

Mattermark Has Raised $2M in Our Second Seed Round - dmor
https://medium.com/@DanielleMorrill/e93b20dc59b0

======
patio11
_I quickly discovered expectations for a B2B Series A were $1.5M in annual
revenue run rate_

That's a great news-you-can-use for many people on HN, so I thought I'd
excerpt it.

It feels... I don't know. Markets are made where buyers and sellers feel that
the offer is mutually acceptable, so I don't want to say "That is too high."
I'd say, as somebody who spends a lot of time in B2B SaaS (though only with a
toe dipped in the funded sides of that pond), that if you're waiting for $1.5
million in revenue you lose all standing to whinge about how darned pricey
SaaS companies are these days. You're attempting to buy a very different thing
than was historically bought in a transaction called Series A.

~~~
berkay
If the requirement for VC investment is $1.5m in AAR and fast growth rate,
there does not seem to be much of a "venture" in that. This sounds like what a
bank would require to loan you money, an almost certainty that you can pay it
back.

~~~
patio11
Banks will not loan you $5~10+ million on $1.5 million in revenue [+], which
is what the Series A will likely be. They'd be happy to offer you $150k to
$300k or so, depending on the officer. You can get a higher percentage when
you graduate to a more stringent vetting process, which banks will typically
start making available after you have $10M+ in revenue, significant hard
assets, etc. (Business underwriting is hard and expensive, and there isn't
enough money on the table to justify much underwriter attention for a $200k
loan or line of credit.)

[+] In hindsight: I'm playing fast and loose with the interchangeability of
revenue and run rate. They're two very different things. Not terribly relevant
to the general thrust of this comment, but if you ever hear someone conflate
the two in an investment conversation, make sure you nail down which you're
talking about.

~~~
berkay
Agreed. I was more commenting on the more recent trend of "risk averse VC
investment". As the OP states at $1.5 ARR, they would be profitable. It feels
like VC investment in B2B space has become highly risk averse, only funding
expansions of proven business models (we'll give you money if you can prove
that you don't need it). This is a fine investment model but not sure it
qualifies as "venture" investment. Can you really expect 10x returns if you're
also looking for essentially proven, almost profitable businesses?

~~~
greghinch
To a degree I think in B2B you have every right to be quite a bit more risk
averse as an investor, and demand to see a solid revenue stream coming in. In
B2C you can bet on the idea of "explosive" growth, but that's much less likely
in B2B. The flip side of that of course is that you should be seeing a lot
more revenue per customer in B2B, but the quantity of customers isn't ever
going to hockey stick in the same way you might hope for in the number of
users in a B2C product.

~~~
dmor
I think SaaS companies are massively under-valued because most investors still
do not understand how powerful a low churn recurring revenue stream is for a)
predictable sales process/outcomes b) self-funding growth c) ability to take
risk on new products because you can test and sell to existing customers.

I think there is a very good chance that VCs will miss HUNDREDS of $100M+ SaaS
opportunities due to this risk aversion over the next 1-7 years. If I were to
start a fund I would focus 100% on this asymmetry.

~~~
larrys
"because most investors still do not understand how powerful a low churn
recurring revenue stream is"

Isn't this a problem then with educated them and selling them? If it fits with
the rest of your strategy maybe you could do something in this area. [1]

"If I were to start a fund I would focus 100% on this asymmetry."

Are you sure that it is a lack of knowledge and understanding or there is some
other reason that makes what they do the low hanging fruit?

Along the lines of [1] why don't you package and present the data and charge
for it to make this case then?

I've seen this happen in other businesses (real estate investment) but that
was some time ago and only with certain types of properties when it was done.

[1] Sorry to be so quick to give you something else to do. But maybe there is
opportunity here that would justify the effort.

------
bobjordan
As a bootstrapper with 100% equity in company that just passed $1M YOY revenue
and should hit $2M this year, I read these articles on HN and cringe. To me,
it would be a special kind of hell to have 40 investors to answer to, no less
in a company under $1M revenue. Seems to work for some founders to get rich
quick but for god sakes I don't envy that position.

~~~
arfliw
I think 'answer to' is probably looking at it wrong, at least for good
investors. They are there to help you when needed, to give you advice. They
are not the hall monitor.

However I've never had investors either, so perhaps I'm wrong. Given that she
says she communicates with 75% of them at least once a month - that would
indeed suck if the relationship was as you described.

~~~
bobjordan
In any case, would be much better to be answering to 40 paying B2B customers.
I'd imagine if founder is not able to get focused on that, there won't be
another round.

~~~
lalwanivikas
Agree! Quality advice can come from good mentors as well.

------
imkevinxu
> I’ll tell you why we took a second seed round — we were going to run out of
> money and couldn’t raise a traditional Series A on acceptable terms.

Money quote, I appreciate hearing the truth

------
beambot
40 investors where "50% are in touch 1x per month, and 25% are in touch 1x per
week." That's 60 emails a month (2 a day). Do you find this helpful? Can you
keep them all so well-informed? Can you actionably react to all that
communication and advice?

~~~
aelaguiz
We have 20 something investors and on a given month there are ~2 that send
more than one e-mail, 5 that send 1 e-mail, and basically nothing from all of
the rest. I don't feel a burden, tbh. I like it, when I need help I get it -
and I have a few really solid mentors in the group.

The only pain is at series A when I'm going to have to go get all of them to
sign the closing docs. That'll be hard.

~~~
HistoryInAction
Did you use an (investment) LLC to condense the angel round? That seems to
make the paperwork easier for future rounds, I'm told...

~~~
aelaguiz
We did a syndicate on AL that condensed a $500k round into a single LLC. That
was nice. The rest are individuals.

------
philip1209
We predicted a June 2014 1.5M round at Telegraph Research:

[http://www.telegraphresearch.com/mattermark/](http://www.telegraphresearch.com/mattermark/)

~~~
arfliw
Got really excited about your site and clicked around to every page, only to
discover you only have profiles for a handfull of companies!

That would be a really useful/neat tool if it covered...like...all of them.

~~~
philip1209
It would - unfortunately it takes significant time to put one of these reports
together. They're normally on the order of 5K words.

------
proexploit
If I were looking for a new startup job, I would check out Mattermark first to
develop a list of startups I thought looked like they were doing financially
well / had strong employee growth etc and could succeed before then looking
into which I was interested in the work at. I think Mattermark could have some
other uses for their data that could prove valuable (I'd pay for that).

Right now if I were in that situation, it looks like I could get a 30 day
trial for free but I wouldn't continue it at $499 a month. I wonder what other
monetization opportunities there are for the data Mattermark has.

~~~
650REDHAIR
They have a $99/mo founder price point.

It's awesome.

~~~
proexploit
Yeah, which would be a fair price but as an employee looking for companies to
work at you wouldn't qualify.

~~~
650REDHAIR
Pretty sure Danielle would be willing to work out a $99/mo deal if you were
going to be using it like that. Why not reach out?

------
tonydiv
The amount of dilution here is worth noting:

YC: ~10% after conversion

500 Startups: ~10% after conversion

Version One, Felicis, etc (Q1 14): $1M+ investment at $5-$7M valuation at
most? Another 20%

Flybridge, A16Z, Gramercy, etc (Q2 14): $1M investment at $6-$9M valuation at
most? Another 20%

Between just these 4 groups, they own 60%+ of the company. I'm not accounting
for angels. In addition to this, with an option pool, cofounder, COO, and a
handful of employees, I wonder how much Danielle owns.

On a less pessimistic note, I wonder if there are acquisition routes. If so,
who?

~~~
dmor
We have taken nowhere near as much dilution as you are suggesting.

I want to clarify this, because I don't want anyone else to think they should
take 60% dilution before they take their real first equity round. Without
revealing our entire cap table and terms (I'm transparent as I can be, but I
think this would upset some of my investors) I can tell you the rule of thumb
is to give up no more than 25% dilution on convertible notes before an equity
round.

Generally you will sell 20% of the company in the Series A (read as: first
equity round), 15% in the 2nd (Series B), another 15% in the 3rd (Series C).
Our dilution position from these early rounds is still slightly TBD depending
on the valuation we get in our next round, but we are sticking pretty close to
this rule. Additionally, we maybe we able to hit the milestones required to
sell less than 20%... so that optionality is there.

~~~
tonydiv
Unless your valuation is $10M+ and your notes' caps were $6M+, I don't see how
investors won't own ~55%+ after Series A (before accounting for 20% option
pool).

~~~
dmor
Yup.

SmartAsset (YC S12) has an awesome calculator you can use to play with various
scenarios:
[https://www.smartasset.com/infographic/startup](https://www.smartasset.com/infographic/startup)

------
ChuckMcM
Congratulations, seems like a great way to thread the needle. Perhaps another
good metric might be ratio of fund raising to non-fundraising time. In many
ways startups are like rockets and that ratio is their mass fraction, money
consumed relative to value delivered into stable 'orbit.' :-)

------
davmar
_In fact, if our run rate had been that high we would have been massively
profitable._

with mad respect to dmor, this doesn't fit. even at 1.5m ARR, with 21
employees, office space, AWS bills and the 'etc', you aren't "massively
profitable". i don't feel the need to go through the math since it's obvious.
maybe there'd have been a few bucks to spare, but there are no "massive
profits" there.

~~~
dmor
That comment needs to be kept in the context of my blog post -- it is based on
the company in January when we went out to raise. We had 14 people on the team
at that time, had reached ramen profitability and then decided to spend
conservatively to grow. At that point in time, increasing our ARR 3x would
absolutely have made us hugely profitable percentage-wise to how much we were
spending to generate that income.

~~~
davmar
i hear you. however my b2b saas business does 2M+ arr with 12 employees and
still i would not consider us "massively profitable". no doubt there's a big
difference between our cost structures and the biggest is probably employees.
i'm assuming you must be paying below market for your technical employees in
exchange for more equity.

~~~
dmor
I think a big difference might be cash flow - we are getting paid up front for
annual contracts. So our ARR doesn't fully represent our cash position. We pay
market rate salaries, benefits, etc.

~~~
davmar
we're also annual. in that case i'd say it's a growth rate difference - you
guys are growing faster than we are. good on you!

------
buro9
> Fun Fact: 95% of money in the round came from investors who were already
> paying customers — including VCs, angel investors, family offices, hedge
> fund managers, founders and executives

This is good, as customers who are paying do tend to believe in the product
offering and direction.

For our startup ( [https://microco.sm/](https://microco.sm/) ) we have a
similar story, our first £150k of investment came from users of our software,
people already using forums and who believe deeply in the story we're telling
about where we want to take forums. It was also quick... the first £50k took
15 hours to raise, the £100k follow-on took 180 minutes.

Unfortunately for us, our customers aren't VCs and angels. So this is
extremely unlikely to continue to scale. Oh well, time to find angels and
early-stage investors in London who will help us reach the next set of product
and revenue milestones and the ones after.

------
rgoksor
How much did market size impact fundraising for Mattermark? My sense is a lot.
Like Danielle, I see institutional fundraising changing for startups
([http://goo.gl/R0zH4M](http://goo.gl/R0zH4M)), but I still think that the
Series A is available to the right team, market, and product. See recent blog
post on this by Rob Go @ nextview
[http://goo.gl/tmWhZB](http://goo.gl/tmWhZB). Danielle has got a great team
and product, but is the market really multi-billion? How many businesses can
she really sell to and at what price point?

------
mrmch
Very few founders will talk so honestly about their fundraising, props to
dmor.

------
alizaki
This is a bridge round led by an outside investor. Not uncommon, especially
between Series A and B. I don't get much of the hard decision here, seems
pretty common. I do appreciate her honesty though.

------
AndrewKemendo
Did their valuation really rise that much by pivoting that a16z decided to
double down or was there a cap on the first round?

------
lauradhamilton
Danielle, really appreciate the honesty. Great post.

Although...I don't understand how $1.5M in annual revenue makes a company with
21 employees "massively profitable."

------
curiousDog
Wait, Mattermark and Matterport were started by the same guy?

~~~
cenhyperion
Mattermark wasn't founded by a guy, it was founded by Danielle Morrill, who
also founded YC-backed referly

~~~
aaronbrethorst
Mattermark was a pivot from referly. [http://blog.ycombinator.com/referly-
yc-s12-becomes-mattermar...](http://blog.ycombinator.com/referly-
yc-s12-becomes-mattermark-the-way-vcs-and-angels-can-prospect-for-the-best-
companies-to-invest-in)

------
JimEngland
This is essentially a Series A, so why call it a "second seed round"? Feels
questionable to me.

~~~
kloncks
No valuation, because of convertible debt

No board seats

Not a lot of money raised, so not as dilutive as typical Series A

No expectation to hit "Series B" type metrics next time they raise

