I'm curious to hear more details about your "tipping point". What sort of metrics seem to put investors at ease? Was it a specific revenue goal, a more polished plan of action, a certain user-growth model, or all of the above? My limited experience from working at a consumer internet startup has taught me that once you hit about a million users, everything else seems to fall into place a lot easier. Of course that varies widely depending on the business, so I'm just interested in hearing other data points.
Our key metrics really didn't change over the course of the fundraising process. We had be live for over a year and sign up growth as pretty stable. The only "metric" that changed was the current revenue/mo numbers. But it really wasn't a change in metrics that changed our fortunes. It was really just social proof and finding the right story that resonated.
Thanks for sharing your behind the scene story. Having "social proof" from early investors and managing "a herding situation" to enable others chipping in seem to be critical components during a fund raising process.
As a B2B Saas provider, do you feel that enterprises are open to pay monthly subscription fee via credit cards? We are dealing B2B business, mostly w/banks & pharms. Managing invoices are challenging, and everyone is trying to drag on their feet when paying invoices. Monthly subscription fee would be much easier to manage. Thanks for your insight in advance.
Consider only offering enterprises a yearly pre-pay option if they want invoicing. That reduces your paperwork and lets you put the cash to work. Once you're only dealing with yearly invoices, the collections challenge is simpler.
If the product is SaaS you have the ultimate power to resolve non-payment: stop service.
Just send a polite note to their accounts payable team or whomever is your main contact say "We really love you as a customer, but our invoice is overdue and forcing an automatic stop of service on XXX, XXXX (30 days from today). We really don't wish to loose your firm as a customer. Please contact us as soon as possible so we can avoid a service interruption" Make sure the subject says something like "30 days notice: Automatic Stop of Service on XXXX for non-payment" They should jump to action. If not, remind them again in 2 weeks, then if no action stop the service.
If your service is important to them, you'll be impressed at how quickly things get paid.
This is very informative, kudos to you guys for sharing. How did you guys set your goals as far as how much to raise and the amount of equity you were willing to give up? What did having the extra investment mean for you guys starting out?
Honestly the determiniation of how much to raise was pretty back of the envelope. I think originally we thought about doing $250K but then after talking to other people it seemed that's a pretty naive number. You really can't get much done for $250K and plus if any investors are interested they'll bring in your friends and you'll end up raising $600-800 anyways (this happened to the Weeblies if I recall).
I won't get into valuation or equity given up but I always say that difference between $0 in the bank (or whatever you can relunctantly squeeze out of family members) and ~$1M is a tangible difference in your ability to survive and succeed. It's like you hear about YC and their equity cut. If what you give up is easily surpassed by the speed at which you can now move then it's worth it. If you can't take a million dollars (when you have 0) and improve your outcome by more than your dilution then you shouldn't take the money.
In the article you say, "...we also took the initiative to set our own valuation. Investors were very value-conscious in those days. It's not just enough to be a solid opportunity, you also need to be a good value. We set a price we thought was fair and wouldn't generate a lot of push back."
Don't need to disclose the actual number but how did you determine what was a "fair" valuation. Was it a discount to prevailing valuations? Did all investors buy in at the same valuation or were the terms more generous for the first investors?
We just sat down and picked an amount of valuation (or really dilution) that we were comfortable with and went with it. Everyone was at the same valuation. There was no discount for first movers.
I'm finding you can get a heck of a lot done with << $10k. Even << $1k. Yes you do need to grow the right way, and pick the right space, with the right people (or person, singular). But it can be done. If anyone reading this has a spare $50k sitting around and can't do anything with it just send it to me and you'll see just how far it can stretch.
I liked the network graph, I'm always curious about how much referrals matter, thanks for keeping track of it! In your case referrals mattered a lot. You didn't diagram out the influence lines, i.e. who encouraged whom, but I'd guess that would further reinforce the referral strategy.
That's a good point. Harder to track and visualize but it would have been interesting. You can roughly assume that anyone in the "invested" column influenced people further down the tree from them.
Glad to see more posts like this coming out of the woodwork. Our CEO (at Profitably) just published a really detailed account of our fundraising, required reading for entrepreneurs that are raising! http://profitab.ly/h49ues
Our actual burn rate was pretty low (~$10K/mo) but it was also unsustainable. No one was being paid and we were just finding enough money to keep a roof over our head. Our "true" burn to keep going would have been much higher than that.
