So - we recently raised money for Admazely. A good occasion to share some thoughts on the great parts of entrepreneurship. There are tons of ball-busting, teeth-grinding and knuckle-biting parts of being a startup. But when you've just raised money and are looking ahead at (hopefully) years of fulfilling your dream, the sun tends to shine a little bit more. So I'll focus on the sunny side in this post.
A while ago I read a blogpost that stuck with me. Embarrassingly, I have forgotten the author and thus can’t link and attribute appropriate credit. However, I do recall the central thesis of the post. It was simple. As a founder you have three major milestones in the early days of your venture:
- The first person you convince to join
- The first customer you convince to pay
- The first term sheet
And it is so true. Each of those three are immensely fulfilling and gratifying.
Cofounders
I started out with a drawing on a piece of paper. Talked a friend into helping me turn that into a design prototype. Talked another friend into helping out with a simple proof of concept for the hard math part of my idea. Both gave a good gut-feel but it was still just me and an idea with a lot of potential.
I started my hunt for a technical cofounder. And I had no idea what the hell I was doing. Still not sure I do, but I think I’m less embarrassingly awful at talking to computer scientists now than I was a year ago. It's a process that has seen a lot of write-ups lately, including this moronic post on TechCrunch. It's a tough process. I speed-dated a lot of people, rejected a lot of them and got rejected by a few as well.
Then I met Sylwia and David. Both of them seemed to have better things to do at the time. Sylwia was freelancing while considering an offer from a well-funded startup. Instead she agreed to spend her days in my living room doing our first website and and a very very rough user interface. David was supposed to go to San Francisco for a paid internship before completing his computer science degree in Stockholm. Instead he came to Copenhagen for a few weeks, which turned into him moving in with me, both working and sleeping in my apartment for a few months. And not going to SF.
Seeing such bright and talented people chose to work alongside me seeking out the potential of an idea was immensely cool. The trusted me to make my part of our venture happen (identifying customers, talking to them, understanding what we needed to build, knowing how and when to raise funding etc.) while they applied themselves, building the product. Experiencing the change in them and in our collective thinking as we started to share a vision for what we wanted to build. And after a while I asked – and they accepted – to become cofounders of Admazely with all of the responsibility that entails.
A while in, we convinced Søren to try and work with us as well alongside his day-job at SAS Institute. Spending his spare time on Admazely instead of spending it with his wife and his newborn son wasn’t an easy decision. But he started contributing and made commitments to the project and the team.
Wow – it was pretty awesome. Things kicked into gear. It truly was a milestone for me as a founder. At the time I was too busy moving forward to pause and appreciate it. Looking back at it, it feels great. And I really encourage anyone starting up to allow for a pause to be pleased with that kind of significant progress.
Our first customers
I like the idea of the Lean Startup. I like the concept of validating your idea with customers as early as possible – ideally even before you start building it. And that’s what we did. We took the prototype to potential customers to get feedback. And feedback we got. But not only the kind we were expecting. While we were hoping for opinions that could guide product development (and we got that in abundance) we also had potential customers actively asking when they could get their hands on what we were building.
So to validate that they weren’t just sweet-talking us we asked them to sign agreements committing to buy once we were done building. And they did.
All of the sudden things became a lot more real. We weren’t just building a product – we were building a business. Real people putting their money where their mouth was.
I’m a commercial guy. I like selling stuff. And while I knew my original idea was good, this felt fantastic.
Our first term sheet
If you read blogs or TechCrunch or other stuff like that, you get the impression that VC drive around throwing truckloads of money at any entrepreneur with his hand out. They don’t. Period.
I know a lot of really smart people, with great ideas, working their asses off to realise that idea. Trying to raise money but failing. For every entrepreneur able to raise money there are 100 who are trying but failing. While the investment market in Silicon Vally and New York is supposedly frothy, the same cannot be said for most of Europe. So I agree with those that say that the best thing to do is to move to where the capital is. Partly because… well, it’s where the capital is. And partly because capital tends to cluster around talent. Or is it the other way around? So you’ll also have a better pool of talent to recruit from after fundraising.
Fairly early on we realised that we wanted to try and build Admazely big. That we didn’t have the patience to grow it organically and wanted to raise money to accelerate the development speed and quality.
We talked to potential investors. I’ve been part of a team raising money before, but I’ve never lead the effort. It’s hard work, it’s stressful and it’s people jerking you around. Networking, calling, emailing. Iterating your pitch deck. Preparing a demo. We did some things right and we did a lot more things wrong. Luckily a few of them were interested, so we set a deadline for when we wanted to receive offers. And in mid January we received our first term sheet.
Venture capitalists by definition invest in startups. Nevertheless it’s still pretty daunting to have someone who sees hundreds of startups and only has the bandwidth to make a very limited number of investments decide that YOU are his pick. To get an offer for investing in your dream. To have skilled professionals say that they believe that you and your team can build a huge company.
We chose that we wanted to work with SEED Capital, we negotiated the term sheet, signed it, worked through the due diligence and the investment closed. The press release can be found here.
Negotiating an investment is scary and tough. No matter how well you prepare, you can be certain that the VC knows more about these types of deals than you do. I highly recommend preparing. Read Mark Suster's series on raising venture capital, have a look at some of Chris Dixon's stuff, read Venture Hacks, go to Term Sheet Battle or watch the Malmö event on YouTube. Have coffee with people you know who have tried it before. If you have no one else to talk to, ping me on Twitter.
We ended up with an agreement that we are very happy with. Obviously we didn’t get everything we wanted but frankly; that’s the nature of a negotiation. But we got a deal that enables us to do what was most important to us: to build Admazely.
It’s validation and it’s hard not to get a little giddy. At the same time it’s immensely humbling. All of the sudden we are responsible not just for doing what we want to do but also for doing what the other shareholders want to do.
According to the aforementioned blogpost, it’s the final of the three milestones that an early stage startup will experience.
Now we’re moving on building the company and the product. As my old colleagues in London always said: onwards and upwards. It’s fucking awesome!
