Raising Capital at Apptopia — Lessons Learned
Congratulations, you took the plunge. You’re a Founder. You’ve got your own start-up. You left behind the (somewhat) secure option of working for others, in the pursuit of adventure and the satisfaction of creating something from nothing and seeing it soar.
Over the past few years, while stealthily identifying the market opportunity and networking madly after hours, you saved enough money to cover the basics of setting up the business. Now you need help to get to the next stage. You need an injection of funds into the business and are ready to go beyond calling on credit cards, debt, friends and/or family. Welcome to your first-ever Seed round.
As the Co-Founder and CEO of Apptopia, someone who’s gone through 15 rounds of raising $35.5 million dollars in investment capital, from Seed to Series C, there are things I wish I’d known before. There’s not a lot of straight-talking advice out there about the pitfalls, useful hacks and helpful guidance. Stuff like what to bring to a VC meeting, which VCs to avoid (and how to know that), how much swagger vs humility to deploy, what decks work and which are an instant fail. When to follow-up, how to say no — and why, how to say yes — and keep your company from a metaphorical midnight raid.
If this is at all useful, I’m glad. If it’s just a good story, well, it’s mine, and I’m happy I’m still around to tell the tale, especially now we’re in solid profitability territory at Apptopia, with some terrific investors who have our back.
Early Days: Keeping the Lights On
When we started, in 2011, I’ll admit we weren’t that strategic about finding investment. That’s normal. If anyone knew the inherent dangers, they wouldn’t head out on the journey. Early days are all about super-quick thinking, the ability to pivot, to network constantly, nurturing the nascent business and keeping a wary eye on the bottom line. On April 5, 2012, my Co-Founder, Eliran Sapir, and I, took our initial $120K investment from Expansion Venture Capital. We’re still in their portfolio, which says a lot. Many very early-stage investors might cut and run. A decade later, they’re still with us.
$120K isn’t a lot of money — in fact I don’t even know if you could raise such a small round now. But it was what we needed to quit our day jobs, hire an engineering team, create our first MVP [Minimal Viable Product] and get it to market. Once it was out there we got to test, iterate, and prove the app monetization model was sorely needed by publishers and app stores. We were in business. We had gone from zero to (stage) 1 at last.
We continued to raise in a very piecemeal way for a while after that, small rounds from a bunch of different people. With hindsight, that’s highly inefficient, because it detracted from us running the business. We had a lot of conversations. With multiple parties, we had a lot of investor management to deal with. I don’t recommend doing this, it takes energy away from the leadership team. My gut tells me that it probably came from wanting to get the best valuation, to show traction, movement, interest and so on. Yes, it cost us more than whatever we saved in equity. But it kept the lights on. If that’s what you need to do, do it.
The one thing I would have done differently? I’d have hired a numbers person much earlier than we did. Having the resource of someone who has a different perspective, is great with investor decks, slicing and dicing the numbers to show growth where you didn’t expect it, that’s invaluable. If I can caution you to do one thing (that I didn’t do), it’s this — don’t be under optimized in financial resource management. A good CFO is worth their weight in gold, taking you to a new level of professionalism, impacting the quality of your product, raising your game, putting polish on that pitch deck. Yes, we had tons of charisma and conviction, but I know now it hurt us because we under optimized on this crucial function.
Midway: Powerful Friends
By June 2015 we’d pivoted from app monetization to data intelligence. Revenues rose swiftly, and interest from bigger investors came along with that. Suddenly, Mark Cuban Companies (yes, that Mark Cuban, owner of the NBA’s Dallas Mavericks), and Sound Ventures (owned by Ashton Kutcher and Guy Oseary, with stakes in Uber, Airbnb, Spotify and more) were on the scene.
We found out that Sound Ventures had heard of us, then tried out our app intelligence products first-hand, benchmarked us against the competition, and liked what they found. By 2016, we were in an investment round with them (plus Expansion, Full Tilt, Mark Cuban, RTAventures, and Telegraph Hill Group) to the tune of 2.7 million. The stakes were raised. We met the managing partners in L.A. and then they came to our Boston HQ after the round closed. While Sound Ventures is not involved with Apptopia on a day to day basis, they’ve been overwhelmingly helpful when we needed them.
A word (or several) on Mark Cuban. My Co-Founder and I met him years ago, when I worked at Grasshopper, during the time we spun out Chargify, which Mark Cuban then invested in. Yes, he made money on that investment, but he also got to see how we rolled. He saw us hustle first-hand. He admired our grit. I can’t stress enough how vital it is to have a solid reputation for being a hard worker, that stuff really counts in this business.
Anyway, my experience with Mark Cuban has been truly positive. He’s impressed me for many reasons, but the main one is that he’s very efficient, responsive, and uncannily accurate in his guidance. I’m not sure he ever sleeps because, no matter what time zone I’ve sent him an email from, I’ll get a swift and direct response. Never more than two sentences. But always on the money. But I’m grateful — and careful to use him as a resource only when absolutely necessary, to respect his time and wisdom. He has come through for us, as an investor, several times, once when we were in a particularly dark place. He did it to support us, because we needed it. He’s still with us for the ride, now we’re thriving, and that means a lot.
Series C: Aligning on Shared Values
Getting from that mid-way point to a successful Series C was challenging, but in a good way. As I said, we’d pivoted to app intelligence back in 2015. Changing direction is always tough. The intervening years brought some difficult times: high employee turnover, customer churn — it felt like putting new wheels on the car while still driving it.
Without naming any names, we walked away from any VC / Private Equity conversations which instantly turned to the term “Fund Returner” — people who are hungry for the one big pay-off are not going to hang in there with you for the long-haul. We didn’t believe in the activities we would have to do to swing the bat at that target, either. You’re merely a number to them, not a person with ideas, employees, customers and a dream.
Then we hit gold. We increased revenues quickly by 50 percent, and continued to do so for the next three years. We did the tough stuff. Committed to ethical sourcing of data, and sticking to it. We invested in people and processes. We grew up. We became a business on its way to sustainability. Finally, we went into profitability as 2020 arrived (with all the stomach-churning global strife that year brought with it as well).
My Co-Founder and I decided to change our roles to reflect our new growth stage. I went from COO to CEO, and he moved up to Chairman of the Board.
This Series C round was a very big deal for us — especially because it brought us into play with ABS Capital Partners. It took us a long time to find an investment partner that really fits our DNA in the way that ABS, led by Mike Avon, who joined our Board, syncs with our day-to-day philosophy and business vision. Mike Avon has been where we’ve been, and also lived to tell the tale. As the phenomenally successful Co-Founder of mobile pioneer Millennial Media, he has the long-term view, with the experienced insight to see it through. I’m grateful for his guidance, and his confidence in Apptopia.
We spent a lot of time with ABS to get aligned on what success really means. We did serious forecasting, months of exercises, numerous check-ins and running through the numbers again and again. It took almost a year — and I’m glad it did. We were very careful on our term sheet around governance. We talked seriously through potential (exit) scenarios. It’s easy to say that’ll (whatever it might be) never happen — but it might. Protect yourself. We either removed clauses we couldn’t align on, or we talked through them with due care and concern before we took the money.
Finally, whatever stage you’re at, you want investors who are on your side, who can really help you move the business forward, and are aligned with your values. In the end, you started the business with good intentions, and big goals. The Series C, for me, solidified that we had reached a level of success with the business. It became a well-oiled machine. Different revenue models for SaaS companies show different thresholds. We had to get it right, systematically, and be able to repeat it, time and time again to prove ourselves. It’s been a long journey, and we’ve made some mistakes along the way, but it feels really good to see how far we’ve come — and then look ahead to see what’s on the horizon.