It was August 2019, and the fundraising process was not going well.
My co-founder and I had left our product management jobs at New Relic several months prior, deciding to finally plunge into building Reclaim after nearly a year of late nights and weekends spent prototyping and iterating on ideas. We had bits and pieces of a product, but the majority of it was what we might call “slideware.”
When you can’t raise big on the vision, you need to raise big on the proof. And the proof comes from building, learning, iterating and getting traction with your first few hundred users.
When we spoke to many other founders, they all told us the same thing: Go raise, raise big, and raise now. So we did that, even though we were puzzled as to why anyone would give us money with little more than a slide deck to our names. We spent nearly three months pitching dozens of VCs, hoping to raise $3 million to $4 million in a seed round to hire our founding team and build the product out.
Initially, we were excited. There was lots of inbound interest, and we were starting to hear a lot of crazy numbers getting thrown around by a lot of Important People. We thought for sure we were maybe a week away from term sheets. We celebrated preemptively. How could it possibly be this easy?
Then in July, almost in an instant, everything started to dry up. The verbal offers for term sheets didn’t materialize into real offers. We had term sheets, but they were from investors that didn’t seem to care much about what we were building or what problems we wanted to solve. We quickly realized that we hadn’t really built momentum around the product or the vision, but were instead caught up in what we later learned to be “deal flow.”
Basically, investors were interested because other investors were interested. And once enough of them weren’t, nobody was.
Fortunately, as I write this today, Reclaim has raised a total of $6.3 million on great terms across a group of incredible investors and partners. But it wasn’t easy, and it required us to embrace our failure and learn three important lessons that I believe every founder should consider before they decide to go out and pitch investors.
Lesson 1: Build big before you raise big
In 2019, we were hunting for what some referred to as a “mango seed” — that is, a seed round that was large enough that it was perceptibly closer to a light Series A financing. Being pre-product at the time, we had to lean on our experience and our vision to drive conviction and urgency among investors. Unfortunately, it just wasn’t enough. Investors either felt that our experience was a bad fit for the space we were entering (productivity/scheduling) or that our vision wasn’t compelling enough to merit investment on the terms we wanted.
When we did get offers, they involved swallowing some pretty bitter pills: We would be forced to take bad terms that were overly dilutive (at least from our perspective), work with an investor who we didn’t think had high conviction in our product strategy, or relinquish control in the company from an extremely early stage. None of these seemed like good options.
So one summer morning, my co-founder and I sat down in his garage — where we’d been prototyping, pitching and iterating for the past year — and realized that as hard as it was, we would have to walk away entirely and do a full reset on our fundraising strategy. We determined that if we couldn’t sell investors on vision alone, we would have to lean into our greater strength: building fast and proving the opportunity through user adoption and love.
We ended up raising $1.5 million on SAFE agreements across a number of significantly smaller checks. The money came from a dozen or so operators, people with whom we’d worked in the past and who trusted us deeply enough to invest a small amount in our business.
We also were lucky enough to meet Geoff Harris, a partner at a small seed fund in Seattle called Flying Fish, who provided much of the runway we needed to hire two more engineers, give ourselves healthcare, and launch our first public features on Product Hunt.
When you can’t raise big on the vision, you need to raise big on the proof. And the proof comes from building, learning, iterating and getting traction with your first few hundred users. By raising a smaller amount from people we really liked on SAFEs first, we were able to get to building the proof sooner.
Lesson 2: The lead sets the tone for the round
With a rapidly evolving product and thousands of happy users starting to adopt it, we suddenly felt the pinch. We were growing faster than we could keep up with, and we needed a bigger boat if we were going to make it to the next phase.
We had enough money in the bank that technically we could continue running the business for another year or so without needing to raise again. But we also knew that we had hit a critical inflection point in the business — both quantitatively and qualitatively — and it was critical that we recognized that momentum and adapted our plan accordingly.
Perhaps somewhat hesitantly given our experience so far, we set out to raise the elusive “mango seed.” We had compiled a massive database of investors from our last round of discussions, and so we started getting meetings on the calendar.
The conversations were fundamentally different. Our vision hadn’t changed all that much since we initially started Reclaim, but the product’s traction and adoption made the vision far more defensible and clear. Before we knew it, we had several hugely promising potential leads for the round.
Lead investors are often thought of as “the person who puts the biggest check in,” which is largely true but grossly oversimplified as a definition. The lead sets the tone for the round and for the early stages of your business: everything from preferences on board control to the way you structure your go-to-market to who else you can bring to the cap table.
We were lucky enough to find several people who would have been amazing leads for our round, but ultimately it was Shardul Shah at Index Ventures who set the tone in an undeniably attractive way. Not only did he have a strong relationship with the space we used to work in — developer tooling and observability — but he also exemplified a rare balance as an investor between prescription and autonomy, something that gave us confidence in him as a long-term partner for Reclaim.
When you get a lead investor and a term sheet, the hard work is really just starting, and so it’s essential to find someone who you trust (and who trusts you) to go through the process together.
Lesson 3: Diversity isn’t a buzzword
Index Ventures could have easily been our only investor for the round. We could have gotten the term sheet, gone through the due diligence, gotten the check and gone back to building in a month or so. Desperate to continue the focus on product, this route was certainly an appealing one.
But as we discussed it with Shardul, we quickly came to the conclusion that closing the round so quickly would prevent us from bringing tons of other voices and experiences to the table. Because seed rounds tend to be for smaller dollars and lower valuations, they’re typically the only round where you can bring in smaller checks and have it make sense for both the company and the investor. That means that you can bring in a whole variety of people who can help your company from the very beginning — which only gets harder to do once you’re at Series A and beyond.
We decided to reserve a good chunk of the round for angel investors and smaller funds. We had two primary goals: to have a cap table with a diversity of voices and backgrounds, and to have a roster of advisers and partners that we could tap into at any given time. We had a number of people already in mind (for example, Tope Awotona, the CEO of Calendly), but Shardul also introduced us to dozens of people who eventually became Reclaim investors.
It was a hard process. We took probably 150 or 200 meetings over the course of several months to bring in another 40 investors, and coordinating a close with that many people in the mix is challenging and demanding. But now that the round is behind us, I can definitively say that it was the right call. Not only did we end up with an incredible bench of people who we lean on weekly for advice and support, but we also built a cap table at which nearly half of the investors are women or people of color.
Building diversity into your cap table isn’t a buzzword; like your lead investor, it sets the tone for how the company will develop. A mix of voices and experiences gives you perspectives and ideas you might not have considered and lends you exposure to worlds that are unfamiliar to yours. I believe that it’s an essential part of early fundraising, and I highly encourage any founder to challenge themselves to bring diversity to their cap table early in the life of their company.
Whatever you do: Be authentic
Like many founders, we’re no strangers to imposter syndrome. It’s all too easy to scroll through Twitter and see a slew of orthodoxies on fundraising and immediately feel very bad that you’re not following the “conventional route.”
Our experience taught us that there isn’t one right way to raise capital and that authenticity above all is what will make your round a successful one. Lean into your strengths, know your weaknesses and optimize your round around them.
And, when in doubt, build.