Bringing a Generative AI Product to Market: RJ Talyor, Founder CEO, Backstroke and Pattern89 (Part 4)

Sramana Mitra:  So how did you finance all this in the early stages?

RJ Talyor: At Pattern89, we raised money from a few different sources, mostly from Friends and Family/Angels. Then we were backed by High Alpha, which is a venture studio as well as a venture capital firm. They invested in Pattern89, which allowed us to hire the right people and build the machine out.

Sramana Mitra: What kind of numbers are we talking? How much did you raise?

RJ Talyor: In total, we raised $8 million.

Sramana Mitra: But in the beginning at the validation stage?

RJ Talyor: In the beginning, we raised $2 million.

Sramana Mitra: And how far did the $2 million take you? What was the milestone that it got you to?

RJ Talyor: It was about two years in, and at that point, we got to about $1 million in ARR.

Sramana Mitra: That’s pretty good.

RJ Talyor: Yeah, it is pretty good, but we’d scraped for every dollar that we got.

Sramana Mitra: And to get to $1 million ARR, how many customers did you have to convert?

RJ Talyor: We had about 26 customers at that time, and the amazing thing is we had some customers who paid us very nominally and we had some very big customers. So, it was kind of a lesson in product-market fit for us because we ended up having two types of customers: big enterprise customers and small agencies or brands. Those different groups want different things. Enterprise security is a lot different than maybe a new feature, so we had to do some adjustments. As we went towards our growth targets, we had to really get a little bit more cleaner on ICP.

Sramana Mitra:  Well, in scenarios like that, we advise people to choose one or the other. Traversing both of those markets is almost impossible to do because the go-to-market strategies are so different and contrary. So you have to focus your validation path, your go-to-market strategy, and everything on one or the other. The two are not doable.

RJ Talyor: Yeah, I totally agree. The challenge that we had, or that I had, and maybe another mistake is that we were unwilling to give up some of the ARR in order to make that hard decision. So as we approached our Series A, we did make that decision to really focus in more on those enterprise customers at the expense of the smaller brands. It’s interesting because they were some of the earliest customers that we had converted and who’d believed in our idea in the beginning. It’s so painful to ask them to cut loose.

Sramana Mitra: Yeah, I mean, sure. There’s an emotional element to this. And out of the twenty-six that you converted, how many were enterprise customers?

RJ Talyor: Half of them were enterprise customers.

Sramana Mitra: Fabulous. That’s actually a great plan to start playing with.

RJ Talyor: Yeah, it was good, it was really good.

Sramana Mitra:  All right. So then you raised the Series A. How much was that?

RJ Talyor: So we didn’t raise the Series A. We raised our initial $2 million, and then we did a seed extension, and then during COVID, we did a convertible note. So, we did a seed extension of $3 million, and then we went out to those existing investors because we were going to raise our Series A right before COVID hit, and then we did an inside round just with a convertible note.

When we were about to raise our Series A, Shutterstock messaged me. It was an out of the blue email. I hadn’t talked to them. We’d actually worked with their biggest competitor Getty. So, Shutterstock messaged me and said, “Hey, we’re looking to extend our AI capabilities, really invest in it. We like your data co-op, and we like what you’re doing. Would you be interested in talking?” And so we did, and we ended up coming to a really great agreement, and Pattern89 became a part of Shutterstock, specifically a part of Shutterstock.ai.

It was a great exit for investors and the team, and I stayed there for a year. It was awesome to be acquired by a public, a global company that’s a leader in the digital imagery and video space, and certainly in the AI space as well. So it was a good turn for us.

This segment is part 4 in the series : Bringing a Generative AI Product to Market: RJ Talyor, Founder CEO, Backstroke and Pattern89
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