

How we almost didn’t raise $800K in the worst investment market in years - rrwhite
http://blog.uservoice.com/entries/how-we-almost-didnt-raise-800k-in-the-worst-investment-market-in-years

======
physcab
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.

~~~
rrwhite
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.

------
arisey
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.

~~~
wavesplash
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.

~~~
arisey
@wavesplash. Thanks for your insights. We incorporated your suggestions into
our sales & invoicing processes. Happy Spring!

------
rrwhite
Happy to answer any questions about this that people may have.

~~~
jranck
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?

~~~
rrwhite
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.

~~~
mikepmalai
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?

~~~
rrwhite
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.

------
vessenes
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.

~~~
rrwhite
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.

------
gsiener
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>

~~~
benmccann
Why didn't you just link to
[http://blog.profitably.com/post/4064020554/a-tale-of-two-
fin...](http://blog.profitably.com/post/4064020554/a-tale-of-two-financings)
instead of
[http://5z8.info/uniqueinvestmentopportunity_h8e8mk_facebook-...](http://5z8.info/uniqueinvestmentopportunity_h8e8mk_facebook-
hack) ?

~~~
gsiener
Fair point. It was actually easier to get that url since I had bitly open.

------
perlgeek
YC companies seem to have that social proof by a first investor from the start
(ie when they are accepted).

------
r00k
What was your burn rate at this point?

~~~
rrwhite
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.

