Be forewarned, this post is long. You can tl;dr it by reading the section titles.
It's long because I'm compressing the last four months into one post. I don't normally do that, but I didn't want to influence my funding by blogging about it in the middle of it. And historically I've been bad at doing serial posts, so here you go...
I'm new at this.
I recently raised venture capital for the first time. I'm going to relate what happened below and highlight my mistakes/takeaways in the bold section titles. However, please bear in mind my lack of experience in these matters and that this post is written from the company/entrepreneur perspective.
DuckDuckGo raised a series A round from Union Square Ventures and a handful of awesome angel investors. While we did talk to over 30 VC firms, I realize our path both ended successfully and was relatively quick and painless. So first off, I want to say I sympathize with everyone who struggles with the funding process.
The funding process is not to be taken lightly.
Even though our round went relatively smoothly, it was still a massive time sink. It was the top idea in my mind, and it pretty much consumed my life for the past four months. In other words, it seems like you should commit to being all-in, all-consumed for a while, or you might as well not do it.
This reality is especially troublesome for two inter-connected reasons. First, you're distracted and so your business suffers. Second, every VC expects you to keep making forward progress (as if you're just talking to just them and have the rest of the time to work on the business -- yeah right).
Save up good news for the middle of the process.
We did not do this, but it ended up working out that way anyway and so I saw the value in it first hand. I started raising right after releasing dontbubble.us, which is demarcated by C in our traffic graph. Then in the middle of the process, we got picked as one of TIME's top 50 web sites for 2011 (annotated as D in the graph). It was nice recognition (and traffic growth) at just the right time.
A similar (also unplanned thing) happened when selling my last business. In the middle of that process, we had released a feature that really exploded our user growth. I don't think it was completely random these things happened at the right time, however. I generally try to operate in such a way as to maximize my luck surface area.
We probably could have raised earlier.
If you checked out our graph, it's nice, but looking back it is unclear to me how much things would have been different if I had tried to raise after reaching 1,000,000 direct searches a month instead of 7,000,000. When talking to people, for most, it didn't really seem that it would have made a huge difference, though there is of course no control.
However, the business difference is those two numbers is large. Granted they're both still very small numbers when considering the search market as whole, but moving orders of magnitude is really de-risking the business a great deal.
If you try to raise between significant milestones, unless you can show other reasons why you're killing it (the nice graph in our case), you're risking getting hit on valuation (or lack of funding) because your momentum is unclear and/or people can't perceive the real progress your making. On the other hand, after just reaching a milestone people care about, your momentum is large and people generally extrapolate what you're doing in your favor.
The sub-text here is that it has to be a milestone people care about and not just one that you care about, even if you have great reasons to care.
There are a lot of VCs.
Let's get to some numbers. I talked to 31 VC firms, 5 seed funds, and about 14 angels. These numbers do not include firms or people that I never actually connected with on the phone, on Skype video or in person. There were countless more I didn't get to or weren't on my radar though are probably great.
In the end we got funded by a big name, but I met plenty of lesser names I would gladly be funded by. In a second I'd choose someone I like/respect/trust/think is a good fit at a no-name firm vs someone I don't at a big name firm.
Your VC is essentially buying in as a co-founder.
Would you chose a co-founder that sucks? Of course not willingly. It is a major reason startups die.
I treated the VC decision in a similar way. They're going to be with me long-term. They have a significant equity stake and other significant terms.
But I'm not just thinking negative here. Like a great co-founder, they can also help me in strategic ways at the right time.
I realize a lot of people don't think they have choices, but that's a bit of a fallacy because you are making choices by deciding who to talk to in the first place.
It's good to know people ahead of time.
I only knew a handful of VCs coming into the process, but I wish I had known more. I just never made a concerted effort to meet them.
There is conflicted advice in the blogosphere about whether to take VC "informational interviews" or not. But from my perspective the reality is people take you much more seriously if you are known quantity. You see firms backing the same entrepreneur again and again. And more generally I think people do invest (at least more easily) in lines, not dots.
To blast or not to blast.
Of the connections made, I broke them down into categories of how I got the initial introduction:
- I knew them and reached out: 4 VCs, 2 seed funds, 4 angels.
- Suggested intro from someone: 14 VCs, 2 seed funds, 5 angels
- AngelList inbound: 9 VCs, 1 seed fund, 5 angels
- AngelList outbound: 2 VCs
- Cold inbound: 2 VCs
Of the VCs, I broke them down into categories of how far I got with them:
- Talked with non-partners: 9
- Talked with a partner: 12
- Talked with multiple partners: 7
- Got a terms sheet: 3
Of the VCs I got to the multiple partners (MP) / terms sheet (TS) level, the original categories broke down like:
Getting to the right partner initially really really matters.
Pretty soon after that first meeting, you need a partner to convince their other partners this is a deal the partnership should move forward with. Not one of the partners I talked to handed the deal off to another partner to manage, which says to me you have to figure out a priori which partner at a given firm would be most likely to get excited about your deal, or otherwise it is likely to be dead on arrival.
Having a good network to get intros really matters.
As you can see from the intro categories, #s 1 and 2 yielded most of my intros. If I didn't know these people, my job would have been much, much harder. Not only would it be harder to get to people, but I wouldn't have known (as easily) the right people to target.
A warm intro >> cold intro.
Principal intro is OK if not right partner intro.
Less obvious, and I think there is conflicting advice here too. Some say don't bother if you can't get a partner intro and partner intros always trump non-partner intros.
First of all, my funding stands as a counter-example because I was introed to Christina at USV, and that led to my funding.
But more broadly, if you don't know the right partner or don't have a partner intro, and you get introed to a well-respected principal/associate/analyst and they get excited about what you're doing, they can help a) determine the right partner; and b) rope them in to the next meeting with good framing.
I never walked through my 6 slides.
I have no idea how my demeanor or pitch varied from the countless ones VCs get. All I know is what I did. I had a six slide deck that I would send beforehand.
Then I would spend my time telling my story, starting well before DuckDuckGo (briefly), and then taking them through what had happened until now, why I was raising money now, and what my future plans were.
I got very few NOs.
Like people say, most people just stop emailing you. They don't say no. I just kept moving forward, so beyond a thank you note after a meeting, I didn't really press people. Ultimately I wanted to see who was excited about me, so I figure the least they could do is follow-up like they said they were going to do.
Some firms did follow-up promptly with nos and specific reasons, and I was really grateful for that. They were:
- I didn't blast right away.
- I tried this in July/August.
- Todd Hixon and John Backus at New Atlantic Ventures
- Michael Dearing at Harrison Metal
- Saar Gur at Charles River Ventures
- Dan Beldy at Steamboat