Raising $3.5M to Build the All-in-One People Platform - Startup Stories with Chris Priebe
Read on for the transcript of our talk with Chris.
Anton Oparienko (COO, Upsilon): Today, I'm pleased to have Chris Priebe with me, the Founder at Zelt, a new HR system for tech companies. Chris, tell us a little bit about your background and how you get interested in tech.
Chris Priebe (Founder, Zelt): I am originally from Germany and studied physics in school. However, I knew I did not want to pursue a career in physics, so I came to the UK to do a masters in finance. I then started working in investment banking, where I advised tech companies on going public.
After that, I spent time in private equity, searching for and acquiring software or technology companies. Following that, I worked as a venture investor, providing capital to very young startups to help them build their products and acquire their first customers. Some of the startups we invested in were Revolut, Brex, Slack, Canva, HelloFresh, and Zalando. That's where I got exposure to startups and the founders inspired me to get started with my own company.
Anton: That's a shiny list. And you said that you transitioned from bank investment to private equity investments. How was the culture different in these places?
Chris: The finance industry is not a monolith, and private equity, in particular, is quite different from the stereotypical bro culture associated with finance. Private equity is a conservative, a very proper environment where people often spend their entire careers. The senior members have known each other longer than many of their friends, and it is all about being professional and doing the right thing.
Banking is a bit different. The culture is more loud and aggressive, the kind in which stereotypical alpha male type characters feel at home and jokes can be sometimes a little over the line. As a newbie it's quite exciting to be immersed in this for a while, and those working in it do love it, but I prefer the culture I found in private equity.
Anton: And moving to venture capital, was it part of the plan or a spontaneous decision? How did it happen?
It was a bit of both. Even when I was already in private equity, I knew that I wanted to do something on my own. I never really saw myself growing up that career ladder in some company. I always had an idea of starting my own company in the back of my head. Although I didn't really know exactly when, where or what.
The jump to VC happened very suddenly for me. I was approached by Oliver Samwer, the founder of Rocket Internet and investor at Global Founders Capital. He made me a very attractive proposition to join the UK team and lead the UK office. Given that I wanted to start something myself, I knew that private equity is interesting, but you don't really know what's going on in technology. In private equity, you buy companies that are 15 years old, 20 years old. What they do is stuff that was new 20 years ago.
It's much harder to get good business ideas when you work in private equity, while when you work in venture capital, you are confronted with ideas on a daily basis, and you also see what works and what doesn't work much more quickly. For starting a business, it's great because you get exposure to a lot of different business models, and you understand how to prepare for fundraising and what investors are looking for.
Anton: So essentially, venture capital was a step towards founding your own company.
Chris: Yes, exactly.
Anton: That's an interesting path. Not a lot of people go exactly this way. Obviously, knowing the system inside out helped, but what about being a non-technical founder? Did you have any issues with that, or did you know what you were doing already with your experience?
Chris: I knew what I was doing on the product side. To be good in product management, you don't necessarily have to be technically proficient. I studied physics, so I have a strong conceptual understanding of technology. While I did some coding in university, I am unable to do any at work. This was a handicap in the early days, as code is the basis of everything in technology.
If you can't write code, you're dependent on others. This means you either need a co-founder who can code and doesn't need a salary, or you need to raise money to pay others to do it for you. Even when you have the funds to pay others, you need to trust that they will produce work that is reasonably built, so you don't have to start again after six months or a year.
Definitely, it's a handicap, and you take a bit of a risk because whoever you hire, you will not know for sure that it's going to work out. But it worked out in my case, and six months in, we had a small team that I put together full-time, and then we transitioned away from the contractors that helped us get off the ground in the early days.
Anton: So your solution was overcoming the trust problem and hiring a CTO?
Chris: In the beginning I was trying to find a technical co-founder. But I would only work with someone if I have blind trust and confidence in them and their capabilities. There needs to be a mutual bond of trust, either personally or through a trusted connection. I would never have done it with someone I didn't know well. I was looking for potential people, but it's hard to find someone who is at the stage of their life where they want to take this bet, who has the specific skills needed, and who is of the caliber that I would expect for an equal counterpart.
Even though I was looking, it just didn't happen. In my personal friendship circle, there wasn't any real opportunity because they're all in hedge funds and private equity and did not have the skills that I needed in a co-founder. So I didn't have an option and ended up having to hire contractors. That's just what I had to do, not necessarily by choice. It also has a lot of advantages, not just downsides, being a solo founder but it does make the first six months quite a bit harder.
Anton: And you mentioned you hired a team of contractors for the first period. A lot of founders try to assemble a core team as in-house workers. How was your experience with contractors, and is that what a lot of startup founders do?
Chris: It's definitely common. In the beginning, I searched for software development companies that could provide a product manager, a designer, and offshore workers who are more affordable. However, no one had the capacity to take on my project.
So, I had to assemble a team myself. I reached out to my network and asked if anyone knew any good contractors. One person was recommended to me, and then they recommended another. They did a great job and got the ball rolling.
While it was a bit more expensive, it was the right thing to do for the first six months, and much faster to start than making full-time hires. However, it is not the same as having early-stage startup employees who are excited about the experience and want startup equity. It has both advantages and disadvantages. The advantage is that if I pay them what they ask for, they'll do it without asking questions, and their notice periods are short. But, they will never have the same level of excitement and buy-in as people who are looking for a startup journey.
Anton: Let's talk more about Zelt. How did you come up with the idea? What problem are you trying to solve?
Chris: As an investor, I've observed that the last decade was dominated by SaaS. Before, software was hosted on servers in your office, and an IT person had to physically replace hard drives. SaaS revolutionized deployment by allowing software to run in a browser.
That was the decade before this one. Now this decade is really all about, "What are we going to do with all this data?", "How do we connect all these different systems that we now have?" You can see that very clearly in what's been growing, what companies have been successful. Workflows, automation platforms, all these API tools, API connections, they're all really the same thing. They're just moving data from A to B and automating processes. A lot of investment has gone into the whole revenue stack.
There are amazing platforms out there for CRMs, customer-facing things like HubSpot, PipeDrive, and Salesforce. Although Salesforce may be a bit clunky now, they're a very big platform, and you can do a lot of things with them and automate a lot. However, this really hasn't happened in the people-facing world. In any company there are two important groups of people: your employees and your customers.
A lot of investment has gone into the customer side of things, much less has gone into the employee side. Most of the systems out there are really bad. There are no real platforms out there, Workday maybe, but they're already in the big enterprise space. So, 99% of people are working for companies that are massively under-invested in their employee stack. This lack of investment has a lot of impact, making business processes and admin very difficult.
And, with the advent of things like COVID, Brexit, remote work, and the increasing digitization of work, companies no need to fill this gap and puzzle together point solutions that solve specific needs they have at a given time. This means that there's a lot of computer admin that companies have to do because setting up and keeping all these tools maintained takes a lot of effort.
Zelt aims to tackle this issue and reduce the computer admin that people do on a daily basis, both for admins and line managers. Companies no longer have to explain how admin processes work and which tools need to be used for what. They can spend less time on IT admin and focus more on the things that are important for their job and be more productive, and/or, with more automation, go home a bit earlier, depending on what they prefer.
Anton: Workday is targeting enterprise companies. What is your target audience?
Chris: We're more focused on the scale-up and mid-cap market. Our sweet spot is companies between 50 and 5,000 employees. Usually, they already have some systems in place, but it's almost always a combination of several things. Either they have an HR system or payroll system and then they do a lot of stuff manually with spreadsheets and emails, or they already have a lot of different systems and they want to consolidate them. They come to us because we're a good option for them to do so.
For example, companies may have an HR system and a payroll system, but they are still managing all their IT by hand. They have a new joiner, they literally go on Amazon, buy the laptop, ship it to the person, install any software on it manually, and then they collect it and they wipe it all by hand when an employee leaves. And that takes hours. If you add this all up, you have a thousand employees, you spend like 2000 hours just on that, while it could be just totally automated. They can bundle that directly into their HR system where they need to onboard employees anyway, and they don't have to deal with this stuff anymore.
Anton: Data is a very sensitive topic for many companies. How do you approach data and security? How much do people actually question you or, in general, care about what's happening with their data?
Chris: Security and privacy is probably one of the most important aspects of our platform. We don't hold a lot of data, so if you have a thousand employees, you would have a thousand people records or maybe two thousand if you had a thousand leavers since inception. If you're a CRM system, you'll likely have hundreds of thousands of records.
But the depth of what we store is much deeper and much more sensitive. Particularly when it comes to identity theft, for example, if you know somebody's name and email, they can't really do much, and you can get this information anywhere. But if you know somebody's name and address, emergency contact, bank account, and all these other things, then you can really trick other people into thinking either you're somebody else, or you can even trick them into thinking that you're actually them.
Not leaking data is extremely important for us, even more so than most other systems. For example, we obtained our ISO 27001 certification much earlier than most other startups because it's just the right thing to do. We do pen testing, and only a minimal amount of people have access to our production databases when needed. While for other startups, it's more like, "Yeah, we'll figure it out later." It's a bit of a different story.
Anton: You started participating more in PR activities (podcast, interviews), writing LinkedIn posts, etc. Is it one of the growth channels that you use to attract customers? What other marketing strategies do you use to grow your business?
Chris: I have to admit that my LinkedIn is not just me posting there. Not everything you see there is me typing it directly. But some of it is. I think you have to be active in all the channels. At the core, you need to have a good product and a good proposition.
Of course, we do email outbound, we do SEO, but not so much paid marketing except for LinkedIn retargeting, but again, probably everybody's doing that. We're not doing anything on LinkedIn or Facebook, at least not yet. So it's a lot of inbound and word of mouth.
Then we send emails to people that we think could benefit from our system. They just go on a demo with us and sign up.
Anton: You raised $3.5m in funding from Village Global, Episode 1 and Adapt Ventures. Did your experience as an angel investor help you?
Chris: Yes and no. Actually, the first person that invested in Zelt was somebody I did not know before, Anne Dwane from Village Global. The person that made that intro was a founder, and I knew that founder because I was a CBC before. But you can know other founders also from being a founder before or from working in a startup where a lot of people become founders. So yes and no. I think it's not a huge advantage.
It's not hard to find out what's the list of twenty VCs in your town, who are the best investors in your area. It's pretty easy to find out, and frankly, if you have a good profile and a reasonably interesting idea, people will meet with you. Certainly, it should never block anybody from trying to fundraise because they have no idea how fundraising works. You don't need to know this at all.
Anton: And what other advice would you give to founders who just started about raising funds?
Chris: I wouldn't necessarily reach out directly. You can, if you must, but if you find an introduction somehow, use that. Creating a pitch deck is very important; it needs to have a certain format. Investors look at pitch decks every day, and if it's not in a format they're used to, it confuses them. They need to be able to find out within 20 seconds whether something is interesting or not. So they know exactly where the team page, market sizing page, and competitor page are. The opener is always the problem. They know exactly where to find these pages, and you always know they're somewhat towards the back, so you just skip there. Reach out to me if you want to know what the best-in-class deck is. It's not difficult; you just need to know it's on average 12 pages, and it always starts and ends a certain way.
Make sure you follow all these hygiene steps, and then see if you can have anybody in your network that can introduce you, because from my experience, the likelihood of closing an investor if it came through a warm introduction is 3-7 higher than if you sent an email and reached out to them.
Anton: What do you think were the biggest challenges you've faced since starting the company? And if you could, would you do anything different or it would all be the same?
Chris: The challenge has been constantly changing. The biggest challenge in the first six months was not being able to code and having to find trustworthy people to do it for me. Fundraising was also a challenge. Once past that period, the focus shifted to acquiring customers, which can be difficult if you have no experience in marketing or sales. Managing the product and team, as well as hiring, become time-consuming and challenging.
You need to hire people for stuff that you actually don't know about. So you need to kind of figure out how to do that. And if you can find people that can help you. Now it's more about how do we find more marketing channels? What channels work better than others? Measuring all this stuff? Now that we have customers, we can do all these analytics. So you have to put this stuff in place. This is a really different challenge from the first six months, and I think that's also the exciting bit about finding a company. Being a founder is that the challenges change all the time.
What would I do differently? Probably small things, but nothing major. I think in each problem that you face, there are 12 possible solutions, and 10 of them work. So as long as you pick one of the 10 that you find, probably one of those 10 is maybe better than the others, but it kind of doesn't matter as long as you pick the right direction and you just make a decision to go. You can change things anyway, most things. So I think it's kind of like that. Yeah, there could be better options that could have been taken. But all in all, I think it's not a big deal.
Even if building a billion dollar company seems difficult, maybe, it's a series of lots of simple small things. Just keep doing those small things and you'll get there. If one of those is wrong, it's not the end of the world. You just fix it and do the next step.
Anton: What are your future plans for Zelt? So where are you going right now?
Chris: The product has made significant progress in the past year after receiving additional investment. The focus now is on testing different markets and identifying the biggest customer base. The company has unexpectedly gained customers in markets such as the US and Germany, which is one of our competitor's territories. We need to determine which markets to target, whether it be enterprise or mid-market, and understand the depth of our product-market fit in different verticals.
We need to find out if we can serve companies with more than 10,000 employees, which will impact our go-to-market strategy and organizational structure. Sales and marketing are crucial, and the product team is working hard to keep up with demand and product development.
Anton: My next question is more general. Many tech companies are cutting their workforce. Has it affected your business in any way since the smaller the team, the less it becomes necessary to automate processes?
Chris: A recession is generally bad for everyone. The hope is for a return to a normal and positive economy, which is also important for fundraising.
Fortunately, Zelt is not an extra system that requires additional spending. Instead, it typically replaces multiple systems, resulting in cost savings for customers. In most cases, customers save money, and even if they don't, there is no significant difference in cost. This is good for us, especially during an economic downturn when saving money is crucial.
Anton: AI is a really big thing right now. Does Zelt have any plans for AI or what will be the role of AI in HR and people ops?
Chris: AI will be crucial for HR because employees spend a lot of time relearning processes and finding information when they switch companies. They want to know where to get a laptop, how everything works, what they need to provide, etc. All these things need to be answered all over again to every single employee all the time. This is extremely wasteful because the information already exists somewhere in the company.
AI, especially chatbots like LLM and GPT, can solve this problem. It will soon become the standard and not a differentiating factor. A smart chatbot built with the help of GPT Builder can help employees find the right information quickly. However, AI will not be the norm for business process automation in HR and payroll because it's not trustworthy.
Even a 5% error rate in each step of a 10-step business process results in a 40% error rate, making accuracy crucial. Payroll, for example, must have a 100% accuracy rate, which current AI technology falls short of achieving. AI will likely be an overlay or embedded in certain areas for learning and recruiting, where judgment calls are involved. However, for hard facts and data such as overtime pay, minimum wage, and certifications, deterministic and transactional models will remain the norm. AI will likely become the new standard as an overlay or embedded in certain areas such as learning and development soon.
Anton: AI can also help find the problems or make you suggestions, but not ultimately make a decision.
Chris: That's right. It's super useful to flag to somebody that they should take a holiday or that they haven't had a review in two years and were forgotten. This is especially helpful in big companies with thousands of employees where it's impossible to look at each record individually. AI will be powerful for these tasks. However, the actual processes for executing tasks will remain the same for now.
Anton: Agree. The future of HR and people ops looks very promising. Thanks a lot, Chris, for your time and for sharing your story.