What I learned after 4 years of startup and over 1 (real) milion euros collected in venture capital
These days we are concluding the last round of seed investment for my startup Metooo, platform as a service for event planners, amounting 400.000 euros. The four previous rounds were 60.000 euros (2013), for developing an MVP and testing the market, 450.000 (2014) to go online with a complete beta, and start localization in London, 150.000 in 2015 to complete the apps and implement other general features, 300.000 in 2016 to build and introduce the PRO version.
With these 400.000 euros we will officially start promoting Metooo in Italy, UK, Spain, USA, Canada, India and Australia.
If we reached about 7000 active users so far (for us, “active” means those professional event planners who published, promoted and managed at least 1 event) in 26 countries, it was all thanks to word of mouth. But zero promotion means zero euros spent in advertising (not zero euros spent in marketing). Every euro we collected was, in fact, spent in marketing. And this is the first thing I learned: the quality of execution is the best marketing plan for a startup.
I saw, during these years, colleagues and friends having burned tens and even hundreds of thousands of euros in marketing actions aimed solely at making an impression on the market. And they did this by showing products that lacked in quality, by intoxicating users with vouchers worth dozens of euros just to sign up to the service, and even spending money to buy their own products, just to impress investors with numbers. All this to follow one of the sickest principles of the Silicon Valley: “fake it till you make it”. But Italy is not the Silicon Valley, and this is the second thing I learned: in a country in which scams represent 99% of the startup system, in order to gain a visible place in the eyes of the market and of the real investors (those who open their own wallets), all you need to do is be frank, not boast, not chase valueless metrics, and most of all, don’t bond with those who make scamming their way of working.
The third thing I learned: the value of isolation. Let’s get this straight, nobody would ever think that a startup shouldn’t be connected to the rest of the world, or to its vicinities, because networking has great value, and I agree. But networking can NOT mean attending each and every morning/afternoon/serial event/happening, chasing worthless events like contests, pitch competitions, where — let’s openly say it — no-one has one euro to invest. The presence of startups at these kinds of events is only necessary to those who make a living on the back of these startups, in one way or another.
Not attending startup events almost always means saving time, money, and avoiding getting fake information. Because assigning a title and offering a cup doesn’t make you a Mentor, and there are too many failed enterprises, too much money wasted (of course, other people’s money eh!) due to zero competency of Mentors, Trainers, Judges, etc.
Fortunately, it seems that the show-business of contests for startups is dropping, it was about time!
The fourth thing I learned is to ask to see track records of each person I met along the way, before continuing any comparison. And generally, that’s where the comparisons ended. And not because I require who knows what amount of experience. But you can’t think that you master a process just because you read some presentation on SlideShare, or because you took one of the many pseudo-training courses that they teach everywhere. For the rest, the money I paid in salaries and collaborations was always real money, the kind of money that is earned by a pizza maker who passes an entire evening in front of his oven and arrives home at night with aching hands, a stiff neck and covered in flour.
And this is the fifth thing I learned. Managing a startup cannot be “cooler” than being a pizza maker, there is no such thing! A pizza maker does not have the responsibility of clients entering the restaurant, he doesn’t have to negotiate tomato prices, he doesn’t have to make sure that the oven resists the high temperature, he doesn’t have to make up for the errors of the waiters with his own money. A startup founder does have to do all this. Which is why I’ve always kept myself distant from those founders who described their business as a fun, exciting thing, a dream, while completely ignoring to talk about responsibilities, 18 hour long work days, every day, about Parasocial Pacts, Investment Clauses, and all the rest.
The sixth thing I learned was to collect money from private investors. When we collected our first 60.000 euros, after having invested a similar amount from our own pockets as founders, the thing appeared strangely simple to me. I met a business angel, an entrepreneur, to whom I talked about the events market, I explained how I would have penetrated that market, and I showed a few screenshots of our platform. He then asked questions about timelines, about the needed budget for accomplishing the next steps, and he asked me what I had done for a living before starting this project. “I planned events for 15 years, I managed a web agency for 5 years, and I merged these skills together.” He then asked me how much money I made in those previous businesses. He asked me how much money I needed for this project, and how much money I had already invested in it myself. He asked me to show him what I had achieved with my own investment, he asked me whether I was satisfied with it and whether I was ready to take greater responsibilities. He then wrote me a check.
When I then met the other business angels for the second round of seed investments, I did the exact same things. Well, this may all seem way too easy, but it’s not. I was simply lucky. I was lucky to have avoided to talk to hubs, incubators, accelerators, investors’ clubs, etc. That is, all those entities that keep appearing like fungi in our country, that ask you for a business plan to evaluate your project (yes, do not laugh!), or that put people with absolutely no entrepreneurial experience in charge of project scouting. It will sound weird, but none of the investors in Metooo (all entrepreneurs who invested their own capital in the project) has ever asked me metrics and projections for extended periods of time. None of them has ever asked me what kind of exit I was imagining. What they did ask me was: where’s your strategic control point? What is the cost structure of your project and how does it change when your market grows? Who are your competitors and why do you think you ALREADY have a competitive advantage that for sure cannot be the quantity of money that is spent on advertising? We then set milestones, and at each milestone, new checks were written. So, here it is, over 1 milion euros collected in private capital is based on this simple architecture.
Seventh thing: I learned how many things you can do for your startup with the same amount of money. When we decided to relocate in London, I decided to not rent an office in Shoreditch right away, because the annual rent there was 45000£. I decided to invest part of that money to understand whether it was worth it. After a year, of which half spent on trips to London, I decided it was not worth it. London was all fake. Without going into too much detail, it’s enough to just quote the case of YPlan, the londoner event startup that, after having collected almost 40 milion in investments, made its “exit” at 1.5 milion. The story of YPlan is not isolated, it represents the mirror of the startup world in London. With the capital we would have had to use to do startup from London “the London way”, we instead finished developing the platform and we truly understood what the market wants to buy, and in what way.
Stop right there, what is the “London way”?
Well, it’s exactly the eighth thing I learned not to do: design my startup in “curation” mode. Just like YPlan invested tens of thousands of pounds in staff, to populate the platform and present it as “WOW” to whoever opened the app, so many (too many) startups keep their funds blocked in staff, only to push the service to market… by producing the very service! This is not customer care, or brand ambassadorship, that we’re talking about. We’re talking about producers-sellers. This way, in a short time, the startup passes from a scalable model to an “agency under cover”, capitals run out, you always need to find and invest higher ones. How long can this vicious circle last? Not long. And anyway, not for ever. And it’s not possible to just keep collecting ever growing capitals, while pretending not to see the financial statements but just the “potential value”. Money must produce money, not just hypothetical possibilities. And you can’t actually scale a business this way, every localization requires new investments, and you can’t even be sure that repetition is enough! We chose self-service: zero curation! And, incredibly, it works J
In Metooo there are 5 of us today. Yes, 5 people. Me and Ciro, the cofounder, have known each other, and have worked together, for almost 10 years. This is the second last thing I learned.
There’s a saying: “ If you want to go fast, you have to go alone. If you want to go far, you have to go with the others.” What it doesn’t say is that the “others” don’t even have to be that many. And that the “others” have to be the right people. At times, there have even been 12 of us. And during those times, we even slowed down our growth, and sometimes, we even lost direction. Now we’ve reached a point that all of us wanted: the point of strategic control, a lean cost structure, almost independent of the quantity of money we spend on advertising. We developed a solid, scalable structure while others were investing in curation and advertising. We have real growth metrics, to show to the next investors. We acquired strong knowledge of the market and of our consumers, by dialoguing to each and every one of our users, and this will allow us to make good investments in communication.
The last thing I learned is: don’t be in a rush, don’t allow your rush (or the rush of whoever gave you the money) to ruin your execution, because a successful startup is not a sprint race, but a marathon.
Now some tips:
When you read news of startups growing in a spectacular way, making milions in revenue, go spend a few euros, download their financial statements and carefully read what it’s written inside. All too often, revenues are in fact surpassed by the costs of generating those revenues, with losses of millions. Of course, these losses are not revealed in news and press articles.
Recently, everyone was shocked by Mosaicoon’s bankruptcy, but I wasn’t: I had downloaded their financial statement long before, and I had studied it, and I had understood that they were already on their way to disaster.
Don’t let them dupe you, don’t give up on your dream, don’t get scared, don’t feel guilty if you grow slowly. Just to give you an example, it took MailChimp 17 years to become profitable, and yet, today, they are the undisputed leader of the email marketing industry.
Doing startup is supposed to be a fast process, we all agree on that, because innovation is fast, and you can’t wait too long. But running, while also accumulating losses, just to make it seem like you’re growing, but without any real development, will not get you anywhere. Except maybe, on your way to failure.
