Why The Value Of The Fund-Raising Process Is Not Just The Funds

By Dharmesh Shah on September 29, 2011

The following is a guest post by Rene Reinsberg (@followrene). Rene is a recent MIT Sloan graduate and the CEO and co-founder of
Locu, a company that helps close the gap between offline and online by building a real-time, structured repository for small business offerings data such as restaurant menus. Disclosure: I'm an angel investor in Locu. -Dharmesh

Raising Money Isn't About Raising Money

Our company has raised more than $600k in seed money over the summer. In a matter of a few months we transformed from a group of students working on what one notable Silicon Valley investor called a “class project” in early April 2011 to an eight-person company, with a unique technology, a clear value proposition and strong customer interest for our product. I'd like to share some highlights and lessons learned from our journey.

Back in April, we had been bootstrapping for about half a year, building our first prototype and some interesting back-end technology and learning a lot about our market. We also realized we had been working well together as a team and were all ready to commit full-time.describe the image

Testing the waters

One of our early inflection points was a team trip to the Bay area for a week in late May. We had been selected to present at a startup showcase and had also set up a few meetings with investors while out there. The four of us shared a double room at the cheapest hotel we could find, the Ramada Silicon Valley in Sunnyvale. It worked out perfectly: free WiFi, a good enough breakfast buffet and an In-N-Out down the street.

We went to almost all pitches that week as the whole team. While this is not sustainable for the whole fundraising process, I highly recommend it early on. It helped us grow stronger as a team and develop a common lens for feedback. Also, rather than insisting that our approach was the right one, we explored all possible directions to make sure we were not missing the bigger picture. After our daily debrief by the hotel pool, we would prepare for the next day. One night, Marek, one of my co-founders, built a prototype to test an idea that had come up during the day and that has now become an integral part of our product.


That brings me to learning. Looking back, these early meetings were invaluable. One thing that became clear really fast was that investors were much more interested in learning about the menu acquisition and data curation technologies we had been building than about our recommendation application. We had stumbled upon a potential solution to a big problem the local search industry had been battling with for years. Going forward, we built our pitch more around the technology and how it could enable a data platform for local business data and had much more success.


A lot of people have asked me how many investors I spoke to and met with in order to close the round. You might have seen the Anatomy of a Seed deck by Brendan Baker who analyzes AppMakrs $1m seed round, involving 173 people and taking 130 rejections to get to 14 commitments. Our round was a bit smaller and we were fortunate to hit a few super nodes early on, but I still ended up talking to around 100 people in the process.

While I prefer meetings that lead to investments, there is thing to be said about the ones that don't. Raising money is about building a network. A lot of people might be interested or intrigued by your idea but not end up investing for one reason or another. However, they might end up introducing you to potential business partners, clients or other investors. I talked to one potential investor and even though he did not end up investing, a month later, he emailed me and introduced me to a potential client.


At an early stage, it is important to surround your startup with people that can support you and extend you network in the areas you most need it. For us, we were targeting investors with backgrounds in data platforms, local, small business marketing, and the restaurant industry. AngelList turned out to be invaluable in the process of filtering. As Scott Kirsner from the Boston Globe recently put it, they are a true matchmaker between investors and startups.

A few words on due diligence: You probably expect your investors to do due diligence before investing. You should do the same. In a world of LinkedIn and AngelList, it is relatively easy to find people in your (extended) network that have worked with or can vouch for an investor. Even if it means delaying the closing of your round, don't take money from investors you don't think have the best interest of your business in mind or from whom you get a bad vibe.

Looking back, raising money was much more than just getting money in the bank. The process helped us to grow as a team, significantly refine our product and business model and most important of all, bring on investors on board that understand our technology, support our (ambitious) vision and will help us build a better company.

Topics: funding angel
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43 Pithy Quips On The Business of Software

By Dharmesh Shah on September 28, 2011

My favorite conference both as an attendee and as a speaker is the Business of Software Conference.  I've spoken there for the past three years and am once again speaking this year.  There's a full video and transcript of my 2010 talk.

To give you a sense for how much I like the conference, I will share this embarrassing piece of data:  Though the conference has been held in Boston for a couple of years (and again this year), and I live in Boston, I still stay at the conference hotel.  I do this for one very simple reason -- I just enjoy hanging out with the BoS folks.  They're my peeps.  describe the image

Note:  I do not make any money promoting the BoS conference.  I don't even charge for speaking there (note to self:  I probably should charge and just donate the proceeds or something).  The only reason I write articles like this one, is I enjoy the conference and think others would too.  I'm selfishly trying to draw in as many cool software people to the conference as possible, for my own amusement and enjoyment.

One quick word of warning:  The registration fee is not cheap (the ticket price is currently $2,295).  The show is just about sold out, but I have a discount code for OnStartups readers that brings the price down to $1,895.  Use the code OSBoS11 and register on the Business of Software website.

In terms of price, I think the time you spend attending a conference far exceeds any registration fee.  BoS does a great job making the most of your time.  You will not hear speakers making sales pitches.  No sponsored speaking slots.  No booths.  No multiple tracks or boring panels.  Just great attendees, great speakers, in a great venue and well managed.

The conference is coming up (Oct 24-26) in Boston.  If you can make it out, you should.

Here are some of pithy insights learned from prior Business of Software conferences (to whet your appetite)

Pithy Insights From Business Of Software

1) The right time to hire the first person is when you think you are going to die. [tweet]

2) Do what you are naturally good at. Starting up is hard enough as it is. [tweet]

3) Be prepared for serendipity. Viagra was originally a failed heart medication. [tweet]

4) Don't reward people with bonuses. They don't remember them. Give them experiences. [tweet]

5) HubSpot has an unlimited vacation policy. No one has abused it. If someone did it means we hired the wrong person. [tweet]

6) Long term thinking: I've always wanted to build something that will survive beyond me. [tweet]

7) One model doesn't take you through. We had to move from generalists to specialists. [tweet]

8) If no one is copying it try harder next time. [tweet]

9) Venture capital is not a necessary evil. It's neither necessary nor evil. [tweet]

10) Tech support is sales. [tweet]

11) The power of being ready to walk away is amazing during M&A. [tweet]

12) Forget about competitors! You want to create something so good people will want to copy it. [tweet]

13) Developers like email, sales people prefer the phone. They're just a different kind of human. [tweet]

14) Negotiation 101: "Shut up" [tweet]

15) Build your software with your customers. [tweet]

16) You set the rules in your start up. Don't live inside someone else's box. [tweet]

17) If selling your company having multiple offers makes it easier not to have to compromise what's important to you. [tweet]

18) Ask simple direct open questions and LISTEN! [tweet]

19) At Squidoo every job that can get written down is done by a freelancer. [tweet]

20) Be so good they can't ignore you. [tweet]

21) B2B tribes are much more valuable than sexy consumer tribes who won't pay you anything. [tweet]

22) Companies spend about 10% of the time hiring a person compared to getting rid of a bad one. [tweet]

23) Different & Crazy can look the same at first. Real difference requires some risk. [tweet]

24) Don't change the model! Change your management practices! [tweet]

25) Don't follow a map. Make a map. [tweet]

26) Founders bring with them personalities and philosophies that set the tone for the company culture. [tweet]

27) Great ideas are fragile at birth because they are indistinguishable from crazy stupid ideas. [tweet]

28) If you can write it down I can have it built cheaper. [tweet]

29) If you invest in the experience (not just the product) everybody wins. [tweet]

30) Just because the tide is out doesn't mean that there's less water in the ocean. [tweet]

31) Passion is an extreme version of caring and believing. [tweet]

32) Love your inner salesperson. [tweet]

33) People like to be sold to in their own language not yours. [tweet]

34) Pricing is a lot about psychology. $25 and $35 feels the same to people. [tweet]

35) Problems should be the currency in your company. [tweet]

36) Prototyping helps figure out what to leave out. [tweet]

37) The factory is about interchangeable parts -- and interchangeable people. Factories don't work in software. [tweet]

38) Customers will always tell you how to improve but not how to be different. [tweet]

39) Southwest Airlines value people who 'get it' vs people who 'know it'. [tweet]

40) Steve Jobs doesn't go home at night and boot up Windows. [tweet]

41) Traction requires friction. The mini cooper chafes. [tweet]

42) When selling your company walk away at least two times or you have probably been screwed. [tweet]

43) Work definitely feels like work unless you're passionate. [tweet]

Hope to see many of you at the conference.  If you're there, please say hello.

And, if you've been to Business of Software before, how did you like it?


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