How much money do you need? 3 CEOs talk fundraising

by Elyse Kent
October 2, 2014

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Most Colorado entrepreneurs would love to have the secret manual of growth equity, with easy steps to get them through seed rounds, later growth rounds, and beyond.

Alas, there can be no such document. Every successful funding has a slightly different story behind it, with unique paths up the equity mountain and various styles of forging the necessary relationships to get there. However, there is much to learn from those who have made it.

On Sept. 24, three pacesetting CEOs shared their wisdom and stories at Built in Colorado's Digital Leaders Luncheon, held at the Mediterranean Restaurant, sponsored by Goldman Sachs, and moderated by Frank Medicino of Access Venture Partners. Here is what CEOs Andy Grolnick (LogRhythm), Bryan Leach (Ibotta), and John Levisay (Craftsy) had to recount to the leaders in the room.


Seed Rounds and Getting Started

Identifying how much money you need, as well as how many investors are neccesary, is really a question about how external factors will come into play. According to Grolnick, the overall market is a good indicator of how successful you'll be at fundraising, but he emphasized keeping in mind the investors you choose should lead to the introduction to your next round of investors.

Investors who can make valuable introductions are usually a large part of the selection process, but Levisay had a different take on investor profiling and what it means for industry connectiveness.

“You get to a certain point, that if you're doing things right, you're one or two connections away from who you need to know to build your own connections,” Levisay said.

So, what is the benefit in seeking funding from numerous investors instead of a smaller group and how should you determine a 'fit'? When scouting investors, Leach said, “we looked at the DNA of the fund. What have they done well? Decisiveness also gets rewarded. We don't want or have the time to be dragged along for a long process.”

"We sought SEC accredited investors based on their risk profile,” Leach continued. “Despite the massive amount of paperwork and work involved in having many different investors, the benefit is that no one person owns a huge part of the company. We raised our funds from 51 investors, 91% of which came back for the second round."


Where to Go from There
 

All three CEOs said the importance of building relationships – early, often, and with care – warranted repeated emphasis.

“Intros from existing investors led to our next investors,” said Grolnick.

“You need to always be looking a few steps ahead,” Leach said. “Once you form relationships, they stay around and build trust or they fall away.”

“When I'm bringing on larger investors now,” said Levisay, “I think, 'this may be the guy who fires me.' So I want to make sure there's an understanding of the business and they won't enact change flippantly.”

Levisay's story is unusual – his Series B funding round happened within a couple of hours. “I was on the phone with an investor at 10:00 p.m. and he told me he'd be on a flight out the next morning," he said. "I was silly to question how he was going to book a flight that quickly.”

Rewarding early supporters leads to gaining new ones later.

“Once you raise serious capital,” said Leach, “it also builds trust with employees that were looking ahead. We can bring on employees, because we have proved our worth to investors, that would otherwise be unobtainable for an early startup.”

Making It in Colorado

“Deciding you're going to make it as a Colorado company truly changes the company's path,” said Levisay. “Once we decided to make it a Colorado company, we raised in Colorado after we had already laid out terms with investors in the Valley.”

Growing in Colorado means knowing the soil. “There is such a loud voice for certain types of companies in Colorado,” said Leach, “but not for others. No exits except for B2Bs and telecom is a problem.”

“I hear a lot of talk about not being able to find engineers,” said Levisay, “but, seriously, we're not splitting atoms here.” Until the landscape changes, Levisay offered specific advice on courting investors now.

“Ease off the lifestyle talk,” Levisay said. “That works for hiring employees but not for a high-growth investor that is looking for a scaling business.”

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