Raising $6.3M: 3 Lessons from 50 Investors

A Challenging Fundraising Start

The month of August 2019 presented significant hurdles in our fundraising efforts.

My co-founder and I had previously held positions in product management at New Relic. We ultimately made the decision to dedicate ourselves fully to Reclaim, having devoted nearly a year to prototyping and refining concepts during evenings and weekends.

Initial Advice and Early Efforts

Conversations with numerous other founders consistently emphasized the importance of securing funding quickly and in substantial amounts. Following this advice, we initiated fundraising, despite our reservations about seeking investment with only a preliminary slide deck.

For almost three months, we presented our vision to a multitude of venture capitalists, aiming to secure between $3 million and $4 million in seed funding. This capital was intended to facilitate the recruitment of our initial team and the comprehensive development of the product.

A Shift in Momentum

Initially, the response was encouraging. We received considerable inbound interest and encountered discussions involving impressive valuations from influential figures. We anticipated receiving term sheets within a week and even celebrated prematurely.

However, in July, a sudden change occurred. Verbal commitments for term sheets failed to translate into formal offers. While we did receive some term sheets, they originated from investors who demonstrated limited interest in our core product or the problems we aimed to address.

We soon understood that our progress hadn't been driven by genuine enthusiasm for the product or our vision. Instead, we had become entangled in what we later identified as “deal flow.”

The Nature of Deal Flow

Essentially, investor interest was predicated on the involvement of other investors. Once sufficient investors lost interest, the momentum vanished entirely.

Current Success and Key Lessons

Thankfully, Reclaim has now successfully raised $6.3 million under favorable conditions, with support from a remarkable group of investors and partners. This achievement, however, was not without its challenges.

It necessitated acknowledging our initial setbacks and extracting three crucial lessons that we believe are essential for all founders to contemplate before approaching investors.

• Understanding the difference between genuine product interest and speculative investment.
• The importance of building momentum around a clear vision.
• Recognizing the fleeting nature of "deal flow" and avoiding reliance on it.

Lesson 1: Establish Substance Before Seeking Significant Funding

In 2019, our team was seeking what was commonly called a “mango seed” round – essentially, a seed investment substantial enough to position us closer to a Series A funding round. As we hadn't yet developed a product, we relied heavily on our prior experience and the strength of our vision to instill confidence and a sense of urgency in potential investors. However, this approach proved insufficient.

Investors frequently expressed concerns, either questioning the relevance of our experience to the productivity and scheduling sector, or finding our vision unconvincing given the investment terms we sought.

When offers did materialize, they came with unfavorable conditions. These included accepting terms that resulted in excessive dilution, partnering with investors lacking strong belief in our product strategy, or ceding control of the company at a very early juncture. Each of these scenarios presented significant drawbacks.

Consequently, one morning during the summer, my co-founder and I convened in his garage – our workspace for prototyping, pitching, and refining our ideas over the preceding year – and concluded that a complete reassessment of our fundraising approach was necessary. We recognized that if we couldn’t secure investment based solely on our vision, we needed to capitalize on our core competency: rapid development and validation through user engagement.

Ultimately, we secured $1.5 million through SAFE agreements, comprised of numerous smaller investments. This funding originated from approximately a dozen experienced operators – individuals with whom we had previously collaborated and who demonstrated sufficient trust to invest a modest sum in our venture.

We were also fortunate to connect with Geoff Harris, a partner at Flying Fish, a seed fund based in Seattle. His support provided the necessary resources to expand our engineering team, secure healthcare coverage, and launch our initial public features on Product Hunt.

When a compelling vision isn't enough to attract substantial investment, demonstrable progress becomes crucial. This progress is achieved through building, learning, iterating, and gaining traction with early adopters. By initially raising a smaller amount from trusted individuals via SAFEs, we accelerated our ability to build and showcase this proof of concept.

The Lead Investor: Shaping the Round and Beyond

As our product gained traction and user adoption surged, we encountered a significant challenge. Growth was outpacing our capacity, necessitating expansion to navigate the next stage of development.

While our financial reserves allowed for approximately another year of operation without additional funding, we recognized a pivotal moment had arrived. Both quantitative and qualitative indicators signaled the need to capitalize on our momentum and adjust our strategic approach.

Despite previous experiences, we initiated the process of securing a “mango seed” round of investment. Leveraging a comprehensive investor database from prior outreach, we began scheduling meetings.

These discussions differed markedly from our initial fundraising efforts. Although our core vision for Reclaim remained consistent, the demonstrable product traction and growing user base lent greater credibility and clarity to our projections.

Soon, we identified several highly promising potential lead investors for this funding round. The role of a lead investor extends far beyond simply writing the largest check; it’s a fundamentally important position.

Lead investors significantly influence the direction of the round and the nascent phases of your company. This influence encompasses aspects like board control preferences, go-to-market strategy, and the composition of your cap table.

We were fortunate to connect with multiple individuals who could have effectively led our round. Ultimately, Shardul Shah from Index Ventures distinguished himself with a particularly compelling approach.

His deep understanding of the developer tooling and observability landscape, coupled with a unique investor style balancing guidance and independence, instilled in us a strong sense of confidence in a long-term partnership with Reclaim.

Securing a lead investor and a term sheet marks the beginning of a demanding phase. Therefore, it’s crucial to select someone you trust – and who trusts you – to navigate this process collaboratively.

The Importance of Diversity in Early-Stage Funding

Index Ventures presented a potential path to swift funding, offering a term sheet and a streamlined due diligence process. Securing their investment could have allowed us to return to product development within a month. This option was undeniably attractive, given our desire to maintain focus.

However, discussions with Shardul led us to recognize that a rapid close would limit the inclusion of diverse perspectives. Seed rounds, characterized by smaller investment amounts and valuations, uniquely allow for participation from a wider range of investors.

This presents a crucial opportunity to integrate varied expertise from the outset – an opportunity that diminishes as companies progress to Series A and subsequent funding stages. We deliberately allocated a significant portion of the round to angel investors and smaller funds.

Our objectives were twofold: to cultivate a diverse cap table reflecting a multitude of backgrounds, and to establish a network of advisors and partners readily available for consultation. We already had individuals like Tope Awotona, CEO of Calendly, in mind.

Shardul further expanded our network, introducing us to numerous individuals who ultimately invested in Reclaim. The process proved demanding, involving approximately 150-200 meetings over several months to onboard an additional 40 investors.

Coordinating a close with such a large group presented significant logistical challenges. Nevertheless, with the round now complete, we are confident in our decision. We’ve assembled a remarkable group of advisors who provide consistent support and guidance.

Furthermore, our cap table now includes nearly 50% women and people of color. Prioritizing diversity in your cap table isn’t merely a trend; it profoundly influences the company’s trajectory, much like the selection of a lead investor.

A diverse range of voices and experiences fosters innovative thinking and broadens exposure to unfamiliar territories. It’s a fundamental aspect of early fundraising, and I strongly advise founders to actively pursue diversity within their cap table from the company’s inception.

Benefits of a Diverse Cap Table

• Access to a wider range of perspectives and ideas.
• Exposure to new markets and opportunities.
• A stronger network of advisors and mentors.
• A more inclusive and equitable company culture.

Ultimately, a diverse cap table isn’t just about representation; it’s about building a more resilient, innovative, and successful company. It’s an investment in the future.

The Importance of Authenticity in Fundraising

Many entrepreneurs, including ourselves, grapple with feelings of self-doubt, often referred to as imposter syndrome. It's common to encounter established norms regarding fundraising on platforms like Twitter and subsequently question your own approach.

However, our journey has demonstrated that there isn't a single, universally correct method for securing capital. Prioritizing authenticity is paramount to a successful fundraising round.

Focus on leveraging your core competencies and acknowledging areas where improvement is needed. Structure your fundraising efforts to capitalize on your strengths and mitigate your weaknesses.

Ultimately, when faced with uncertainty, prioritize product development and building value.