Factorial’s first outside round: 500.000 € from angels and others
A small group of very talented business angels and two strategic funds joined us on our mission to change the Human Resources landscape for small and medium companies around Europe.
So who invested?
If you haven’t, I suggest you read our take on different types of investors first. For our round, we explored many options, but ended up going with those that fit this description:
Understanding our investors: from business angels to venture capitalists
Many times ambitious expeditions require of outside investment. Christopher Columbus couldn’t have crossed the Atlantic…
Investors we could actually work with
Sounds trivial, but it’s much easier to take money from someone than to actually sit and work together with that investor on tough decisions, strategic options, etc. We evaluated all investors the same way we do with employees joining the team. In the case of two of our business angels, we had actually worked together in the past. I’ve also seen over the last few years many cases where angel investors become part of the full-time team. Our sister companies Camaloon and Quipu had this happen multiple times.
Did you know that Tony Hsieh, CEO of Zappos (acquired by Amazon for $1.2 billion), started as an investor before he took over as CEO? Link
Complementary expertise and network
When we started the company we felt comfortable with our experience in B2B SaaS and online businesses. However, we did not have such strong background around finance, legal or the insurance industry, for example.
So that’s exactly what we looked for. Our group of investors include the best entrepreneurs and executives I ever met in those fields. Business owners who took their startups from the ground to highly profitable and growing companies. Executives who have been top innovators in their industry. A fund who places bets in disruptive businesses and help them succeed.
Avoiding conflicts of interest
This point isn’t something we were completely aware of until we figured out that some of the most skilled investors in strategic areas for us (specially around insurance) were in direct conflict of interest if they invested in our company. We lost the opportunity to work with great people because of their position in companies that would eventually become too close to Factorial as time goes by.
Also, because a startup is something that constantly evolves, we couldn’t guarantee that our business would not start competing with some companies that were participated by potential investors.
Cap table health
A capitalization table, or cap table, is a table detailing the ownership of a company’s shares and its value.
I almost couldn’t believe it when I saw a cap table as simple as Factorial’s when we founded the company. The last one I saw from Redbooth had way too many decimal positions and too many people and corporations I didn’t even recognize at first sight.
It’s quite common for a company with 8 years of history and a bunch of financing rounds to have messy cap tables, but I think it’s still important to remember why simple cap tables are better:
- Simple makes everything better. I like to keep things simple, so that goes for my cap table as well.
- Private company shareholders are almost as close as a spouse. The amount of paperwork and drama needed in case there’s a need to part ways is also similar.
- Banks and potential future investors like simple cap tables. Simple means no surprises, which means better returns.
- Co-owning a private company is no trivial matter. There’s responsibilities attached to the company, and we want to make sure everything is in order.
Why am I talking about cap table health, you might be thinking. Well, it turns out things are never exactly as you plan them — like Bernat always likes to say, things are not black or white, they are always gray. So we planned a round with a set number of investment tickets, 25.000, 50.000 and 100.000 € each. They helped us offer even deals to investors and keep the cap table simple.
However, some investors couldn’t afford to put in more than 15.000 €, others wished to invest 80.000 € instead of 100.000 because it fit their portfolio strategy best. Unfortunately, that would go against our rule to keep our cap table simple and healthy, so we had to either get our investors to match our structure or simply pass on the investment. We lost the opportunity to work with very talented and valuable business angels because of this, but again, healthy cap tables pay off in the long run.
Related to funding, I can now get back a lot of my time and focus on enabling the team and growing our business. Other than the occasional VC inbound request, no more fundraising for now.