On today’s show, we sit down with Elnaz Sarraf, who is a serial entrepreneur with over 15 years of experience in technology, business, sales, and marketing. She is currently the CEO and Founder of ROYBI; an investor backed EdTech company focusing on early childhood education, that recently raised $4.2 million in its seed round. Before starting ROYBI, Elnaz co-founded and led a consumer electronics/IoT company, iBaby, serving as the company’s President.
As an immigrant and female founder, Elnaz has made worthy accomplishments in a short duration living in the US. Honors include being selected as Nasdaq Entrepreneurial Center Milestone Maker 2018, named the Woman of Influence through Silicon Valley Business Journal in 2016 and Entrepreneur of The Year in 2016 in Silicon Valley. She has been a speaker at several conferences such as the Mobile World Congress, ASU GSV Summit, Consumer Technology Association, and more.
In this episode, you’ll learn:
- How many pitch events or investor meeting might it take to raise capital?
- What is it like to raise $4.2 million on just an idea?
- Growing a hardware company, what are the struggles one might have to face?
- What are some of the limits to Artificial Intelligence and how the collection of data help improves user experiences?
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Disclaimer to the Transcripts:
Intro 00:00
You’re listening to The Silicon Valley Podcast.
Shawn Flynn 00:02
On today’s episode, we sit down with Elnaz Sarraf, who is a serial entrepreneur with over 15 years of experience in technology, business, sales, and marketing. She is currently the CEO and Founder of ROYBI, an investor-backed EdTech company focused on early childhood education that recently raised $4.2 million in its seed round.
Before starting ROYBI, Elnaz co-founded and led a consumer electronics IoT company iBaby, serving as the company’s president. As an immigrant and female founder, Elnaz has made worthy accomplishments in a short duration living in the US.
On today’s episode, you’ll learn: how many pitch events or investor meetings does it take to raise capital? What is it like to raise $4.2 million on just an idea? Growing a hardware company, what struggles you might have to face? What are some of the limits to artificial intelligence? And how the collection of data can help improve user experiences? This and much more on today’s episode of Silicon Valley.
Intro 01:02
Welcome to the Silicon Valley Podcast with your host Shawn Flynn who interviews famous Entrepreneurs, Venture Capitalists and Leaders in Tech. Learn their secrets and see tomorrow’s world today.
Shawn Flynn 01:26
Thank you for taking the time day to be on Silicon Valley.
Elnaz Sarraf 01:29
Shawn, thank you for having me. It’s an honor. I’m really excited to talk with you today.
Shawn Flynn 01:34
Now, ROYBI isn’t your first startup. In fact, you had a very successful one before, can you tell us a little bit about your past and what’s led you to the current foundation of your new company?
Elnaz Sarraf 01:45
Well, it was an interesting journey about six years ago. I was one of the co-founders of iBaby. We have a baby monitor. I totally remember when we launched the product everybody was freaking out. We were the only baby monitoring company that didn’t have the traditional display that is being used by parents to watch their children when they are around the home.
We’re the only company coming out with an app that you could basically watch over your loved ones or your baby anywhere around the world. So, it was a very interesting journey. We launched the product, got into all Apple stores. So it was so exciting. Everybody thought it is an Apple product. It took us five years. We launched into major retailers like Target, Walmart, and again, Apple, Best Buy, and many more around the world.
I spent over five years with parents learning more about what they want. And education was always something that would come up and after a lot of research and because education is also really personal to me and I wanted to have a much bigger impact. We did a lot of research. And finally, I decided that I want to start ROYBI to have an amazing impact on children’s lives. And how it actually started, it was an interesting start, because from the beginning was a little bit different than what it is today.
Shawn Flynn 03:16
Now, can you tell me what was it like to grow a hardware company?
Elnaz Sarraf 03:21
It is really, really challenging because when you work on hardware, every component is super important. Like, for example, on ROYBI, we have over 200 components and something really small, you make a mistake on just one component, it is going to change everything. Especially that when you go towards molding, manufacturing, you really don’t have the ability to make changes as easy as you do on the software. And that makes it a little bit scary but also exciting because when you see the product in your hand, it’s just a very, very special feeling.
Shawn Flynn 03:59
Now, do you have an engineer background yourself with machines, or what was your background?
Elnaz Sarraf 04:05
I have a very interesting background, I always say because before moving to the US, I moved to the US 13 years ago. Before that, I studied art. And then transitioned to software engineering. I went to one of the top third universities back in Iran. And I was always so interested to make the art on to life. And that’s how I got into software engineering. I didn’t finish because we moved to the US. And then here in the US, I decided to learn about multimedia, development. And the interesting and funny part is what I do today has really nothing to do with what I studied but it really helps me honestly.
Shawn Flynn 04:54
This whole process, did you always know you wanted to start a company?
Elnaz Sarraf 04:58
Yes, it’s interesting because I grew up with my dad, and my dad is a businessman. He used to take me to these travels, you know, on business travels, and I was just a teenager. And he would always tell me to watch, to learn. And he always wanted me to be strong. And because I grew up in a family that always ran businesses that way, and my mom is also a very, very strong person. My role model. She ran all my dad’s businesses and that’s, I think how, you know, got me into starting my own business. I started a few before even iBaby, most of them failed. Then I learned a lot of lessons and then iBaby has been an amazing journey. And when I started it with my co-founder and then with ROYBI.
Shawn Flynn 05:47
Tell me about some of these failures and some of the things you learned from them.
Elnaz Sarraf 05:51
So many failures. You spend a lot of money on inventory that we were so excited. We thought we’re going to sell a lot of units and things changed, inventory was sitting there. It was, like scary moments, a lot of also spending on marketing, advertisements. And unfortunately, until you really get placements and spend this money, you really don’t know exactly what’s going to work. Again, it’s a learning lesson. But I would say and even like people management, I personally gained a lot of experience. The mistakes I made before I definitely wouldn’t do again.
Shawn Flynn 06:34
When you’re saying people management, what are some suggestions you might have for building the team from day one?
Elnaz Sarraf 06:42
Every company is different but what I’ve learned is when you want to make a decision to hire somebody, first and foremost, you need to make sure that they have a lot of passion for the company and what you’re doing. And then also making sure that you treat people and everybody like a family member because we are in the same boat together. We have one goal, one team. You always need to make sure that people feel that way. So that’s how we do it.
And other challenges… A lot of times, you know, companies have remote staff members like us. A lot of our team members are in China. The communication, especially the gap is sometimes challenging. But at the end of the day, you need to trust people because, you know, at least for me, I’m super selective. I take a long time to start working with somebody, to trust them, to let them make the decisions in their area of expertise.
Ultimately, if something doesn’t work out or goes wrong, still you can work with your team to build it. We always say we have a special thing on our walls for the company as a culture is we have the same goal. We need to help each other. Nobody can gossip behind anybody’s back or complain. We don’t take days you know, and all it matters is to help each other move forward and fix the problems.
Shawn Flynn 08:12
If a lot of your team is overseas in China, not only are you dealing with the time difference, there is that cultural difference as well. How does that play a part in that team goal of everyone has the same outcome that they want?
Elnaz Sarraf 08:25
We really try to communicate very clearly about the company’s mission, the vision, and what the customers want, what the culture is between the US and even globally. As I mentioned, we are very selective. So far, the team members that we have in China, we actually did work together previously, to my previous company. I’ve been lucky because we already know each other, we know our working styles in order to grow the company that core team members regardless where they are, you need to make sure that those people understand your vision. Those people can transfer that to the others that come on board later on.
Shawn Flynn 09:11
At what stage should accompany start thinking about going out to raise funds. We’ve just heard some amazing news about your company’s success, which I’d love to talk about. But before we actually get to numbers, when did you start the fundraising journey?
Elnaz Sarraf 09:26
Six months after we started the company, I started going around, not necessarily being like super serious about fundraising. I wanted to get feedback. It was a crazy, crazy time. I think our pitch deck actually has changed, like 20 times. I got a lot of feedback, but I would say to everyone, as soon as you have your idea, and you know what you really want to do, you have a team behind it, some understanding of your business model, the product, do start the fundraising process. It’s okay. You don’t have to know everything in the beginning. And there’s going to be of course, a lot of changes in the process.
Shawn Flynn 10:13
The feedback you’re getting was that just from investors, from angels, VCs or from the general public?
Elnaz Sarraf 10:20
We were getting a lot of feedback from all kinds of people, from mentors to advisors. We wanted to onboard few customers, better users I would say, but a lot on the investor side. I had people saying why do we even need this product. Some people were super excited, very supportive, was just that we were not at a stage they would invest in the company.
But all the feedback wasn’t easy because when you are in the process of building a company, you really want to hear positive feedback. The other ones helped us to change our business model or even the product and narrow down what we want to do.
As an example, when we started ROYBI was any other probable product that would have a bunch of educational content to just entertain kids. Soon we realized that’s really not going to work. With the feedback, we gradually narrowed down to language learning. And we understood the market is huge. The opportunity is there. If it wasn’t because of the feedback, we would have failed by now because it was a really broad concept. But now we are in a much different place and better shape.
Shawn Flynn 11:37
Were you getting feedback for the design of the robot itself, or was it just more the software, the business model?
Elnaz Sarraf 11:44
We’re getting the feedback more on the business model, on how we want to scale, not necessarily on the design. Everybody said it’s very cute, but we went through so many changes more about you know, sales strategy on the features of the product, what to start, what to put next. So, all those feedback were really helpful.
Shawn Flynn 12:10
How are you even getting these meetings with these investors, considering you at the time doesn’t sound like you’re really a company yet?
Elnaz Sarraf 12:18
Persistence? I think I, personally, I sent so many emails, I even lost count. I was continuously telling people can I have a meeting with you? And even they said no, it’s like, okay, just feedback? Then we got to know amazing people like yourself who were willing to make introductions and access to different people. First, I am truly, truly grateful because it helped us in so many ways. And then we have mentors gradually, then advisors joined the team. That’s how we got to know those people.
Shawn Flynn 12:54
Thank you for that plug that won’t be edited out in the final version. I can assure you, the mentors and advisors, how did you pick them? What did you offer them to convince them to use their time for helping out ROYBI?
Elnaz Sarraf 13:06
You know, in the beginning, it is really hard because a lot of people that join you as an advisor, really high level, they’re super busy. So, you can imagine they have so many things going on, bringing them on board, just purely selling the vision. They’re going to be different ways of collaboration with advisors. Majority of advisors, if they really believe in your company, can join you on equity base.
Down the road, when you are in different stages, you know, series A, there are going to be people and advisors, they would ask some, you know, consultation fee, plus equity on the side. As you grow, you want to keep most of the stuff. Just, you know, to make sure for the next round. I’d say in the beginning, the only way is to truly make sure that those people see the vision and join the company.
Shawn Flynn 14:05
What type of requests were they asking for in terms of equity? Was it .01 percent of company? Or was it more like 5% of the company?
Elnaz Sarraf 14:14
We had huge range, I would say, .5 to 1,2,3 percent. We always try to discuss in the beginning, probably you need to put aside a little bit more. I suggest to entrepreneurs to go to Founders Institute website, they have a template, standard template that you can use it. It really depends on the advisors and the negotiations or discussions that the companies have with these people. But the average I would say starts from like, .25 to 1 percent.
Shawn Flynn 14:51
And how many meetings do you say you went to before you got that first investor who said, “You know, I’m interested in writing a check”? He may have not written a check, but that first validation of yeah, I think you got something.
Elnaz Sarraf 15:04
Oh my god. That’s an interesting question because I really don’t know how many but definitely over 100 meetings, I’m not kidding, over at least 500 emails and so many rejections. And even with our first semester when she was evaluating the company, one thing that I was so excited is because she’s a female, very successful female in Silicon Valley. I was really excited to make sure that she is promising and believes in ROYBI. But even at the last minute, I wasn’t even sure it’s going to happen. So it was quite challenging.
Shawn Flynn 15:47
For that first investor, what type of valuation do you give your company? Are you saying, you know, you’re the investor, just tell me what you want, or do you have an idea going into that meeting?
Elnaz Sarraf 15:58
It varies depending on the company. Of course, we had a number in mind, generally, that’s not what is going to happen. The reality is always really different. But I think it’s just the conversation between the investors, founders, find the right number. One thing I want to say is don’t get stuck with the valuation because in the beginning is really hard to put a value on a company. Of course, if you can get a DR no cap, it’s amazing.
Shawn Flynn 16:32
What do you mean by no cap?
Elnaz Sarraf 16:34
It means no valuation. So if you can raise on a safe agreement without evaluation, that would be your best bet. But it’s really hard to do it. But I’d say don’t get stuck on it, move forward. Because at the end of the day, the valuation you can get in the future, it’s more important to get your product out and its quality over quantity.
Shawn Flynn 17:01
Do you say that first pre-seed round may not be the best terms, but you got to do it anyway to get to that A round where you’d have more leverage? Is that kind of it?
Elnaz Sarraf 17:11
Yes, of course, if you have that ability to finance the company on to series A and get some revenue, that’s the best-case scenario. But it’s not the case with most startups, because it’s very costly these days. You need to really think about your options between the offers that you have. Make the right decision with the best option. It’s not going to be the best and I’m sure next rounds, a lot of people are going to tell you, “Why did you make this decision?” But be confident that the decision you make at that moment probably is the best for the company.
Shawn Flynn 17:47
So 500 emails, 100 meetings face-to-face, how many months did you go without any money?
Elnaz Sarraf 17:54
The best thing I can say is whatever you think, add another six months. And personally, I’d say two times my own bank account almost went to zero. I’ve been really lucky to have amazing friends and supporters that they said, “Oh, okay, here is a little bit of money, move forward. You’re on something really amazing. Build it. And everything is going to be okay.”
And it’s exactly that’s what happened. One or two weeks after, we got investment, things moved forward. It was very hard, but I say for one year, have savings and consider whatever you think the expenses are going to be more. It is going to take more time than you think.
Shawn Flynn 18:41
And then when you finally got that investment, one, how did it feel? Two, what was the team’s feedback when they heard about it? And well, I kind of want you to say the number that it was.
Elnaz Sarraf 18:52
On July, we announced and closed $4.2 million in our seed round then at that point, it was super, super exciting because we didn’t even have the product. So purely the investors invested in the company and the vision, the skills of the team.
I remember you know; I still can feel the same and every time I talk about it, I get so excited because it’s a significant amount of capital at the stage that we were. Everybody was so excited. I was stressed out, overwhelmed, super excited. I was also scared because with that much capital and the trust that investors are putting in you, also comes a lot of responsibilities. And but I’d say it was the best thing that happened and every time I think about it, I really feel excited. The time that I sent a message to our team, I called my co-founder. He was like almost jumping off and it was really, really amazing.
Shawn Flynn 19:57
That sounds more like an A round than a pre-seed round where companies already have traction, already have customers. Who came up with that number? Did you propose it to the investors? Or did they propose it going this is how much we think you need? What was the conversations like?
Elnaz Sarraf 20:13
It’s interesting because originally, we were just thinking about raising $1 million for our seed round. And then we were thinking to go to like, let’s say $5 million, you know, our series A, which made sense at that point, because we are a hardware company. So, we need a lot more capital than just a software company. It’s just that we were getting a lot of traction at that point, we were featured on CNN, partnered with Alibaba, you know. We were getting so many things, a lot of it was traction.
So, the investors got so excited and said, “Hey, you need this capital anyways, and we have all the means to provide this capital to get this stage. Instead of wasting your time you know, going for another round. Why not have this deal together?” And the terms worked out, both sides were happy. And that’s how it’s happened.
Shawn Flynn 21:07
Tell me about some of these awards you won. And also, how long is this money expected to last?
Elnaz Sarraf 21:13
First awards, we won so many of them I can barely remember by last week. For example, CNBC named ROYBI as one of the Most Promising Startups in the World to Watch in 2019, which is amazing because there are only a hundred startups on that list around the world. And ROYBI is one of them. And again, the product is not even on the market. So, you can imagine how exciting it is. We were named FastCompany’s World Changing Idea in 2019. We won Farsights awarding Tech for Good, we were one of the winners nationwide, and many more, but also it was very exciting. And what is the second question?
Shawn Flynn 21:58
How long is this money going to last you? And actually, I’ll just follow up with another question there. What are you going to do in that timeframe? What are the milestones that are expected to be made?
Elnaz Sarraf 22:08
So the money we would expect to last is only one year and the next milestones would be to make sure we have a good product in people’s hands because everybody’s so excited. It would be to focus on sales, marketing, making the product better, launch in the US and Canada. And then we are launching also in UAE. So we want to expand to the Middle East for sure, expand the countries, that would be the plan so far.
Shawn Flynn 22:36
Talk about that expansion plan because most companies I talked to, they want to go North America then Europe, not UAE.
Elnaz Sarraf 22:45
So for us, considering we are a language learning company, as you can imagine, there’s a lot of demand in English languages in certain regions and countries and the Middle East is definitely one of it. And in the Middle East, they also really like products that come out of Silicon Valley. So, they got so excited they’re launching into stores, they’re called Sharaf DG, they’re like Best Buy in U.S., and they’re very big and they want to launch ROYBI into stores and for their children to learn the English language.
Shawn Flynn 23:21
ROYBI itself has many components. It’s a language-learning robot more or less. Tell us about the machine learning inside, the software that’s going into it.
Elnaz Sarraf 23:31
It’s really complicated to explain it but the idea is we want to change education for children because it doesn’t make sense anymore for everybody to be sitting in the classroom learning the same thing when children have different sets of skills or interests. And that’s how the machine learning kicks in. It takes about three to six months to learn about the child.
To start, I have just seen the content based on the child’s progress and interest. To give you an example is, let’s say the child likes cat as an animal. But they don’t like math. So, what we can do is gradually we can adjust the content to deliver more interesting subjects that has more cats in it to get them more excited to learn. Of course, it’s a very complicated, a little bit difficult decision. But gradually we are getting there.
We have over 70,000 vocabularies already collected from the kid: the way that kids talk is so different from an adult. We have over 50 categories and topics, over 500 lessons and stories. So, we’ve done a lot of work and it’s ongoing.
Shawn Flynn 24:47
How did you collect all this data?
Elnaz Sarraf 24:49
Two different devices. First of all, because of ROYBI wasn’t ready to collect all this feedback. So a lot of it comes from the cell phones because the software was almost ready. So, we had user groups to talk with children to gather all these data, the voice of children. That’s how we collected.
Shawn Flynn 25:11
As your company product gets spread out throughout the world, you’re going to collect all this user data. What are the plans for the data?
Elnaz Sarraf 25:18
So far, the plan is to really focus on every individual child. So, the data is being collected to understand the child’s interests and abilities rather than anything else. But in the future, we will be able to understand their talking patterns, their talkativeness.
A lot of children, like one out of 12 kids in the US alone, they have a speech delay. So, we would be able to understand these and see how we can help these children to have more conversations, based on statistics that talking with the robots increase and encourage children in terms of learning by 10%. So, we will use this data to understand how much impact we have on kids’ learning and to be able to add more features.
Shawn Flynn 26:10
And how is your time being altered in the company? I mean, those first six months to a year was just fundraising it sounds and collecting data. Now you got money. So how does your schedule change?
Elnaz Sarraf 26:22
It is more changed on talking, talking and presenting companies in so many places. I’d say I travel 80% of my time to present ROYBI to so many places. For example, two months ago, we went to a conference in Nashville, where we met senators, legislators to talk about ROYBI and what we’re doing with AI and to tell them we are not scary. Because we deal with data and privacy, a lot of times people get concerned so we went to many conferences to show the product, to talk about it, and educate people that what we want to do, how we are doing it. And that’s how my schedule changed. So it is now mainly focusing on sales and marketing.
Shawn Flynn 27:11
Is there that fear of the data, the privacy, especially with your product for kids?
Elnaz Sarraf 27:18
There is especially that our product is a little bit complicated. It has a camera with facial detection. And the reason it has it is because kids don’t want to play with their toys. After like two or three weeks, they forget about it. So we want the ROYBI robot to say hello to them, initiate conversations, but that adds a little bit of privacy issue for people. We are COPPA compliant. We are COPPA certified, which is the Children’s Privacy Act Policy. We hired a law firm to help us and so on GDPR, we’re working really hard on that part. We also allow parents to fully control what to share to the app and of course, to the device so we’ve been really cautious and careful about it.
Shawn Flynn 28:04
Is there going to be the adult version of this for people that have come from a different country that you know, in their late 30s or 40s, that are interested in learning a new language?
Elnaz Sarraf 28:14
I get that question a lot, hopefully in the future. And the reason is AI is not there yet. It’s not mature enough to carry on longer conversations. So, when it comes to adults, it may have a little bit of issue communicating, especially in carrying on longer conversations. But gradually that will change. It might be on our plan but right now. all of our focus is to really help children to change their future.
Shawn Flynn 28:44
So why is it that having longer conversations more difficult?
Elnaz Sarraf 28:49
Because a lot of things goes into it. Still, voice recognition is not at a place to even fully understand longer sentences. It can understand short versions. It’s not like humans, you know. So, it takes time but with any technology, it is just a matter of time. I remember the first iPhone that I got, it wasn’t doing much. It crashed all the time, didn’t have a lot of programs or apps but look at it right now, it has changed our lives and it’s going to be the same thing with voice recognition as well.
Shawn Flynn 29:29
So what advice would you give either to your younger self or a new entrepreneur out there in Silicon Valley? What advice would you give as a woman CEO and founder of a successful company that’s raised 4.2 million pre-seed to someone out there?
Elnaz Sarraf 29:47
Thank you. I’d say really, really believing in what you’re doing. You don’t have to please everybody or make everyone happy. As long as you have the support of your team and the people that really are there to help you move forward. And know it’s not going to be easy for sure, there’s going to be a lot of ups and downs, especially as a woman founder, I’d say it’s a little bit more difficult because especially for us being in tech, it’s mainly a male-dominated industry. But it’s okay, it is changing. Don’t take those, you know, as an excuse. Move forward and believe you are going to make a difference and make a change.
Shawn Flynn 30:38
And if anyone wants to find out more about you or get in touch with you or your company, what’s the best way to go about it?
Elnaz Sarraf 30:44
For the company you can go to ROYBIrobot.com that is ROYBIrobot.com. And I’m also on LinkedIn, Elnaz Sarraf. And, please get in touch. I’d be more than happy to help if I can. And possibly throw an email.
Shawn Flynn 31:05
Is there anyone else that you want to say thank you or reach out to you at this moment while you have the chance?
Elnaz Sarraf 31:10
First and foremost, I want to thank my family, especially my mom because she’s my role model. And then our amazing, amazing team. Without them we really couldn’t make this happen. Our partners, investors and also thanks to you, Shawn, for giving us the opportunity to talk here and share my experience with everyone.
Shawn Flynn 31:33
Great.
Outro 31:34
Thank you for listening to The Silicon Valley Podcast. To access our resources, visit us at TheSiliconValleyPodcast.com and follow our host on Twitter, Facebook, and LinkedIn @ShawnFlynnSV. This show is for entertainment purposes only and is licensed by The Investors Podcast Network. Before making any decisions, consult a professional.
