Closed! — Lessons I learned from raising our first round
If you’re looking to raise your first seed round, but have no idea what to expect. This for you. #
We just closed our first round of seed capital for our new startup React Messenger. I’m going to share with you what I learned from the experience.
Raising your first round won’t be easy. It wasn’t for us. But that’s good. I think. It’s a sign your investors aren’t throwing money around at any new shiny startup that gets a bit of press coverage. I’m sure there’s a few investors out there that’ll give you a bag of cash and a pat on the back. But I don’t think those are very good investors.
A bit of back story: Two days after we launched React Messenger back in late November, we were approached by a handful of investors. We were shocked. We’d been working on React for over a year. Bootstrapped to the brim. We liked our little messenger, but you never really know how the world is going to receive it until you launch.
Out of all the investors we were approached by, one had a surprisingly deep understanding of what we were trying to accomplish. As if they’d been there the year past. We chatted via React, then got on Skype. A few days later, we were hiring lawyers and setting up the term sheet. Yea, these things move fast.
I won’t talk about how much we raised, or from whom. Not yet. We’re waiting to reveal this at the right moment. What I will tell you is this: the deal was great, and our new partners are passionate about growing our business just as we are.
Lesson 1: Look for more than just money #
You’re passionate about your startup. But like a birthday cake, you should really think about who you give a piece to. Money is common. Look for an investor who will add real competitive advantage to your company. Look for an investor that’ll make you feel like you have a real shot at becoming a dominant player within your industry.
Industry expertise, technology advantage, talent, vast experience, and most of all, good founder-investor culture fit.
Lesson 2: The deal will seem like it’s about to fall apart a dozen times before it closes #
When negotiations start, there’s a lot of enthusiasm. Maybe even a bit of blind enthusiasm. Everything sounds amazing!
But negotiating is a push and pull. And sometimes, you’ll be pushed very hard. And you’ll get emotional about it. You’ll want to flip a table. This will happen often. So step back and tell yourself: “it’s just negotiating…”
Lesson 3: Be straightforward, open and clear about what you want #
It’s counterintuitive. You might think you can charm your way around getting more favorable terms. Doesn’t work.
Keep it direct. If you want something extra in the deal, say it. Don’t like the valuation? Be straight with potential investors. Not happy with a specific term in the deal? Don’t hesitate to express your concerns. A good investor wants a fair deal as much as you do. Just be open about it and things should fall into place.
Lesson 4: Get advised #
If this is your first time raising, get advised. Find a friend or family member who’s been in venture deals before. This is important. It’ll save you a lot of headaches. And when the waters get rough, they’ll be there to guide you.
Lesson 5: Install analytics on your app (for fucks sake!) #
We made a huge mistake early on. We launched React Messenger without any analytics. We were so focused on getting it out the door, that we forgot a very important tool that investors use to make calculated decisions. (TBH, we thought it would be a few months before we would raise a round).
Of course we had download statistics and ranks. But those metrics are useless to make business decisions. They don’t explain much about how users are interacting with your software. You might have amazing download numbers, but no one is using your app. You might have declining download numbers for reasons not necessarily related to how good your idea is. The only way to know is detailed, precise metrics about user interaction (both on the front and back end).
We quickly installed metrics on the app post-launch, but lost valuable information (and this caused a little bit of beef with our investors).
Lesson 6: Be flexible, open and generally easy to deal with #
Negotiations are stressful. For all parties involved. Don’t be a hard ass. I made that mistake at one point in the negotiations and it didn’t fix anything (probably made things worse).
Remember: they’re looking to become part of your team. Someone you will share the successes and failures of your company. Don’t start your relationship on the wrong foot by arguing and making things sour for everyone. Be flexible and understanding. Find a good middle point where everyone wins. After you close the deal, you’ll be glad you kept your cool.
Lesson 7: Don’t let deal-making stop you from working on your startup #
Negotiations are very time consuming. The problem? You have a startup to run! Deal-making will cut your day in half. It’s unavoidable. Furthermore, it will drain your creative energy. After 4 hours on the phone with lawyers and potential investors, you’ll feel like you’ve been hit by a school bus a few times.
Take a nap. Drink a few cups of coffee and get back to work. Negotiations might take several weeks. Don’t let your startup suffer, left forever alone in some corner. What if the deal falls through? Now you have no funding and a startup that’s several weeks behind schedule.
by @pddro