My fundraising career
I have raised capital 8 times for three different startups in three very different environments. The three companies all had very different business models and all were at different stages in the startup lifecycle. In addition the types of investors for each could not have been more different. During each fundraise I naturally brought to each situation different levels of personal experience. The sizes of the investment rounds ranged from less than $100K to more than $5M – the amount I’m currently fundraising for.
The very first time I successfully fundraised I got lucky and really didn’t have to do much myself (1). Back then I was working for a company that did exam courses for university students struggling to pass their subjects.
“My boss called me in for a meeting and simply offered me about $90K if I had an idea for a business.”
I got the money on some homemade terms, written on what could have been a piece of toilet paper. With his money we build the first version of what was to become a frontend for the ugly and confusing schedules you would get at university. We thought, that with the initial investment we got, we could easily reach profitability while expanding across the globe. It turned out that this was very far from the truth.
I was 22 at the time and didn’t know much about startups or building a company. So I guess maybe he offered me the money because I had built a working prototype for very little money that had already gotten some traction (2). Maybe because he thought that a 22 year old could actually have success in building his first company if he was eager enough. Or maybe he was afraid I was going to start a competing business that if he didn’t get my mind set on something else. Often people move more out of fear than opportunity and this is also true for investors (3). Besides the fear of losing money, an investors biggest fear is losing out on the next big thing. This was how the story of my first startup which became 1calendar.com began.
The second time was two years after we started 1calendar and from the Danish seed fund with the very original name “Seed Capital”. We had already burned through the initial cash from my boss and were running bootstrapped from a little advertising money. It took us about ten months to complete the seed round and looking back we did a bad deal. Our investors took control, they had options to buy more shares, and treated us as if we were kids who just started in kindergarten. It was a $350K for 20% equity and with an option to buy additional 20% for another $600K and a 25 or so page investment agreement with all kinds of investor rights that would ensure them control.
The third time was just a little over one year after we did the seed round for 1calendar. Usually a funding round should give you cash for about 18 month, but we had gone through the cash faster than expected for a number of reasons, but mainly because our investor pressured us to hit the gas pedal hard, increasing our burn rate.
Like many startups our business model was continually evolving. We had changed our model substantially and sales came in slower than expected. We hadn’t reached our milestones and were forced to do a down round (2). We had a new business angel with a company in the scheduling industry who participated and once again our shares were diluted heavily. When this deal became a reality I quickly realised that we probably weren’t going to make it really big anyway and started looking for other opportunities.
After resigning a few months passed before the company was out of money and only exit was to be bought out by the business angel. This for only a little money taking into accounts the time and effort we had put into building 1calendar from scratch. Live and learn.
The fourth time I raised funding was ten months after co-founding my second startup. Just after quitting 1calendar I made a deal with the founder of Iconfinder to join and help raise capital (4).
“My objective was to take what was then a “hobby project” to the next level.”
At this point I had learned that the only way to get a better deal was to create more demand from investors. Shares in a startup work a lot like shares on the open stock market – the main thing that drives the share price up and down is supply and demand. So we had to look for investors who had too little supply and at the same time create more demand for the type of startup we were building (5).
So to create more demand and do a bit of signalling (6) we participated in a Danish startup competition and I went to San Francisco to raise awareness and to get access to more investors. In the meantime I was keeping the potential Danish investors in the loop and simply tried to reach out to as many as possible.
As it turned out, most of the top tier VC’s in Silicon Valley didn’t think this was even close to something they would invest in. What I came to realise was that all these big VC’s had already made a lot of money and were not just looking to make more money, but rather looking for status in their community of VC’s. The kind of status they would get from being investor in the risky “next big thing” and not from making a “little” money from investing in Iconfinder. These guys are all about going big or going home, and we weren’t big enough.
While in Silicon Valley I also came to realise another sad truth. Investors are more concerned about whether other investors are interested than how your company is actually doing. Investors can be lazy and hate wasting time, so if someone else is interested then maybe they did the due diligence and they won’t have to. In other words, that first investor is really hard to get on boarded cause they have to actually believe in what you are trying to achieve.
So after being thrown out of a board room halfway through a presentation and after getting a few maybe’s and a ton of no’s, we ended up raising from a Danish fund called “Vækstfonden” or “VF Venture” in English.
“They came with the best offer: About $1.8M for the usual equity of 20-30%.”
Why did they come with such a generous offer compared to the guys in SV? Probably because they were a public fund that were using public money and that could double an investment with EU money. Probably because they had no other good deals on their hands and then had to invest in the one they could get (in other words, in a lack of supply). Probably because my old friend from high school was working there as an analyst and probably because the signalling and buzz we had tried to create worked to some extend. Probably because they weren’t anywhere up in the global investor hierarchy or was anything close to a brand name VC (7).
The fifth time I raised money was from the startup accelerator 500startups (8) since they had agreed to co-invest if we could find a VC that would lead the round (9). I had been speaking to 500startups before we closed the round with VF and used their offer to finally get VF to come with a term sheet. “500startups” is among the top three accelerators in the US and even though we didn’t get much traction or investment out of participating in their program, they were essential in signalling to investors that we had interest. That’s also why I always encourage first time entrepreneurs to join one of these programs and use their leverage as much as possible.
The sixth time I raised capital was less than 1 month after closing the deal with VF ventures and 500startups. This was for my third startup Birdback and you might be asking yourself: how its possible to get another startup funded this quickly?
Well, while fundraising for Iconfinder in SV I met a lot of entrepreneurs. Mostly for that simple reason that the easiest way to get introduced to investors was through founders of other startups that they had invested in.
One of these founders was Jon Carter who had started the company Mogl and had raised a ton of capital early on (10). He had a reasonable big exit to his name, so obviously you couldn’t use his funding success as an estimate for how his new venture would do, but nevertheless his concept seemed very scalable.
So from a combination of knowing the success rate of startups (11) and my frustrations with fundraising for Iconfinder in SV I choose to start my next company – Birdback. So after gathering a team, doing a couple of month of researching, getting accepted to Techstars (12), reallocating to London and building a prototype, we got a term sheet on the table from Passion Capital (13) as the first company of the Techstars London batch.
“This time there was no fooling around or investors sitting on their hands. We closed the deal shortly after with two additional angles participating.”
The seventh time I raised capital was 12 month after raising the round from Passion Capital. We had done a small pivot (14) since we started and had taken up a substantially bigger challenge. Bigger challenges requires additional funds, so we raised a round of $1.9M to build out our new proposition. The new investor who was an angel from the industry we were doing business in came in on our existing term sheet, but of course at a much higher price. The key here was to find someone who understood our space and hence would be able to appreciate what we were trying to do. Everyone could see the upside of what we were doing, but few could assess the risks associated. Since less risk equals better price, that’s what we ended up getting – a high valuation.
The eighth time will be the round I’m currently looking to raise. It’s an A round for Birdback, which will help us scale the business throughout Europe. To give a sense of the scale that startups work in, the amount of funding in this round is going to be bigger than all my previous rounds combined.
A quick sum up of my learnings and some fundraising pointers can be found in the post “7 tips for first time entrepreneurs”. This is the beginning of my blog and I hope my experiences with fundraising will enable you to avoid some of the mistakes I and many other first time entrepreneurs do when dealing with investors.
Footnotes are explained here.