Over the past two-and-a-half years, my main role for my startup Localeur has been to be the chief fundraiser for the company. The better I can do my job of fundraising, the more focus my co-founder and our team can place on improving our product and enhancing our user experience. Since our founding, we’ve raised $1.5 million from more than 40 angel investors, some experienced technology industry leaders and many first-time investors whom I’ve known since high school, college or my early professional years. Our newest investor is Brett Hurt, the founder and former CEO of Bazaarvoice, a publicly traded company on the enterprise side of the user-generated content industry. Both my co-founder Chase and I worked at Bazaarvoice pre-IPO, and I’d long been eager to have Brett invest in us given his experience building companies from the ground up (before Bazaarvoice, his company CoreMetrics was bought by IBM), but it took more than two years of sheer persistence and tenacity (plus some solid traction) to secure his commitment. With that behind us and our first institutional round of funding just ahead of us, I wanted to take a moment to share my experiences raising money for a startup as a first-time founder without family money.
One of the most frequent things I get asked is "how do you raise money for your startup?" I'm hopeful I can share at least seven recommendations for how to go about doing that.
1. Taking a Job (To Build Your Network)
I’d had two businesses of my own before Localeur, first a pop-up sneaker boutique in Downtown Austin and then an experiential marketing agency that counted South by Southwest and ESPN X Games as clients, but doing a tech startup would require an entirely different set of skills. Thankfully, I knew this going in, and took a job as the Director of Operations and Strategic Initiatives, less than a year before Bazaarvoice’s 2012 IPO, to learn some important elements of a fast-growing tech startup. I’d run businesses before and feld I had the entrepreneurial chops (and risk tolerance), but I really wanted to round out my operational acumen from recruiting engineers and opening a New York office to leading a sales training program and launching a new product, I was able to leverage my time at Bazaarvoice to add a layer of industry credibility to my resume that would prove invaluable to building my network and laying the foundation for Localeur.
Today, I count Bazaarvoice’s VP of Sales Matt Curtin, former Chief Operating Officer Heather J. Brunner and, now, founder and former CEO as investors and advisers. I’d say mission accomplished on that front.
2. Liquidating Assets
For someone like me who’d had a couple of small businesses before, the urge to create a tech startup was strong because working at Bazaarvoice during their IPO showed me the potential of building something from the ground up that had real legs and real scalability. I didn’t know the precise idea I’d end up pursuing when I decided to leave, but I knew I was confident I’d learned many of the key things a first-time founder and CEO would need to know to launch a successful startup and the rest I’d learn on the way. I say all this because it takes a very very high level of confidence, self-confidence and hubris honestly, to do what I did which was liquidate all of my stock in Bazaarvoice, empty my savings account and put all my eggs into the basket of Localeur. A basket that at the time had no app, no users and nothing more than a few months of runway in the bank.
One of the things that gave me confidence was that a few years before I’d liquidated my 401k from years working in Washington, D.C., to start my own sneaker shop in Austin, Texas, and although the business didn’t work out in the long run, I felt I’d learned what MBA student go into tens of thousands of dollars of debt to learn by creating something of my own.
3. Hustle Like You're Broke
One sure way to help raise money for your startup is to hustle like you’re broke. Plain and simple. For example, at one point when we couldn’t afford to pay my co-founder’s salary, or myself I got all my old clothes together and cashed them out at Buffalo Exchange. On another occasion, I took a couple different consulting gigs from a former boss to advise BP and Doritos on some creative projects. I also worked on a project for a liquor brand and another for a local public affairs issue. These projects had very little benefit to Localeur’s mission and growth beyond allowing me to continue paying my rent and paying my co-founder’s rent in order to keep us focused on building our business. Without this kind of hustle, I can truthfully say, Localeur would not exist today. It’s something that carried both Chase and I over in some really tough financial moments in our company history, including moments when we were on the verge of being evicted from our own apartments and (in my case) having my car repossessed and filing personal bankruptcy. Tech entrepreneurship gets a lot of fanfare and press, but this is the rough part of it that you seldom hear about, but several founders encounter at some point in their journey.
4. Friends & Family
It’s not entirely intentional, but only after being willing to take a certain job to acquire key skills and putting in your own money and hustling harder than ever can you truly go to friends and family for money. Without the level of conviction attained by doing all those things, you’re going to have a much more difficult time securing funds from the people who care more about you and the people you care most about. For some founders, many honestly, family money is close by and easy to attain. I’m not one of those founders. I grew up the youngest of three boys in a single mother household in which food stamps and free-and-reduced school lunches were common throughout much of my childhood. I could never go to my mom for school field trip money or college application money or to bail me out of jail or pay for a Europe trip and I knew I couldn’t ask her to help me pay for the initial concept of Localeur, either. So instead I made a list of 10 or 12 people I’d worked with and admired over the years, people I believed to have had some professional success and investment capability. Out of those 10 or 12 folks I called including people like Mick and Dre, more than half invested and that became a big piece of the first $125,000 we raised for Localeur. I’m forever grateful to these people for not only backing Localeur, which didn’t yet have a website or app or users, but for believing in me long before the tech industry veterans we now count as investors or venture capitalists would even consider us.
5. Angel Investors
Once you have your own grit and money in along with the support of family and friends, the task becomes getting advisers who can actually help your business grow beyond your personal network. In Austin, I was fortunate to count Clayton Christopher, founder of Sweet Leaf Tea (sold to Nestle) and Deep Eddy Vodka, as a friend and he introduced me to a member of the Central Texas Angel Network who became our early lead investor, helping us syndicate tens of thousands more dollars from fellow angel investors over our first two years. Without groups like Central Texas Angel Network, and more importantly without members like Chris Shonk and Travis Devitt, Localeur would not be where it is today. Again, I’m forever grateful.
6/7. Venture Capital & Revenue
Now, there are varying opinions about this next piece. Some people believe monetization of your business should come before venture capital (typically for enterprise and Software-as-a-Service companies) while others (usually consumer tech investors) agree with the idea that you have to reach a certain level of product-market-fit and user traction to start worrying about revenue. Over the last two years, we’ve tried both. We’ve partnered with companies like HotelTonight and W Hotels to generate revenue and we’ve also gone out and pitched a bunch of VCs without tens or hundred of thousands of recurring revenue. I don’t really have a dog in the fight in terms of what to recommend for your particular business; it’s truly a case-by-case thing. What I will say however is that growth concurs all. For us, we are very much thinking through monetization strategies and how we plan to scale as a business, but for right now – from our board level on down – we are laser-focused on exponential user growth. We are approaching 1,000 percent user growth since December of last year, and are keeping our burn rate pretty low compared to similar companies in San Francisco and New York, so while we focus on user growth rather than revenue, we also understand the need to stay pretty lean to be as efficient as possible with the funds we have raised.
Stocks are already liquidated, family and friends have already invested, and angel investors don’t last forever. Plan accordingly. I know I am.