When Are You Ready To Raise a Series A? When Customers Say, ‘This Thing Changed My Life’
Crossbeam, a data-collaboration platform, is Bob’s third company. File it away as a case of another founder scratching his own proverbial itch.
“Basically, we help companies partner with one another in a more data-driven way by identifying things like shared customers and prospects,” Bob says.
In his previous companies, Bob realized he couldn’t figure out if he was going after the same customers as another company without both parties revealing all of their data.
“If you had a trusted third party that could perform that analysis, you could get much deeper insights while still keeping the rest of your data private and secure,” Bob says.
Think of Crossbeam as the “LinkedIn of data,” he explains.
“You’re sending invitations and connecting with people who have the right level of agency at your partner companies,” Bob says.
Beam me up a seed round, Scotty!
Crossbeam was actually Bob’s first experience with raising a seed round.
He put out some feelers around fundraising for his previous company RJ Metrics, but the market wasn’t exactly in great shape when he launched in 2009. The company was bootstrapped for a few years as the economy recovered. Eventually, Bob and his team were able to begin looking for investors, and RJ Metrics secured $25 million in funding over a three-year period.
Even though he didn’t initially run a formal process for RJ, Bob came close to getting one term sheet at the beginning of his bootstrapping period.
“I’m actually extremely glad we didn’t,” he says. “When we raised a convertible note six months later, it was more than twice the valuation that we would’ve gotten before.”
After his exit from RJ, Bob leveraged his connections to start conversations about Crossbeam.
“One of the benefits of being a repeat founder in a market where venture capital dollars are flowing is that you can rely on those existing relationships,” Bob says.
“I would say I ran a mini-process,” Bob says. “Even before I started trying to get the deal, I had those two firms singled out as my ideal co-leads. They are two of the best firms where the portfolio is a platform. Your ability to learn, go to market, get early customers and get people that really feel a sense of investment in your success is extremely high.”
Blasters set to … double check
For Bob, securing money starts even before you start asking for capital. “Before you raise that next round and get into the Series A, make sure you’re on track,” says Bob.
Once the money is in, it might be too late to course-correct.
“If you think about it like you’re building a rocket ship, you want to make sure it’s pointed exactly in the right direction before you start filling it up with fuel,” Bob says. “Being turned two degrees off one way or another could be extremely catastrophic when you light the flame for liftoff.”
But how do you know if you’re pointed in the right direction?
“It is 100 percent about proving the product-market fit of the thing you’re building — to justify increasing the rate at which you’re going to burn cash,” says Bob.
It’s not enough to just have a great idea. Have a clear vision of how more capital will affect the future of your company.
Bob says he doesn’t even consider raising another round until he is very sure about his clientele.
He won’t raise a Series A for Crossbeam until he feels like he has “a really strong universe of representative clients, all of who are willing to pick up the phone and say, ‘this thing changed my life,’” he says.
“Plus, I want evidence of a lot more people like them, and that we know how to reach them.”
But it’s also a good idea to balance that confidence with an actual pitch. Bob advises entrepreneurs to focus on storytelling in their earliest rounds of pitching to investors.
“It’s okay to be extremely transparent and honest and answer questions with, ‘I don’t know,’” Bob says.
For him, “Raising a seed round had nothing to do with data. It had everything to do with our vision and the ability to create conviction that there was a massive market — and that our team was precisely the right one to go after it.”
Crossing the (moving) finish line
Serial entrepreneurship has changed Bob’s definition of success.
“As you progress in your career, you start to think about success,” he says. “When we started RJ Metrics, dilution sensitivity was really about downside protection. If we sell this business for $3 million or $4 million in a couple of years, is that really intrinsically exciting to us?
“Well, yeah, as long as we don’t owe investors $5 million bucks.”
But with two successful companies under his belt, Bob says his mindset has changed.
“When I think about Crossbeam, I think about the importance of speed, growth and finding an opportunity with a massive addressable market and potential outcomes,” Bob says.
Basically, he’s less interested in owning more of the business than making a few million off a sale.
“The economic upside of a sale, while material, will not represent a new milestone or a new level of success,” Bob says. “The reason to do another company is to try swinging the bat really hard, making sure we’re doing something really big.”
Nathan Beckord is the CEO of Foundersuite.com, a software platform for raising capital. Foundersuite has helped entrepreneurs raise over $1 billion in seed and venture capital since 2016. This article is based on an episode of Foundersuite’s How I Raised It podcast, a behind-the-scenes look at how startup founders raise capital.