What follows is based on my own personal experiences, views and opinions about the world of startup financing.
I’m sharing today because I believe in the educational value of other people’s failures. Here are mine.
I started mophie over seven years ago. It began very simply:
I had an idea. I believed the only thing standing in the way of my gift wrap and ribbon prototype of the first “lanyard-headphone” becoming a mass market success was just a little bit of dough.
Like most entrepreneurs and creative people, to me money appeared to be the only barrier.
So, with the same instincts that instruct me to breathe and blink every now and then, I began raising money.
After endless Excel models, the writing of my first (and last) business plan, promising that I would go to college, and committing not to do anything stupid. My first round of funding came from a second mortgage on my parent’s house.
My parents invested $185,000. If I remember correctly my Mother took 90% of the founder’s equity in her name, and gave me 10% with the chance to get to 50% as she was paid back (if producers for Shark Tank are reading, call Mindy Kaufman).
To this day, that first round of money was the hardest to raise — even though it was my parents. They put me through the ringer, and boy am I glad they did.
I took the deal, and began working on my little product under the name mophie — named for my two golden retrievers, Molly & Sophie.
mophie had a rocky beginning. I didn’t know what the fuck I was doing. My security blanket was the money I had raised, so I used it to learn.
Think college is expensive? Try retooling a consumer product 5 times because your engineers and/or factory didn’t have their shit together.
The $185,000 my parent’s bet their house on quickly vanished in the back streets of Shenzhen. It was then that I realized that money was not the thing standing in my way, but rather the details and intricacies of execution.
Yet still, money was necessary to keep the dream alive.
Somehow, I hustled together a small angel round from Vermont entrepreneurs in order to get to a Macworld trade show.
I then hustled folks at the Macworld show into digging a set of renders for products that didn’t exist yet, ultimately taking home the Best of Show award at Macworld 2006.
Then came my first Venture Capital Round.
1.5 Million Dollars. I was 19.
Know what the press said? “Mophie hits the big time”
That’s where our story begins…
Startups, The Press, & Funding
There were 7 guys on the cover of the local paper that morning. All in douchey sunglasses holding a set of iPod condoms like they were Benjamins.
One of the seven dudes was the guy the venture capitalists hired to replace me as CEO of mophie because I was too “inexperienced”.
“Hitting the Big Time”:
- We hadn’t shipped any of the 12 products we showed the Macworld attendees in San Francisco 8 months prior.
- We raised 1.5 million dollars at a 1 million dollar pre-money valuation. I lost complete control of a company I worked incredibly hard to start, and a great deal of confidence in myself as a result.
- The world (and our team) believed what they read. We were treated differently. We treated things differently. The world thought everything was done, mophie was successful.
My grandfather called me to congratulate me on building a successful company. We still hadn’t done shit. We just got some dude to write a check.
This experience, coupled with another 6 years of institutional financing experience after, has lead me to accumulate a comprehensive array of reasons why I hate glorifying startup financing, and why it disgusts me when fellow entrepreneurs gloat about how much money they’ve raised as part of their 60 second elevator pitch.
In the eye of the public, and specifically the tech community, funding is thought to mean much more that it actually does. The world views funding as a badge of honor. I view it as a scarlet letter.
I’m continually disturbed, insecure, and uncomfortable about what it means to raise money, and what it means to boast about it. Here’s why:
A few establishing remarks:
- It’s undeniable that one of a CEO’s primary jobs is making sure that there is enough money in the bank to do the concept justice. Throughout my career, the longest I’ve gone without worrying that my vision was being throttled back by resources was probably around 8–10 months.
- For most endeavors, money is necessary. That’s ok. None of the below is meant to dissuade you from raising money.
- Raising money is indeed an accomplishment, and it most certainly is not easy. Most startups struggle to get people to buy into their visions, and those who receive the scratch necessary to pursue their dream definitely have something to be proud of.
For those of you who haven’t been able to close a round yet: use the below as comfort that the folks who have aren’t as far ahead of you as they may seem.
For those who have, realize that the press release announcing your big fundraise will only keep you warm for so long.
Things I have learned from closing rounds & announcing funding:
1. Be bigger than your round
If the press is only writing about how much money you raised, it’s because you haven’t done anything bigger. That’s on you and your team. Work your ass off to make sure the money is not the news. You should be really fucking uncomfortable if the money you raised overshadows the work you’ve done. It scares the shit out of me every night. Still does. Don’t rest on your round. Fight your round, be bigger than it. Make people forget that time you raised money.
2. Lead through it
The way you carry yourself through the announcement of a financing has a huge effect on your team and community. If you pretend it’s the coolest biggest deal in the world- they will too. Suddenly, all the hard work they are putting into launching a new product is out-shined by the fact that you got someone to write a check. As some illusion of success is felt, the collective level of hustle will naturally wane.
3. Be insecure
When I sign a term-sheet, I get angry and uncomfortable. “Shit, ok no excuses anymore–I gotta do this.” There is an immense sense of responsibility. Let your team feel your stress, your angst, your hunger. The passion of all around you will go through the roof. People won’t just throw money at problems, they’ll work with the same scrappiness and drive that got you this far.
You don’t have to pretend you’re a big fucking deal. You’re not (yet). Be insecure.
4. Do not: Congratulations
Don’t congratulate people for raising money. That was never the goal. The goal is building a successful and meaningful business. When people raise money, instead of congratulating them, wish them luck. Their work is just getting started.
Congratulating people for financing perpetuates a problem that has plagued the startup world. The problem is that that it’s easy to focus on the hype surrounding a company, and lose sight of the fundamentals.
This is why our industry is flooded with what I call “startup fuckers.” These are people whose only ambition in life is to raise money, and then sell their company. They have no real interest in building a meaningful and enduring business. If we let startup fuckers dominate, we all lose.
Read TechCrunch and any other “deal blog” and you’ll see countless companies boasting about how much money they’ve raised and how great they are as a result. It’s bullshit. They’ve done nothing (yet). Don’t fall into the trap of congratulating them.
This is my favorite startup quote of all time (although I don’t know who said it):
“Congratulating an entrepreneur for raising money is like congratulating a chef for buying the ingredients.”
That says it all.
5. Put your ass on the line.
Lay out clear goals for your users and staff as to what you hope to achieve with this round of funding: why you’ve raised the money, what you’ll do with it, and how the collective performance of everyone involved can be measured. Even if the money is news in the short term, you’ll have something to point to. “Judge me on this.” Some say under-promise / over-deliver. That’s fine. But do promise something, otherwise everyone will make up their own mind about how much your round should let you accomplish.
What I am trying to communicate is that there is a message to be sent along with the consummation of a fundraising round. And that message isn’t, “Yay! We did it!” Your messaging and attitude will set the tone, and the culture, of your company moving forward. Act accordingly.
A Taste Of My Own Medicine. Quirky’s Series C:
I didn’t go to summer camp this year. I went fundraising instead. It consumed my entire summer, and did wonders for my SkyMiles status. I met some great people, and learned a lot about myself.
I view the process of raising money as somewhat cathartic. When you’re building a company you tend to believe your own shit. Sitting through months of constant interrogation about your prior and future decisions makes you understand how things are perceived by folks outside of your little ecosystem.
As we have many times in the past, we chose to go with the better partner / firm, rather than the best valuation. As much as I valued the interrogation of our business, my team and I waged our own interrogation of the folks on the other side.
We were intent on finding partners who shared our vision for how Quirky will change the world. Plain, simple, and as cliche as that. We looked for a firm who believed, with great conviction (as we do), that Quirky is going to make the world a better place by enabling creativity at an unheard of scale.
There are no two firms in the world with a better track record for swinging for the fences and believing in ambitious missions than Andreesen Horowitz and Kleiner Perkins.
So that’s what happened.
With full & complete transparency: here is what to expect from Quirky in future. These plans could change, but as of right now these are the things top of mind for us.
Pace & Verticalization
We’ve been clear in saying our mission is to Make Invention Accessible. As time has gone on, we’ve actually been doing the exact inverse.
Increasing submissions to the site and a steady two product per week pace means the chances of becoming an inventor on quirky have diminished over time.
The undeniable fix for this is increasing the pace at which we choose ideas and bring products to market. We’ve been testing this internally for quite some time and are confident with some structural changes and additions to our team we can comfortably scale.
We aren’t taking on more for the hell of it, we are taking on more because it will produce better products, and more vibrant communities.
The quality of the feedback you’ve received as an inventor on Quirky has gone down over time. The “community” has become one central place where people are reviewing ideas that aren’t necessarily even relevant to them. Too much noise, not enough signal.
Ideas for a new type of baby bottle shouldn’t be shat on by a 43 year old hardcore gamer who lives in his parents’ basement. Similarly, his Monster Energy coozie shouldn’t necessarily be reviewed by Kindergarten teachers.
The online and offline world is filled with vibrant, vocal and knowledgeable communities centered around shared affinities. We intend on giving each one of these communities its own little invention machine.
We’ve been blessed with some of the best partners a company can ask for: Bed Bath & Beyond, Target, Staples, QVC, Container Store, etc. All of these amazing partners have bought into the crazy idea that consumers are the best place to look for innovation.
One thing has been clear: retail isn’t setup for fast-and-agile. Retail is dominated by large organizations that plan 12+ months in advance, and hate risk.
This doesn’t jive perfectly (or at all) with our plan to introduce several new products on a weekly basis (especially because we can’t even tell them what those products are until a few weeks before launch).
It’s because of this that we intend to take control of the last mile: the shelf space itself
…and by “us,” I mean you.
Once everything is sorted out, negotiated, signed and sealed, we’ll be experimenting with our own space at retail. The space will be within the same great stores we are doing business with right now. Difference being, it’ll be completely managed by you. Change the assortment on a daily basis, run your own promotions, check product in/out of the store.
You’ll be our chief merchant in your town.
What I saw when I visited our factory in New Jersey had a lasting impact.
This country and industry is headed in the right direction, and nothing can fuel that fire more than average people’s ideas being made right here in the US.
It will take quite some time before we will manufacture a majority of Quirky products here in the US, but over time I believe we can and should.
We will invest in US Manufacturing. I promise to provide more quantifiable goals and milestones once we are a bit further along.
What today means to me, and to the Team at Quirky
- We are proud today because of the opportunity we can now provide to our inventors and influencers.
- We are proud today because of our newfound ability to invest in US Manufacturing
- We are proud today because of the knowledge and mentorship we will receive from Scott and Mary
- We are proud today because of the new challenges we will take on, the failures we will have, and the lessons we will learn.
- We are proud today because of the inventions and innovations the world will now be able to enjoy. Inventions that wouldn’t have been possible if we ceased to exist.
….but then we shut the fuck up and get to work, because none of the above matters unless we execute.
This article was originally written by Ben Kaufman and posted on the Quirky blog in September 2012. It has since been deleted. Find the original post on Archive.org here. Ben left Quirky as its founding CEO on July 31, 2015.