Hello to Canada’s SaaS Community,

Why are you raising capital? If your only answer is “growth,” there might be more work to do. It’s also a problem if you can’t articulate why raising capital might be the wrong choice, said Kevin Kliman, co-founder and CEO of SMB HR platform Humi. Speaking with SAAS NORTH, Kevin shared his first principles approach to using capital for growth.

Key takeaways:

• Ask yourself what success truly means to you; that goal end-state will come into decision making.
• Before fundraising, think about leverage you have in your business and the function growth capital would actually serve.
• Don’t believe your own bullsh*t—argue the other side as well to confirm you’ve made the right decision.

So you’ve just fundraised—or have decided that’s your next step.

Now what?

Choosing where and how to invest will ultimately determine success or failure—what Kevin Kliman, co-founder and CEO of SMB HR platform Humi, calls first principles.

Kevin describes first principles as “the basic building blocks of any idea” and the key skill a founder needs to cultivate is “the ability to break [a complex idea] down to the simplest form.”

Speaking with SAAS NORTH, Kevin shared his tips for founders wondering how to invest for growth.

First principles as questions

The first principle requires genuine self-honesty: What does success look like for you?

In particular, you have to be honest about what kind of lifestyle you want.

“Building a $1 billion business is very different from building a $10 million business… the bigger number doesn’t necessarily make it a better fit for everybody,” said Kevin.

In a world where press releases announce large fundraising, Kevin said it can be tempting to think you have to go down the VC path—in fact, he felt that way initially when founding Humi, noting he took inspiration from the US market and felt he had to do the same in Canada.

But in a world of difficult fundraising, companies not reaching their valuations, and many founders looking for an alternative exit, it’s important to be honest about what you personally want, as early as possible.

This leads to the next principle: What leverage do you have and how is additional leverage created in your business?

A common example of leverage is a long runway funded by revenue; suddenly, you can get better valuations and better terms when you don’t strictly need the money.

But it’s not always about money, said Kevin.

“For something that's completely blue ocean, like a brand new AI tool, it might just be about the talent within your team or your first-mover advantage in getting a product to market,” said Kevin. “Leverage looks different in different companies.”

Which leads to the next and final principle: What is the function of capital in your business?

“It became apparent through listening to other peoples’ stories that successful people used capital properly… [and that capital] should be seen more as a tool for businesses to leverage.”

When it comes to what you will leverage capital for, the answer may sound very similar to other startups: talent, marketing expenditure, product innovation, etc.

The key is to know what it means for your organization.

“There's a balance that needs to be struck where it's appropriate capital for the stage you're in, and for getting to the next stage of the company that you want to get to, and the right valuation that's commensurate with that,” said Kevin.

Don’t buy your own bullsh*t

Because first principles have a very personal element to them, it’s easy to get caught up in your own world and, in effect, lie to yourself to justify your actions.

Kevin said getting around this requires another exercise in intellectual honesty: arguing against your own decision.

For example, let’s say you want to raise a large fundraising round.

Can you articulate all the reasons why that might be the wrong decision for the company? Can you enumerate the various tradeoffs required to meet the expectations that a new fundraising round will put on you?

And, perhaps more to the point, can you explain why not raising capital is a comparatively worse path—despite all the good things, including more ownership control and not having a VC breathing down your neck, that can come from bootstrapping?

“It’s to show that the entrepreneur has considered the path without capital and the trade-offs of taking it,” said Kevin. “If you can't articulate the ‘why not,’ then you probably haven't done enough thinking around that capital, the use of that capital, or the need for that capital.”

Kevin recommends not doing this exercise alone—make the case to yourself first, but deliver the same level of honesty with investors, employees, and ultimately customers. 

Canada’s first principles

Kevin’s entire first principles approach is grounded in intellectual honesty with yourself and the market.

And he extends this mindset to whole countries as well. In particular, Kevin is irritated by constant implications that Canada is merely a modified version of Silicon Valley.

“Canadian companies, especially in the last generation, have had a push to emulate other ecosystems in a somewhat unnatural way—I’m sure you’ve heard the term ‘Silicon Valley North,’” said Kevin. “We’re just not going to build another San Francisco here.”

Explaining a bit more, he hinted at the idea that companies in SF can raise huge rounds and access deep pools of talent to build massive companies. But Canada, with its different geopolitical and economic sphere, needs to find its own path rather than trying to carbon copy SF and Silicon Valley.

And looking around at companies like PointClickCare or Workleap (formerly Gsoft), Kevin thinks we already have it: Revenue, high ownership percentages among founders, and a quiet, rather than brash, global ambition.

“I think it's really important to highlight [Canadian] companies that have really big, strong, long lasting companies,” said Kevin.