4 Lessons Learned While Raising $10M: Getting an Enterprise Software Company Funded
By: Nathan Wenzel, SimpleLegal CEO
One month after officially kicking off our Series A fundraising effort at the 2017 SaaStr Annual, we had three term sheets land within 36 hours of each other. Not too long after that, we closed on a $10M A Round with Emergence Capital. Getting to the finish line was the easy part. Getting to the starting line was an incredible effort that was over a year in the making.
This post expands on my interview on The Twenty Minute VC. If you’re raising funding for an enterprise SaaS company, I hope this post gives you one more helpful data point for your journey.
One Simple Trick: Build a Real Business
We had two incredibly important advantages in the fundraising process. First, we had built a great business and didn’t actually need any new money. We were looking for a partner, not a lifeline. Second, we had fantastic institutional Seed round investors. By the time we were ready to raise again, they had already confirmed their willingness to lead an inside round. VCs can smell fear, but with real revenues and the option of an inside round backstopping us, we had no fear.
Lesson #1 for me was that the common wisdom on raising money when you don’t need money… actually turned out to be true! We built a great business that gave us options.That optionality significantly de-stressed the process. There’s no trick or hack to building a great business. Only execution.
Tell a Story that Focuses on Strengths and Addresses Weaknesses
Our strengths were our customer growth and pricing power. At that early stage, VCs look for a signal that something is working. ARR growth and ACV growth were those signals for us.
- ARR grew 4x over the prior 12 months and ACV grew 50% in the prior 3 months
- Gross Churn was near zero
- No customer had left us for a competitor (but we had taken plenty of theirs)
In enterprise SaaS, pretty much anything that’s not ARR, ACV, or Churn is a vanity metric.
We also wanted to address any potential weakness up front. For us, that meant we needed to educate VCs about the Legal Tech Market. Legal tech is an incredibly large and diverse market with huge potential for value creation. But, VCs don’t have a lot of experience there. We drew a parallel to other industries by showing that Sales has Salesforce, HR has Workday, and Legal has SimpleLegal. By clearly articulating how we were becoming the system of record for legal, we gave the VCs familiar themes to get behind.
Lesson #2 for me was to focus the message down to just a few key points. A collection of metrics isn’t enough. Tell a compelling story by focusing the message and connecting the dots into a narrative. Adding more bullet points doesn’t make the pitch more compelling, it only dilutes the story. We focused SimpleLegal’s story on a few metrics that painted the clearest picture of a high-growth business with customers who love our product.
The Overnight Term Sheet, Over a Year in the Making
From official start to receiving multiple term sheets, the fundraising process took about one month. However, the full process took much longer. We had established relationships with a few VCs roughly a year prior to the official beginning of our pitch process.
One term sheet did actually come together in about one month, start to finish. But, the short relationship made it impossible to commit to that firm even though they were clearly an amazing and insightful group of people.
In the early conversations with VCs, we didn’t share too many metrics. Those conversations weren’t pitches. We did share ACV trends because, at least in SaaS, your ACV dictates a lot about you, your customer, and how you go to market. We wanted to talk to VCs about who we were, why the market was compelling, and how they could help.
Lesson #3 for me was that relationships are worth building early. I don’t like to “catch up” or “grab a coffee” after every VC cold outreach. But, the relationships created prior to our fundraising process actually did turn out to be very helpful. I didn’t grab coffee after every cold outreach email, but I did take a meeting with every warm intro from existing investors. Our first conversation with Emergence came after an intro from an angel investor over a year prior to our first pitch.
Timing Isn’t Everything, But it Isn’t Nothing
There is a lot of conflicting advice on timing a fundraising process. It’s either very important or should be completely ignored. For us, timing the fundraise was all about where we were as a business, not about seasonality or Demo Days or Burning Man. Timing ended up impacting our process in two significant ways: one positive, one negative.
On the positive side, the SaaStr Annual was a natural focal point that brought the SaaS world to one place at one time. We leveraged that event to create structure on the front end of the process. Getting VCs to the starting line at the same time was the first step in getting them to the finish line at the same time. The general rule of fundraising is to run a parallel process, not a sequential process. Harry Stebbings called me a rule follower and I can’t disagree.
On the negative side, the VC community does seem to collectively take time off a couple times of the year. “Ski Week” is one of those collective vacation times. Ski Week hit right in the middle of our process. That week really hurt our momentum with a couple VCs. It actually made it impossible for us to pitch at least one VC.
Lesson #4 for me was that timing does matter. But, not for the commonly accepted reasons. When trying to coordinate multiple VCs to get to the finish line together, timing around vacation weeks and other VC events becomes important.
Back to Business
Hopefully someone finds these lessons useful in their journey. I don’t know how to put together a fundraising round for every business. I only know what worked for us. Your mileage may vary. Thanks for reading.