How to Raise a Seed Round for your Startup
In 2006, I raised over $1 Million with the New York Angels.
At that time that was the largest amount ever raised through the New York Angels group, and as far as I know, it still is the record. In this post, I'll be exploring the process of raising funds through an institution like the New York Angels.
When I read various entrepreneurial forums, one of the big questions is "How do you get an idea for a business?" In my case, the idea was literally given to me by one of my clients. They needed a competitive intelligence tool for email. At the time, back in 2003, no such technology existed, and so I decided to develop it myself.
I called the company Email Data Source (now eDataSource.com), which began life in my garage as the first competitive intelligence tool for email marketers. By 2005, we were an 8 member team, profitable, with offices in Manhattan and with about 70 brands as clients.
One day Bob Rice, who was a member of the New York Angels and who was also a friend, stopped by to get a demo of our competitive intelligence tool. I had known Bob since the 90's when we were both working in the field of cutting edge 3D Technologies for the Web. I was the VRML Evangelist for Silicon Graphics and he was the CEO of Viewpoint Technologies. During my tenure at SGI, I was able to successfully pitch the integration of 3D technologies into AOL's browser. SGI's 3D Web devision soon crashed and burned but Viewpoint was able to pick up on the opening and their technology was integrated into AOL.
Bob loved what we were doing and thought we would be a perfect company to present to the New York Angels. He became our sherpa, guiding us through the process of getting an investment and working behind the scenes on our behalf with the New York Angels membership. He also wrote about our company in his book called Three Moves Ahead: What Chess Can Teach You About Business:
The first stage in taking an investment from the New York Angels, is finding someone on the inside who can mentor you through the process, advise you, and to work behind the scenes on your behalf. You need a Bob Rice.
The first hurdle to overcome is getting on the NY Angels presentation schedule. Each month, the New York Angels meet and review companies looking for seed funding. It is a type of social club, and to remain a member you have to invest, at that time, around $25k a year to remain a member.
Each month, the Angels see 3 presentations. They check a box next to any company they are interested in investing. But before you get to present, you need to be chosen to present.
The first stage is to meet with three members of the New York Angels team who are the first lines of defense and screen all the applicants. Dozens of companies are looked at this stage, only three get through. The three person team I had to go up against included Esther Dyson, which can be intimidating.
We passed the initial screening and were slotted with a presentation time.
Next step is to meet with David Rose, who runs the New York angels and you do your presentation for him. He gives you notes on your presentation and tells you how to improve it.
On the day of our presentation, we presented with 2 other companies, one company who developed disposable water cups for dogs and another company that did temporary office space rentals. We were the only technology company presenting, which made us stand out.
After you present, you wait. If anyone is interested in investing, you are led to a conference room where all interested investors can grill you on everything about you, your team, and your business. And they are brutal.
The final stage is the term sheet, which needs to be negotiated. The term sheet can include everything from what the founders salaries will be, any hires they want you to make, and what the makeup of the Board is going to be.
In our case, the Term Sheet took about 6 months to negotiate but by the end, we had raised over a $1 Million dollars from neaerly two dozen investors, a record for the Angels at that time.
Why we were successful.
Here are the reasons we were successful, while others have failed:
1. We had a strong advocate in Bob Rice, working on our behalf behind the scenes.
2. We were a profitable company, with a good team, and with over 70 clients locked into annual contracts.
3. We had a clear first mover advantage.
4. We had 2 years of data that could not be replicated which gave us a clear barrier to entry.
Today, the Email Intelligence industry has a number of top players including Return Path. But it all started that day at the New York Angels office where my team and I introduced a new market to the world. So, if you have that next great idea for an Email company, go for it. You might just find that a dozen years from now, you've created not just a company, but an Industry!