If you’ve been following Letz, you’ll know that we have been running an equity crowdfunding campaign with SeedInvest for the last two months. And if you’ve been following us closely, you’ll know that we didn’t reach our goal.
“What’s next?” you may be asking.
Unfortunately, we have no choice other than to close down the company.
If you know someone at Letz you might worry about their job. Don’t worry about that. Our other company, CodeWell is still a growing company, and everyone on the Letz team will be employed at CodeWell as of today.
Letz was the first company in Macedonia to raise venture capital. The first (and only) to win a Product Hunt award. The first to be accepted in a pan-European accelerator. The first to incorporate in the US and do a fundraising in Silicon Valley.
So it’s a disappointment not to make it to this next round of funding. It’s a disappointment, but it’s not a failure. As a company, we have accomplished a tremendous amount for ourselves, our employees, the users of the Letz app, and the startup community in Macedonia. We have a lot to be proud of. And we have a lot to share.
I could go over a long list of the amazing accomplishments of our team, but these are like my old karate medals. They remind me of what is possible and of what I’ve learned, but they don’t really have any value today.
Your support means the world to us
What I want to share with you, my community, are the learnings we had from our experiences, so that we, as an ecosystem, can benefit going forward. The first mover in an industry often pays the price of an education, while the benefits of that education are shared among the companies who follow and learn from the mistakes of the one who came first.
I also want to share with you a huge gratitude. Martin and I can’t even begin to thank all the organizations and individuals who have helped us along the way. From the local to the international press, friends who believed in us, people who put their money where their mouth was, and those who didn’t believe but gave us useful advice to implement — there’s no end to how much this community has supported us.
Although I can’t thank you enough, I will continue, as I always have done, to give talks about the lessons we have learned, and to be available to chat with those of you who are going down this path. One thing Martin and I agree on (well, we agree on almost everything actually) is that the path is worthwhile. We will continue to be familiar faces in Macedonia at local events, as well as in the larger European and Global community.
We are closing Letz, but we are proud to say that 2 of our 3 companies so far have been (and continue to be) profitable.
Lessons learned
So, with no further ado, what did we learn that you can implement in your startup?
Get it all on paper
Whether you are talking about employees, partners, investors, or anyone else where there’s a promise beyond the next two weeks, make sure the agreements on paper. I won’t go into all the mistakes that you can make here, but it boils down to a few main points:
· Vesting is your friend.
· If it’s not in writing, the terms can change later (or the deal can disappear).
· If you are working with a company (customer, VC, whatever), you don’t always know who is making the money decisions, so if it’s not a written agreement, the intentions don’t count.
· Even if you think you are in the weaker position, do not compromise on your values. You will stay weaker every time you compromise and get stronger every time you refuse to compromise.
Don’t quit your “day job” Until you get funding
In addition to Letz, Martin and I own a software services company. While we were starting the Letz development, we kept working at that company and we put away a bit of reserves so we would not need to take our own salary from Letz. Once the company was funded, we could afford to spend 100% of our time on Letz.
If you have a separate business, it’s a good idea to hire a manager to run your profitable business, and keep the new one totally separate. We were tempted at several points to say that a certain project belonged to Letz in order to keep the company looking like it was cash-flow-positive. We resisted the temptation for two main reasons. First of all, it messes up the company’s focus. A company serves a particular type of customer. If you start serving two different types of customers, the product development roadmap gets messed up and arbitrary. Secondly, it made the legal and financial structures clear. We can tell what was profitable and what was not, because the companies are totally separate.
Go for as long as you can without raising capital. Investors are great, but giving away equity and control is the opposite of great.
Know why you are raising money
Now that you bootstrapped as long as you possibly could, and you’ve decided to raise money, you need to know why. Which of the following things do you need, in what order of importance, and what exactly do you need in those areas:
· Money.
· Knowledge.
· Momentum / publicity.
· Connections.
In our case, we had investors who had expertise in a totally different industry than ours. They were incredibly helpful when they could be, but truthfully, they had not managed a portfolio company that was similar to ours, so not all of their advice or connections were relevant for our specific business.
An investor always wants you to succeed. At each round, your investors should be able to introduce you to the next round of investors. So, for example, in our case, we knew we wanted to raise money in the US markets, but we didn’t plan for that. As a result, we were in a European Accelerator, and had local investors. None of those people could get us into the market we wanted for our A round of investment.
Align your vision with the investors
I am saying this even though I know it is impossible. Investors want you to succeed, but investors are coming from a different world. Even if you align with the investor at first, there will come a day when they just want to sell the company and you don’t. That didn’t happen to us, unfortunately.
Our misalignment was that we chose investors who wanted our company to be a B2B company, like all the others in their portfolio. We always thought of ourselves as a B2C company, but they considered that a compromise. It was a fine way to start, from their perspective, but it was a means to an end, and the end was a B2C play.
Going back to the topic, aligning your vision with investors is kind of an impossible mission. The investor is going to be excited when they invest in you, and upset when things don’t go as planned. Investors know that most of their portfolio companies pivot at some point, and they will either put pressure on you to pivot when things are bad, or they will pressure you not to pivot when you want to. I wish I had some way to solve this puzzle, but it’s just a fact of life. There will be tough times. During tough times there will be tension with your investors. Hopefully you are aligned well enough to stay on good terms with your investors in the hard times. We were fortunate enough that although we had disagreements, we were always able to stay on good working terms with our investors. That might be because Macedonians are nice, never raise their voices, and always stay friendly. That’s a kind of alignment, too.
It’s not what you know
It’s who you know.
If you don’t know the right people right now, it’s fine. You can meet people. It is not part of our culture in Macedonia to just reach out and talk to people about business, especially not to strangers. But that’s the most important skill you need to develop. It is impossible to build a company without knowing a lot of people you don’t know right now. That’s obvious. People have to buy your stuff. People have to invest in your company. People have to work at your company. All of those people are people you don’t know yet.
Because we are a bit isolated, we are at a disadvantage. I don’t want to gloss over that or pretend it’s not a challenge. It’s a challenge, and I think we underestimated it a bit, and also we pretended we could hide it. You can’t actually hide where your company is headquartered. If you have to speak English, you definitely can’t hide that you aren’t a native speaker.
Ultimately, though, who you know is going to determine your success or failure. As a startup, we made sure to get out of the country, meet people at conferences, join accelerators overseas, network, and ask for introductions. And we aren’t alone. Organizations like CeedHub, SwissContact and investors like SC Ventures are international groups that have an interest in improving the Macedonian ecosystem. Plenty of our local events bring in international speakers.
It’s important to meet all kinds of people, but it’s also important to be intentional. If you know you are going to need investors in North America, do whatever you can to get to know people in North America and to get to know investors. If you know you are selling toys in Spanish-speaking countries, get to know moms in Spanish-speaking countries. Again, it seems obvious, but you need to think several steps ahead so that you are in the place you need to be when you go out to finally raise funds. We had some investors on our contact list, but not enough to successfully raise a million dollars in 60 days.
Fundraise early and often
The best time to fundraise is when you don’t need the money yet. Fundraising, whether it’s from angels, venture capitalists, crowdfunding or whatever, takes 6 months to a year.
If you just raised enough money for your company to function for the next 4 months, guess what? You should have started fundraising for the next round 8 months ago.
In one way or another, you should always be fundraising. You should always be thinking of how your product will bring in money, and you should always work on the kind of PR that gets investors excited. You should always be keeping your current investors happy.
Like most startups, we focused on the product and the product marketing. We should have started the A round fundraising 6 months before we did — in other words, simultaneously with the alpha product development.
By the way, you should be developing relationships with potential new investors even if you have existing investors who have promised the next round. Why? Because more options are always more options. Another investor might offer you better terms. Your current investor might have some operational issues. And one thing is for sure, investors like to mitigate their risks. If you have a co-investor to bring into the mix, that is going to be seen as a plus and may increase the amount you can raise. Finally, as I already said, as soon as you get that next infusion from your current investors, you need to start looking for the next round anyway.
Finally plus (is that a thing?), this isn’t your last startup ever. If you are the kind of person who enjoys challenges and the game of business, you will need that investor network in the future some time. Even now, as we are closing the company, we have speaking opportunities lined up for a variety of overseas conferences. When people invite you to come, present yourself as an expert and meet more people, go.
People invest in people, at the end of the day. Whether or not we succeeded in this startup, we met a lot of people who think we are smart, and in the future will want to help us. We are known as a company that raised venture capital and was responsible in how we treated other people’s money. That reputation carries through, and our expertise will serve us in the future.
Prepare ahead for equity crowdfunding
Equity crowdfunding is like any other type of fundraising. You probably need to prepare 6 months ahead. No matter what you are told, crowdfunding is crowdfunding. You need to start from day 1 knowing where the first 20% of your money is coming from. That means your current or future investors have already promised tens or hundreds of thousands of dollars into the campaign. The day you launch, that needle had better move significantly above 10% and within a week it had better be over 25%.
Even though equity crowdfunding platforms have their own audience and investor communities, they are not a substitute for the hard work you do. By the way if you are at 25% after the first week, guess what? 75% of the work is ahead of you. Crowdfunding is a full-time job. Read everything you can about successful (and unsuccessful) crowdfunding before you decide to do it. Have most of the content you want to release already produced. Have the emails to investors ready in your drafts box so you can just click “send” the day of the campaign. We started the crowdfund the day we started the crowdfund. It takes more than a week for someone to decide to drop $100,000 in your bank account, no matter how many product-of-the-year prizes you have won.
We’ll be seeing you soon
Again, thank you so much for any way in which you supported us, whether that’s just reading a blog or liking an Instagram post, joining our development team, investing in our company, or providing advice. We can’t thank you enough.
For myself and Martin, Letz is our third company together and it won’t be our last. We are going to take some time to reflect and digest all of our learnings.
Who am I kidding? I’m back at work already. Hope to see you here. We’re hiring.
