Kevin Kliman is the CEO and co-founder of Humi HR, an HR benefits management company. Kevin is a 2nd-time founder with focus and vision and has lived the Silicon Valley dream with his startups since 2012, by keeping his ear to the ground in San Francisco and basing his teams in Toronto.  Humi HR works in the same category as Gusto ($1 Billion valuation) and Zenefits ($2 Billion valuation).

Funding how much time did it take? How many people did you visit?

We’re probably somewhat of an anomaly for the Toronto startup ecosystem. We raised $2.5 million dollars at the end of 2 ½ weeks and it’s mostly because we went through Y Combinator. Prior to Y Combinator, we spent approximately 3 months talking to people in Toronto and we had gotten about a million dollars in commitments. We eventually told those people we couldn’t take their money just because when we got to Y Combinator they told us to go back to our old investors and hold off until we finish the program and had a better understanding of our valuation and trajectory. At the end of that program, Y Combinator does a really good job of creating a market for the companies that go through it. And a lot of pressure on the investors to act and act quickly to create valuations that are significantly higher than they are in Toronto.

How hard was it to get into Y Combinator?

So we’re also a special case where Y Combinator is concerned. I applied for Y Combinator Office Hours when they came to Toronto. They do it as a way to spread the word and meet new interesting startups. I met them on a Saturday after a soccer game. I did the 15-minute pitch. I got home later that night and they asked me to come to San Francisco in 2 days time to interview to join the Y Combinator cohort that had already started. We had a team of 13 and we were required to be there every other week for a team board meeting and a dinner. We went down every other week for 36 hours at a time. Just the founders went because of our unusual position of getting in the program late, we could keep the main team here in Toronto.

Can you describe the program a bit?

You have to meet every 2 weeks and you will be pushed on the progress you’ve made, culminating in a demo day. This is their idea of a board meeting. On those days they have impressive speakers at a hosted team dinner for great insights and ideas as well. They also offer office hours for you to reach out to these founders and mentors. But the main theme of the setup is heads-down focus and to use their resources as they are needed. These are the terms, take it or leave it. One of the founders of Zenefits went through the Y Combinator program again with his new startup Rippling. The terms were not what the founder wanted, but he accepted anyway because he knew the benefits and results of the program.

Because Humi HR was modeled after two very successful companies that went through Y Combinator they already had metrics and starting points for that type of a business model. A lot of the questions were related to those two companies, to the market and they wanted to know about Canada and how we would do a Canada-only play. Their big questions where: Is it a big enough market to build a $1 Billion company. How are our growth rates different from Zenefits, how are they the same? How are we going to go to the marketplace with an offering? The founders of Zenefits and Gusto, employees and investors gave us a lot of knowledge and they were part of our mentor team at Y Combinator.

How valuable do you think pitching is for a company?

For people who get inundated with pitches, it’s important that they get the sense that you not only understand the business you are operating, but you understand what the potential outcomes are, what are you driving towards and how you get there. I don’t think you need to know exactly how you get there but you need to have intelligently formed a good narrative. So if you’re creating a Saas company you should know what the expectations are for your type of company at your stage and what the next steps are to get to the next stage. If you can’t do this on a stage or at a whiteboard in about 15 minutes, you are not ready to for money.

We’ve heard of some pitch competitions where they give you some non-dilutive capital. What advice would you give to startups thinking of getting into these pitch competitions?

I’d look for the opportunity costs. How much preparation should I have to do for it? What are the odds that I will get X number of dollars and X benefit out of it? Will I have a better or worse future if I enter? If someone is offering to take 15-20% of your company and offering to reach investors in the golden horseshoe you should think again. You could reach these investors on LinkedIn yourself without giving up a part of your company. Is this your second company and you know the first 5 things to do? If you need this type of capital to get going then it might make sense. There are no clear answers here, I would suggest you need to look at where it gets you after it happens.

What do you think you did wrong in this process?

We had a lot of false assumptions on the market and the product, how we were going to sell it, how to onboard and hire and how to structure compensation. I think failing a 1000 times is fine as long as you make progress in understanding the process. Investors like the learning abilities you bring to the table. This sense of exploration and passion by you actually lowers the risk for them. When people invest at this stage they expect you to be 99% wrong. I have heard people say that when they get their seed stage it’s 90% story and 10% actual execution.

Advice for estimating your market?

If you are selling 300 units per year to scientists, you want to figure out how much are you selling them for? Is there enough to get to the venture scale? Are scientists sales-cycles very long with small budgets?

Or going the other way, you have 7 billion people in your market and I want to give it away for free. I’d want to know how you can get 100 people to love the product. Then you can scale that. Is the customer is engaged? What is their true value?

In either case, there may be no market if you can’t do the math and make a profit and have a growth plan.

When would you go for debt and when would you go for equity?

We will use debt in every round of financing, because very simply, paying 6% on borrowed money is less expensive than selling equity. I feel that my equity will grow 100x in the next 10 years. BDC expansion loans (almost free money) are what we would be after. ECanadianadian should go to BDC first, then SVB, most of the Canadian banks are starting to come out with the SVB type of offerings and the competition will help.