun people stuff, you know, all the nonsense you got to deal with. So anyway, so then, yeah, then I got into HR and,
And then that's when I began to really put together all the experience and stuff I had as a manager and then became aware of some other org dev theories and then implemented a lot of stuff at a company I used to work at. And then when we looked for a digital solution for what we were doing, there was none. There just was not a digital solution for what we were doing that was on the market.
And so that's when then me and the CEO that I worked for at that company, we decided that we were going to build it ourselves. And then I said, if we're going to build it ourselves, we should take it to market because it's valuable and it can work.
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Chapter 2: How did Steve Petersheim transition from consulting to building Manageable?
It's really more about creating a healthy culture and having... This is, I really, manageable is really a communication system and it's designed to help facilitate productive conversations. The idea is in the way we look at work, you can't get away from conversations, right? We're not using a computer to try to replace conversations. Conversations is how work gets done, right?
Talking is how we get things done. And so the idea is let's, Let's make the conversations focused on what matters the most. And we do that by just working. We create a structure. We have a vocabulary that really just helps managers and the culture in general just really focus on what is the actual work being done. And then let's just talk about that.
Let's not talk about personality and all this other stuff.
How valuable is your system to them measured by what they pay you? What's the average customer paying you per month?
So we're at a very early stage right now. We're actually just getting ready to launch our general availability product.
Are you pre-revenue today or do you have any beta accounts paying?
We have two. Yeah. So we have three. We have three accounts now, one free and three paying accounts. So we have a little bit of revenue. And...
Well, Steve, so what are they paying? You're testing. This is a beautiful moment at a company, right?
You're testing the pricing model. So our rate right now is essentially $8 per employee per month. So a 50-person company is going to be paying about $400 a month. 100-person company would be around 800 a month, stuff like that.
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Chapter 3: What challenges did Steve face while developing his MVP?
So I do HR consulting. And I also have a co-founder. So it's really me and a co-founder. And we're using... We bootstrapped. We did have small initial investment in convertible notes, and then the rest has been bootstrapped since then.
How much in convertible notes did you raise?
$37,500 total. And that was in 2020? That was in 2019. So that was when I launched. Essentially, that was the initial seed money, which came from my former employer. That CEO that I mentioned that we decided together that we were going to build this product, that was my former employer.
How much equity did you give him for that investment?
Well, it's a convertible note. So there is no equity yet.
What's the cap?
The cap is... Well, I don't know. We don't have a cap. We just have mandatory conversion, which is if we when we get to 300,000, then we have a mandatory conversion. Either 300,000 or December 31st, 2025 is our 300,000 what dollars of what? If we raise $300,000, then that creates a conversion event for the note, and then they get a discount.
And let's say you don't raise by the end of 2025. What does that convert at? There's got to be a number, like a cap. There's got to be a valuation it converts at.
That is to be mutually agreed upon at a later date.
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Chapter 4: How does Manageable help improve employee engagement?
So it would have been, I mean, I don't have the number right in front of me, but it was somewhere in the neighborhood of $5,000.
And they pay it all up front.
Yeah, they paid that all up front.
Yep. Okay. So how do you go from three customers to 300 customers? What's the plan?
Well, that's what we got to figure out now. So again, we've been focused mainly on building the product. We haven't really done any sales. We've been slowly tweaking sales.
But Steve, why is that? I mean, you've been doing this since 2019, right? That's five years. I mean, don't you sort of have to quit your consulting gigs that you're forced to make manageable work? Otherwise, you're always going to have manageable as the thing in the back of your head that's a side thing that doesn't get any love.
And that is exactly what we're doing within the next two months. So we now have the product to a point where it's stable. We know it's ready. We can now present it to people. And we feel we have a product we can sell. So that's what we're doing now. So now we're going to shift and move to a sales focus. So we are in the process now of creating a list of contacts.
We have a marketing consultant we use that's helping us build out our lead generation platform. And yeah, we're just going to go out. We're going to start right now still staying kind of local. We're not looking to go broad and national yet because the customer onboarding process is still a manual process. So we have to be involved in customer onboarding.
See, before we go there, though, I mean, this is a big moment, right? There's a bunch of folks listening right now that have spouses. And this is honestly the real reason a lot of folks don't make the leap is because you've got a family to support. So the real question here is like when you talked, are you married?
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Chapter 5: What is the pricing model for Manageable's services?
had a lot of financial tumults there, invested in another business, cashed out a 401k, all that kind of stuff. So this is my last go around. This one has to work. And this one is going to be my retirement plan so that I can help my kids. The past three years have been very lean, been very, very lean, but I knew it was what I wanted to do. I always knew I wanted to be an entrepreneur.
I tried a couple of things. None of them ever really worked, which is why, again, when I got into HR and I knew I was going to do something and I said, you know, whatever I do next, This has to I have to believe in this thing because that's the only way I'm going to make it work. I knew my personality well enough at this point.
So I'm going to have to work for someone else until I find that thing that I know I'm going to be. You know, it's going to be me. It's going to I'm going to be it. I'm going to be able to sell. I'm going to live it and breathe it. And which is why when we implemented these processes and I saw this stuff work.
And then I saw the market opportunity that there was nothing on the market that existed for this. I knew this was it because I'm passionate about helping managers become, you know, develop better habits, helping develop good cultures and stuff. So. So, yeah. So I made the commitment because I believe in what I'm doing. But it was.
Well, listen, we're rooting where it is hard and we're rooting for you. We're out of time, though. So let's wrap up here with the famous five quick one word answers here, please. Number one, favorite book.
Favorite book. Um, social power and the CEO by Elliot.
Number two, is there a CEO you're following or studying?
Um, I wouldn't say no, no one in particular right now.
No. Okay. Number three, what's your favorite online tool for building the company?
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