Response to Raising Money in London almost killed our Startup
I am writing this in response the Sherman’s post on medium.com:
https://medium.com/good-audience/raising-money-in-london-almost-killed-our-startup-6ed9fca1ba88
This is not aimed as an attack at Sherman as I think he is smart, honest and a great guy. But I feel as he has a high profile and I have a high profile ( and I am the high profile angel he talks about ) then this post he has made will go viral and may display the UK in a bad light to our foreign friends in tech.
So a quick background:
18 months ago I was in Warner Yard in London ( a well known co working space ) when Jon Bradford ( the founder of Techstars London ) asked me if I would have a Skype call with some guy in San Francisco about his company joining Techstars in the next intake ( I am an investor and mentor in Techstars London and was the same in Springboard — madly I have backed almost everything Jon has asked me too )
…That guy was Sherman.
Sherman was messing around with Twitter and doing some dirty hacking tricks that I recognised, but had taken it to a new level of skill. Immediately we hit it off and I loved what he was doing, I told him to stay in his bedroom and print huge amounts of money without anyone ever knowing who he was or what he did. But he wanted to turn his skill into a real company and legitimise everything he had learnt and he saw his first step as applying to Techstars.
So he applied to Techstars and I hassled people to let him through to the interview stage. Myself and Jens Lapinski ( now MD of Techstars Berlin ) did another skype call….Jens turned to me and wrote on a piece of paper “I love this fucking guy”. I realised I was not mad and Sherman really had hit on something quite special.
Sherman and Karl now www.Goodaudience.com ( as it is now called ) are now at Techstars in London and they fall in love with the place. London is not only London but is now a huge city of tech and growing at a massive pace, behind every door is someone creating something…in 36 months it has gone from being nothing in tech to one of the coolest cities in the world in tech. To add to that there are tax breaks every where for investors and hence it feels like a giant has awoken. So the guys loved everything and everyone they met loved them….not hard as they are nice guys☺
Goodaudience had it’s challenges as every startup does but Sherman and now Karl Gusner were on fire. Everything was going well. So the Techstars program finished and Sherman and Karl decided to go back to San Francisco for a while.
By chance I was in San Francisco in September/October and I went to dinner, breakfast, coffee etc with Sherman/Karl and they told me they were thinking about relocating back to London as they loved it so much. So I agreed to invest and advise them and a plan was hatched.
January arrives and the guys arrive in London, we have lined up 5 meetings per day for weeks with every angel/vc etc in the UK. We tweak the pitch but fundamentally the business is great and doing everything that it should do, so they quickly become the hot new startup in town. We had set a target to do a quick raise at a decent valuation, utilising all the tax breaks to the max, but the money keeps being offered. I have helped raised money many times for many startups so I know how fickle things can be, so I advise the guys close it down and do the deal at what they wanted initially…but the money keeps being offered. We chat more between ourselves and decide to increase the valuation but take in more cash as it seems silly to refuse it. After chats with many of the angels/vc’s who many are friends we flush out lots of the concerns. The concerns being:
- structure of the board and a lack of a grown up — I am many things and have grown numerous companies but I am not a grown up, I employ people who do that for me.
- changing valuations
- plans for the extra cash?
- legal framework — the company is a Delaware Inc, but to maximise many things in the UK the company has to be structured in a certain way.
- 95% of money being invested was from UK angels or VC’s and hence legally everyone viewed this as a UK deal and wanted a UK term sheet. The US lawyers seemed to want a US term sheet.
These concern myself and the guys talk about them but at this point Sherman and Karl have to head back to San Francisco.
This is where the problems start to arise as communication between many vested parties becomes hard. Sherman brushes over this in his article and does not even mention some of these concerns that investors had. Sherman and Karl were spinning many plates as well as running the company.
BUT
They believed as they were the hot new startup everyone would jump when they said so. Sadly this is not the case whether you be in London, New York, San Francisco etc. Potential investors felt out of the loop and that simple concerns were not being answered. Slowly the confidence that the guys could run a proper big company started to dwindle, culminating in one of the major investors pulling out due to them having too many new hot startups to process…my words not their’s☺ and I suspect feeling uncomfortable about the questions above. Then another investor pulled out, slowly the domino’s started to collapse. A friend who was also acting as an advisor and potential investor to the guys, who is one of the smartest and nicest people I know rang me and said he had concerns that the growth numbers could not be sustained with the new reduced investment and hence the risk to the business had increased massively and he would advise that they reduce the valuation or run lean for another 6 months and then raise a big round. The latter of which they have decided to now do.
The reason I wrote this is Sherman’s articles implies that it is UK terms sheets, UK lawyers or UK investors that made GoodAudience nearly go broke, but I simply believe that it was that Sherman and Karl did not take complete control of nailing the raise. UK tech companies raised over £1 billion last year so I don’t think the system does not work.
Happily Sherman and Karl seems to be still killing it and have just closed a quick round in the US. I believe they took complete control and responsibility to nail it this time☺
I have never changed my opinion of the guys in all of this process. They have operated with complete honesty, integrity, brains, fun, dedication, etc etc etc. I cannot say enough about how good they are and I will see the guys many times again and I would love to see Sherman on stage at Techcrunch with that big grin…saying we got huge because it would be fun☺ All the best kiddies☺
Doug
This is me — Linkedin click away☺OR Angellist HERE and see why I liked the guys☺
