From Developer to 2-Time Successful AI Entrepreneur with Exits: Behamics CEO Valon Xhafa (Part 3)

Sramana Mitra: What did you do next?

Valon Xhafa: I wanted to start something else. I wanted to build something from scratch. I tried to use different matchmaking platforms for co-founders. I met my co-founder. We matched. I liked his profile. He was doing his Ph.D. in behavioral science. He was talking about how you can incentivize customers in online stores to make specific decisions.

He had this idea to build an agency. He didn’t have an idea of building a tech product. He wanted to hire people but needed a tech co-founder. I called him and we decided to meet and do some workshops. We did a workshop on a Saturday.

We completely changed from doing an agency to a tech company. I told him that if we build a tech company, we can actually scale it. We can also collect the data and play with the data. He liked the idea, so we designed the system that day. We decided to quit our jobs the next week.

Sramana Mitra: Here, you have a bunch of horizontal skills that you put together. It’s basically applying behavioral science to data. Did you find the business problem to apply that horizontal skillset?

Valon Xhafa: We did. One of the biggest issues in e-commerce during that time was product returns. Customers return a lot. Fashion brands have very high return rates. We knew that if we are able to reduce by even 2%, that can mean more than 2% revenue savings because you have a lot of cost. We took that as our main use case. We were half rule-based and half data-driven.

The toughest decision was, should I quit Google. I was almost 22 by that time. I quit and started working. He approached brands to pitch the idea while I was building the MVP. I built the MVP in 3.5 months. We got our first POC within 3.5 months. We also got pre-seed money. The most interesting part was, we were not living in the same country. He was based in Zurich. We did all that remotely.

Sramana Mitra: There are a couple of things you said that I want to underscore. You didn’t say that you raised pre-seed, then built MVP, and then got customers. You said you built an MVP, got customers, and then got pre-seed funding. It’s a really important point to understand.

We get approached by a lot of developers who are thinking of building a product and they want money to build the money. Financing doesn’t work like that. You have to get customers. It may not be paying customers. Did you raise that money in Germany?

Valon Xhafa: We raised the money from US investors. The reason is US investors have more money. They are able to pay higher valuations. When I moved to the US, I found out that we got a deal that is very close to the deals they usually get for pre-seed money in the US.

One of the main reasons we built the MVP before raising money is, it matters in the term sheets. It’s not just about giving equity away; it’s about how long you can take the company. If you start giving away a lot in the beginning, it’s not secure that you will take the company as far.

Sramana Mitra: If you give up too much equity too soon, it becomes difficult to raise subsequent money. We actually recommend taking pre-seed as debt without pricing the round. The pricing happens at the next financing. It sounds like you got equity money right?

Valon Xhafa: Yes. Having the first exit, you can now think long-term. The founders are the ones who know the vision of the company. No one else knows that. If the founders are motivated to keep working, which means that they would still have some equity, it’s important that you manage this. The other good thing is my co-founder used to live in Switzerland for a long time. He’s influenced by the Swiss way of managing money. He’s good at optimizing money.

This segment is part 3 in the series : From Developer to 2-Time Successful AI Entrepreneur with Exits: Behamics CEO Valon Xhafa
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