Yesterday was the deadline. I promised myself and my team that I would put an end to it on Friday, June 27th. After 9 consecutive quarters spent pursuing some kind of funding to keep my company alive and growing I am thrilled to be officially taking a break from being in “fundraising mode.”
Many think raising funding is about checking boxes on the well worn path to an outcome, but this is a dangerous reversal of cause and effect. Raising funding is not the milestone to celebrate; it is the people and the actions taken (or not taken) that determine the company’s fate. Funding is fuel to keep a startup alive long enough to realize its potential, but if it is headed in the wrong direction more money will just propel it off a cliff faster.
Paul Martino of Bullpen Capital gave a talk at the PreMoney conference yesterday where he covered a lot of ground, but one particular point resonated with me the most: the lettering of Series A, Series B, etc. is starting to break down.
“How many institutional closes has your company had?”
How many have we had? Depending on how you count things at least 3 or 4, probably more. If you read through our “heavily syndicated” (read: 40+ investors) cap table I’ve been fundraising nonstop for over two years, ever since Michelle Goldberg and Dave McClure wrote two $50,000 checks that allowed me to quit my job, work on my startup full time, apply and ultimately get into Y Combinator with Referly.
This round looks a lot like a Series A did 10 years ago. Taking a second seed round instead is possible instead because I’m fortunate to stand on the shoulders of founders who came before me. Their products (SaaS tools to streamline operations) and efforts (convertible notes, standardized terms, activism) enable me to be more capital efficient, more transparent, more provocative, more equal (as a woman), and more genuinely myself building Mattermark. Milestones we’ve achieved reflect this, and I’m grateful.
For the media we package up our funding rounds and other milestones neatly, to make them digestible and to avoid any unintended signaling. As far as the public is concerned the timeline up to now looks like this:
Mattermark Raises $2M More for Deal Intelligence
Let me spare you all press release filler and tell you the key details you’d be skimming for anyway:
Returning Investors: Andreessen Horowitz, Ullas Naik
New Investors: Version One Ventures, Felicis Ventures, Flybridge Capital Partners, Slow Ventures, Gramercy Fund, Armando Biondi, Greg Arrese, Trent Gegax, Steve Loughlin (CEO of RelateIQ), Jay Wiley, Enrico Pandian
Terms: Convertible note, not disclosed
New Board Seats: None
Team Size: 21
Fun Fact: 95% of money in the round came from investors who were already paying customers — including VCs, angel investors, family offices, hedge fund managers, founders and executives
Our funding history over the past 9 quarters tells a very different story from the PR perfect “rounds” startups feel they need to announce.
Rise of the “Second Seed Round”
Hunter Walk of Homebrew Ventures recently wrote “Money Doesn’t Talk. Why Most Startups Aren’t Announcing Their Seed Financings” where he lists several possible reasons why startups aren’t rushing to announce the money they’ve raised. I’d like to propose two other reasons, which have certainly been true for me in our most recent round:
- the round isn’t closed — don’t want to get in trouble in the case that an announcement is construed as general solicitation
- the narrative is messy — don’t know how to explain the round cleanly
Walk’s post was followed closely by a post from his portfolio company Nuzzle: “Why Nuzzle Raised a Second Seed Round” which walks through their reasoning and the opportunities that lead to taking more seed funding. As I read it I couldn’t help but think “look at this headline, these founders feel like they have to justify taking the unconventional path instead of Series A…”
According to Mattermark there are 2,026 startups who have raised more than $3 Million over the past two years, but are still classified as “Pre Series A” meaning they haven’t formally announced a Series A round. We are not alone.
I’ll tell you why we took a second seed round — we were going to run out of money and couldn’t raise a traditional Series A on acceptable terms.
There, I said it.
In January I selected a dozen investors we wanted to work with and pitched them on our Series A. I quickly discovered expectations for a B2B Series A were $1.5M in annual revenue run rate — we were growing fast, but still only 1/3 of the way there at the time. In fact, if our run rate had been that high we would have been massively profitable.
We also had a market problem. We were pitching VCs on a product they themselves used — but they had a hard time understanding the broader market and even though we had a handful of reference customers for our emerging verticals we hadn’t effectively told the story. I ended up writing “Introducing Mattermark, the Deal Intelligence Company” to help with this.
Despite these problems, we did get term sheets.
After modeling out the cap table I was worried — the amount we would be taking was smaller than we’d planned and I would need to start fundraising again in 6 months, and then I would be up against Series B metrics to hit before we were ready for them. I spent a sleepless night debating whether I was making a huge mistake, and concluded that it would be smarter and more wise long-term to take on a bit more debt and hit the next milestones.
I was pretty open with my team about the fact that I was fundraising, so it was a little awkward to suddenly stop giving updates on “our Series A.” We had a lot of plans, we needed to hire engineers to build the improvements our customers were asking for, we needed a way to cover our steadily growing AWS bill, we needed to start experimenting with new markets.
It was at this crucial moment that Boris Wertz of Version One Ventures, one of our earliest customers who agreed to pay for Mattermark when it was still a Google Docs spreadsheet, offered to bridge us on a convertible note. This infusion of cash from a completely new investor who I already considered a friend and mentor gave me confidence, and from there began conversations with investors who would ultimately participate in our current round.
What It’s Like Having 40+ Investors
Like all relationships in life, my relationships with our investors ebb and flow depending on what we can offer each other. Sometimes there is a clear way someone can help and we engage a great deal, other times they’re focused on other things and it doesn’t make sense be in close contact. At any given time I’d say 25% of our investors are passive, 50% are in touch 1x per month, and 25% are in touch 1x per week.
One interesting thing about the new institutional investors who invested in this round was that I found a connection with more than just one member of each team, beyond the partner who ultimately wrote the check. At Version One Boris wrote us a check, and I immediately clicked with Angela too. At Felicis Sundeep Peechu was my original point of contact, but over lunch I talked piano and brain waves with Renata, Dasha, and Aydin (and they have the best food/chocolate). At Flybridge Chip Hazard lead the deal, and we met up for drinks in New York and I got to hang out with Matt and Caitlin, and then onto Boston to meet Kate.
Just as with John, Forest and Sheel at NEA and Frank, Marc and Morgan at Andreessen Horowitz before, any worries I had about being a small check in a large portfolio of board seats was quickly set aside. Based on my experience, I think it might be a myth that VC funds don’t take care of their seeds. I’m bragging a bit, but I really do think I am fortunate to have some of the best investors in the world.
Okay, okay — enough investor butt kissing Danielle!
This post is the last post I am going to write about fundraising for a long, long, long time. As you can see from the graph above, we have nearly $2 Million in the bank and have identified a multi-billion dollar market to go after, so my job for the foreseeable future is to put that money to work building the team, setting our strategy, and hitting our next milestones.
Day-to-day I’m focused on taking off the various operational hats I’ve been wearing and delegating them to fantastic additions to our team.
- I’ve hired Bryan Tsao as our Director of Product, and he brings rich experience scaling Kabam from $0 to $360M in revenues at Kabam over the past six years as employee #16
- I’ve hired a VP of Sales (TBA, watch this space!)
- I’ve hired our first UI/UX Designer and I’m hiring our first Frontend Developer so I can stop doing our HTML/CSS and design.
- I’ve hired a full time in-house recruiter so we can level up in the battle for the best engineering, data science and analyst talent in the world.
We’re still following the same advice we got in Y Combinator. Pick one metric and just make it go up consistently. For us, that number is our Net Annualized Revenue Run Rate — and the “net” part is crucial because it is net of refunds, churn, and upsells. Our monthly growth of this metric ranges 10 to 20%, and as you can see thanks to compounding there is a wide range of growth we could experience depending on how consistently we hit the higher end of the range.
In the spirit of Jack Ma, in his letter to Alibaba employees following their IPO filing, we recognize that raising capital “is one important strategy and vehicle for fulfilling our mission. It is a gas station along the road to the future.”