The following interview is a conversation we had with Chris McCall, CEO & Co-Founder of Valid8, on our podcast Category Visionaries. You can view the full episode here: Chris McCall, CEO & Co-Founder of Valid8: $14.8 Million Raised to Build the Future of Financial Intelligence
Chris McCall
I’m doing great, thanks, Brett.
Brett
Yeah. Super excited to have you here. Let’s go ahead and just kick off with a quick summary of who you are and a bit more about your background.
Chris McCall
Yeah, great. Thanks, Brett. Chris McCall started my career out as electrical engineer, worked at Boeing. I got into it. I did some early day startups, kind of went through a few cycles, gained the confidence, feel like I kind of knew what I was doing, and then started validate about seven years ago.
Brett
Take us back to that. Aha. Seven years ago. What was it about validate that made you say, yep, that’s it. Let’s go build?
Chris McCall
Yeah, good question. So I’ve got a co founder that I met many years ago. We’re good friends, stayed in touch. But he was a CPA, had his own firm, and was working on a case which turned out to be Seattle’s largest ever Ponzi scheme, in fact, the largest ever Ponzi scheme in the Pacific Northwest. It’s now an episode on American Greed. It’s called Seattle Roasted, if anyone’s interested. But in that case, he was tapped to come in and take a look at the financial situation. Seemed to be having liquidity problems, and it turned out the guy had falsified a bunch of records. He had raised over $300 million and spent about half of it on boats and houses and yachts, rather than investing it on behalf of the investors.
Chris McCall
But in those cases, what you need to do is really understand exactly what happened to the money. But it all has to be based on evidence, because there’s expert witness testimony, there’s litigation involved. So the bar for data quality is really high. When you get into it’s all about looking at banking records and images, documents. He spent over 18 months trying to figure out what exactly had happened to the money. Meanwhile, he’s getting paid over dollar 500 an hour. He got through the case, but the trustees and the creditors committee of the case paid literally millions of dollars for that data. And at the time, he’s like, there’s got to be software that can do this. There’s all these OCR technologies out there that could help.
Chris McCall
But again, because you had to take it to court, the data had to be pristine, and all of the QA that the professionals had to do on top of it was just all consuming. So he came to me and asked, he said, hey, Chris, I’ve got this idea. I just went through this case, super painful. Paid a lot of money for this data. I think there should be a platform. What do you think? And initially, you know, I spent my background kind of doing tech startups, but in the enterprise software world, kind of more data center type stuff. I said, you know, I didn’t like it at all. I called it the $2 million spreadsheet. Because you start thinking about go to market, how many Ponzi schemes are there? How many cases like this? How do you sell it? How do you replicate?
Chris McCall
And I just had a really tough time with it, but I stayed in touch with him over, went on ski trips every year. And intellectually, it was really fun to talk about and debate. And we started asking ourselves, well, what is it that we’re really doing here? And what we realized is we’re doing the same thing that you do in any sort of financial statement audit or any sort of engagement where you have a professional involved in a complex financial matter. So whether it’s a lawyer, an accountant, or even a government investigator for that matter, when you have those professional involves, everyone has to base their opinion on evidence. And we started talking through that, and today it’s all manual to figure out how to get the evidence and how to get the confidence that you’re actually looking at real data.
Chris McCall
And you think about standard practices for like a financial statement audit. Everything starts with a sample, like, let’s say three to 5%, and it’s all based on the risk of the client. Well, if they’re only looking at three to 5%, they’re missing a whole lot. So the AHA moment came when we realized the entire accounting profession is based on this sample risk. If we can just go make a platform to collect and aggregate all the evidence, we can drive sample risk out of the accounting profession. And then all of a sudden, that became, that was the AHA moment where, okay, this is a huge opportunity here. It has the opportunity to really change and transform a very large profession that’s out there. And then that’s when we kind of decided to quit our jobs and get started.
Brett
From that moment until you acquired the first paying customer, how much time passed?
Chris McCall
Oh, it was probably about two and a half years. The stack that we had to build was pretty extensive, and then selling to accountants and lawyers is pretty difficult. The difficulty being there’s not a lot of early adopters and you have to have all the features have to be baked. The minimum viable product looks a lot like a full on production product. So fit and finish is really important and you have to do a lot of the details. Like if you’re in just core tech, a lot of times you can skate by without doing some of that. But for this audience, you have to do everything. So it took a while to build the stack and it required an extensive build out of features before they were willing to commit and actually make that first purchase.
Brett
Did you know that going into this that it was going to take two plus years until it was ready? Or were you one year in thinking, how is this taking so long?
Chris McCall
We knew it was going to take longer than a standard stack because the complexity was there and the bar for quality was really high, but we didn’t think it would take that long. But once you got going, word of mouth is it happens really fast. And you know, things started taking off really quickly after that too. So there wasn’t a lot of time delay between that first purchase and really scaling up to the first million dollars, which is typically the first milestone.
Brett
And I see theres three buckets there. Youre serving accounting, government and legal. Which of those take up the majority of the business or make up the majority of the revenue today?
Chris McCall
Yeah, we started in accounting and thats where the majority of the business is the kind of next segment. We got organically pulled into some government situations, mostly state governments were starting to get pulled into federal. Now thats our second largest bucket and law is the most nascent and insurance fraud has pulled us in that direction. So the way that we’ve handled it, you know, we didn’t target any specific segments out of the gate. What we really tried to do is just find professionals that deal in these complex financial matters. So we didn’t care like what firm you worked for, how big it was, how small it was. You know, we didn’t target like that. We didn’t pick a specific vertical. We just said, what kind of cases do you work on?
Chris McCall
And all of this has been built out organically, but we started in accounting, then government, and we’re just starting to see some traction in law.
Brett
What have you learned from selling to the government?
Chris McCall
You got to be patient, and you got to make very large investments in compliance. Beyond that, the TLA’s three letter acronyms are crazy. We’ve had to partner with some experts in the space to help us navigate, because it’s a very different paradigm. But the compliance investment, being a cloud provider, is really intense, and it’s all driven by their budgeting cycle. So you’re talking long lead sales cycles.
Brett
What about on the family law side or the legal side? What have you learned moving into that vertical?
Chris McCall
Yeah, good question. It’s very diverse. In family law, we have a lot of small cases, but we’ve also got some of our largest cases from law firms that are doing insurance fraud investigations on behalf of their clients. So it’s just so diverse. And the entry point is just about, you know, it’s always different in the various firms. In fact, that’s one of the reasons that hasn’t taken off as fast as accounting or as quickly as accounting and government. Government and accounting. It’s kind of the same motion to get into a firm in law. We’ve had several on ramps, and we haven’t really found that rinse and repeat motion yet, so we’re still learning there.
Brett
And what about marketing philosophy? Let’s zoom out and let’s talk about the general marketing approach. How would you summarize the marketing approach?
Chris McCall
Yeah, you know, we kind of talk when we first started doing this. Well, first, let’s back up. We’ve only recently made a dedicated investment headcount investment in marketing. Just recently, we spent many years just trying to figure it out on our own and really just do the network sell and be founders out there in front of those early customers. But what we learned is we’re selling to very sophisticated professionals that are very smart, and it requires deep subject matter expertise going into this. So a few years ago, we started thinking about, like, what sort of Persona do we want to push out to the market? If you look at the archetypes, we chose, like, a sage Persona, you know, wise, someone that provides value every time you engage with just a slight twist. It’s not that we’re the sage.
Chris McCall
It’s that we talk to customers and listen to them, and that allows us to provide intel that a lot of people don’t get because we’re talking to so many different professionals across the United States. So what we try to do, it’s less of, you know, call it scorch the earth type approach. It’s much more targeted. So it’s all about qualification and understanding. Who are we talking to? Is that the right person? And what do they need to hear from us and what’s going to bring value to them? So it’s a very curated, very specific, micro targeting type approach, which doesn’t scale very well unless you can target very accurately, which in the professional market, because they all market themselves, it allows you to do that. But it’s definitely not like a scorch the earth and just get the message out at any cost.
Chris McCall
Type and approach.
Brett
This show is brought to you by Front Lines Media podcast production studio that helps B2B founders launch, manage and grow their own podcast. Now, if you’re a founder, you may be thinking, I don’t have time to host a podcast. I’ve got a company to build. Well, that’s exactly what we built our service to do. You show up and host, and we handle literally everything else. To set up a call to discuss launching your own podcast, visit Frontlines.io – podcast. Now back today’s episode. And what led to that decision to start investing in marketing? After so long of not investing in.
Chris McCall
Marketing, we saw scale in government and accounting, and we started hiring sales. We saw repeatability. We saw the sales ramp their productivity, and then we realized, hey, we need to start making investment here to get, we have a chance to get a flywheel goal. And so when we saw that repeatability and predictable ramp in productivity on the sales team, that’s when we decided to invest in marketing.
Brett
Let’s talk a little bit about market category. So on the website, I see you talk about traditional OCR software. So I want to ask about that first. What is OCR?
Chris McCall
OCR just stands for optical character recognition, old timey software that looks at a PDF or an image and extracts text characters off of the image.
Brett
That’s quite the mouthful. That sounds like a Gartner created category.
Chris McCall
Yeah, well, it’s old school stuff. Also, it transforms unstructured data into structured data. That’s another way to look at it.
Brett
Got it. Okay, makes sense. And then I introduced you as a verified financial intelligence platform. Is that a category term that you’ve coined and you’re creating, or is that an existing terminal?
Chris McCall
Yeah, that is a category we believe is going to evolve. We talk about it. We believe it’s. It’s emerging. There’s a few players that are starting to get into it, but the distinction of why we believe it’s a new category is this realization that as a professional, you have to base your opinions on evidence. So in any case that you’ve got a CPA or a lawyer or an investigator, you’re always looking at evidence. Evidence has an extremely high bar from a data quality perspective. So when we say verified financial intelligence, it’s all of the QA to know that the data that you’re looking at is supportable in a court of law and will hold up to withstand cross examination. So that category of data platform does not exist today.
Chris McCall
It requires the professionals to create those data sets for all of the cases, and oftentimes can take up to 80% of the case time to create those data sets. So the whole idea behind this category is if you think about evidence broadly in the financial sector, it’s all about how do you put together a database that you know you can go testify to? And whether it’s an audit, whether it’s m and a diligence package like a quality of earnings or a forensic accounting investigation or a fraud investigation in government, all of those have to meet that standard. And that’s what VFI is about.
Brett
What about positioning? How are you approaching your positioning?
Chris McCall
Positioning is really about evangelization in the category, because we’re talking about a new way of doing things. So the positioning is really around how to leverage technology like AI in your firm. VFI extracts data using AI type tools. So how can you transform your firm as a professional to leverage some of this new technology? We think VFi is the category to do this. So it’s really about kind of thought leadership and evangelizing a new way to run these professional firms, whether it’s an accounting firm, law firm, or government agency.
Brett
What are some of the mistakes that you’ve made from a go to market perspective? And maybe a better way to ask that is, what are some of those big lessons that you’ve learned, Trey?
Chris McCall
Yeah, the biggest one was when we first started hiring our sales team. You get into that spot where, you know, youve got product market fit, you want to scale for the first time. But if youre honest with yourself, youve got a couple dozen customers, maybe it’s a hundred customers or something, and you really want to try to scale the go to market engine. So we put in place a scorch the earth type of approach where we hired an inside team. All they did was cold prospect and dial for dollars and go schedule demos. And then we had an outside team of just a few people that would just take demos and try to close deals. And what we found was, this is a highly segmented market.
Chris McCall
That general type messaging and approaches didnt work very well and we started to get the reputation that wed go to trade shows where youd see these professionals and they would come up say, oh yeah, you guys are the guys that send out all those emails. We realized that started having a negative impact on our brand image and we had to kind of stop midstream and just kind of retool everything. So that retool was pretty aggressive and it all came back to, you know, its like, hey, we don’t really know the segments yet so let’s just blast out to everybody. And that was probably a mistake.
Chris McCall
We probably should have took a little more time to really figure out if we’re going to talk to multiple segments, let’s talk to them and add value to them because we’re talking to very sophisticated customers that are subject matter experts. They’re not just kind of generic consumers. But that probably took about a year to kind of work through that transformation.
Brett
As I mentioned there in the intro, you’ve raised over 14 million to date. What have you learned about fundraising throughout this journey?
Chris McCall
Yeah, its important to talk to the right investors at the right time. Early days I spent a lot of time trying to get that high profile seed investor, the classic VC, right out of the gates. If I thought about it or could do it again, I probably could have just went and closed a convertible note round with some angels with about 10th of the work. So you could do that until you can really start getting traction. Then once you get traction then it’s a matter of, again, talking to the right vc that doesn’t require like a series a or anything else. If you can achieve product market fit. There are very specific investors out there that’s what they’re looking for and you just got to figure out who they are and just talk to those people.
Chris McCall
So it’s all about just finding the right investors to talk to given the stage that you’re in. So it’s just critical to really understand that and pay attention to what types of deals does this investor like and only talk to those people. Or you can burn lots and lots of time. But yeah, it’s just understanding what the investors want, talking to the right investors at the right stage for where the company’s at and recognizing that.
Brett
Can you give us an idea of the growth that you’re seeing right now?
Chris McCall
Well, we invest in the business to achieve between 60 and 120% year on year growth. So that’s how we manage our burn and we’ve gotten close and have been break even and profitable on certain quarters, then we’ll just take a look. You know, are we investing enough to make sure that we’re in that 60% to 120% year on year, and we’ve been able to hit that for the last, I don’t know, four or five years.
Brett
What do you attribute to that growth?
Chris McCall
Just attention to execution. You know, it’s just getting involved in the details and understanding exactly what’s happening on any given week. You know, where’s the number? Do we need to do more prospecting? Do we need to be focusing the attention on closing more deals and increasing Aspen? It’s just all the tactical stuff that you need to do as a business operator. It’s still very early stage, but just treat it like a real business, like a 10 million run rate business. And that’s how you eke out that organic growth that you need to hit the 60% to 120%.
Brett
Final question for you. Let’s zoom out three to five years into the future. What’s the big picture vision here?
Chris McCall
Yeah, so big picture vision is ultimately all these professionals provide transparency into the financial system. So we believe that if we can drive out sample risk and give these professionals way more transparency by providing all the evidence in these large, complex financial matters, ultimately that drives down the cost of capital and makes the whole financial system more efficient. So it’s all about driving out opacity because there’s too much data and it’s complex data. Let’s just put a spotlight on everything. Ultimately, that drives down the cost of capital and makes the financial system more efficient.
Brett
Amazing. I love it. All right, Chris, we are up on time, so we’re going to have to wrap here. Unfortunately, before we do, if there’s any founders that are listening in, they feel inspired. They want to follow along with your journey. Where should they go?
Chris McCall
Yeah, just follow us on LinkedIn. All of our customers are there. That’s where most of our posts go out. And we’re watching that every day. So I’d love to hear from anybody out there.
Brett
Amazing. Chris, thanks so much for taking the time.
Chris McCall
Thank you, Brett.
Brett
This episode of Category Visionaries is brought to you by Front Lines Media, Silicon Valley’s leading podcast production studio. If you’re a B2B founder looking for help launching and growing your own podcast, visit Frontlines.io podcast. And for the latest episode, search for category visionaries on your podcast platform of choice. Thanks for listening, and we’ll catch you on the next episode.
Twitter
facebook
linkedin