Funding from a Founding Perspective
Back in 2016 we were excited to be part of L-SPARK’s second cohort of startups to go through a six-month program, receiving insights, guidance, and mentorship along the way.
The L-SPARK team brought in pitch coaches and marketing and sales folks to help each company out, and paired us up with entrepreneur mentors.
We were less than 6 months into our beta launch, were still building the product, hadn’t settled on a go-to-market strategy, and were still seeing whether or not students and educators wanted our English-language writing platform, EssayJack.
Partway through our L-SPARK experience, we sat around the table with some of the mentors and had the “what if EssayJack isn’t a good fit for us” conversation, because we weren’t seeking funding at that stage, and so much of the good work that L-SPARK or any accelerator does is to connect founders to funders.
In our case, I was committed to the idea that we would take the risk of developing the product, proving its value propositions, and gaining some traction in the market before going to investors, and when we were ready for that, we’d invite our Friends and Family in as our first investors.
So we weren’t looking for outside investment in 2016.
Heck, we weren’t even sure that we wanted any investment at all, as people were buying access to our product, so why not just grow based on revenues?
Fast forward to 2017: We had bootstrapped, used grants and loans, ran a lean team, and used revenues to grow our business, and decided to secure Friends and Family investment so that we could build out a full, institutionally-capable platform that is scalable and has the features that our customers asked for. And felt that we finally had a product that we could have stable in the market.
We won a bunch of awards, were shortlisted for others, continued to grow organically, refined our product offerings, and tested various marketing and sales approaches, all the while running a lean team and seeing continued year-over-year growth.
By 2018, we had lined up our first Angel investor and had come around to the idea that investment was what we really needed to grow at scale. This Angel investor was known to us, so we worked with him to agree on terms and valuation, got the lawyers involved, and were ready to go for what we considered an Angel/SEED round. That particular deal was months in the making. It was also costly to us. We spent money better spent on the business in drafting term sheets and having meetings with the potential investor, us, and our lawyers.
We finally had those terms agreed in email and by WhatsApp, and we were feeling excited. However, the cheque hadn’t been issued and the paperwork remained unsigned, and so I had a teeny bit of doubt about the deal. My little voice told me not to start hiring or booking office space until it was really, really a done deal.
At the last minute, he decided to add in some additional clauses we hadn’t discussed, which no longer made that investment palatable to us. So we walked away from it.
As our technology is EdTech and this happened at the start of the school year, instead of hiring customer support staff or trainers or anyone to be able to support our existing clients and partners, I simply had to take on extra work myself. Sales, customer support, training, finance, operations, marketing, and technical oversight were all things that were my sole responsibility as the CEO, and I felt like and idiot for allowing myself to believe that funding was imminent, when it was not.
I’ve since learned that this failed investment story of ours is rather common, and that helps me to feel less bad, but at the time it was a shock. But founders are tenacious and always march onwards! And onwards we marched.
Now we have multiple product lines, selling in five different countries with three different distribution partners on our B2B business, and a robust B2C offering with a number of niche paths to market through partners and various educational groups.
Finally, we’re ready for the kind of investment discussions that our L-SPARK mentors wanted to have with us in 2016. We launched our full product in 2019 and tracked our growth from 2019 to 2020 when we were finally free of certain contractual restrictions and able to sell at scale on our own, and we figured that we were in a great position to begin that paused SEED round in Q1 2020.
Then Covid hit.
Just as we were starting to talk to outside investors, everything went into utter lockdown, and investors were telling us “we need to take care of our existing portfolio companies, not have net new conversations.” And some of our institutional sales that had been years in the making, suddenly dried up to zero as schools, colleges, and universities faced a budget panic and a need to simply get video conferencing up and running or Learning Management System implementation.
So once again, we paused our planned raise, offered EssayJack for free, and simply doubled down on sweat equity. The paltry salary I had been paying myself went down to zero, and we just pushed forward to be able to keep our staff and have business continuity.
In 2020 we also joined two other accelerators and began the process of running entirely different financial models and scenarios given the uncertainty and opportunity that Covid presents for us in EdTech.
Now in Q1 2021, a full year after we thought we’d be in the market raising external investment, I find myself raising money.
But now our business is in a very different place than it was back in 2018 or 2020. I am so proud of what we’ve been able to accomplish and the foundation we’ve been able to lay.
Through this often very uncomfortable journey, where as a founder I’ve had to wear many different hats, I’ve learned a few lessons from a founders’ perspective when it comes to fundraising. There’s a lot of good information out there that tells you what investors are looking for, but as a founder, you too can be looking for a few things as well to ensure that you’re seeking “smart money.”
Here are some interesting things that I’ve learned:
- Know your story. Investors get excited by stories; what is your business’s story? Where are you going with it and why would they want to be part of that adventure?
- Some investors think that you can’t live without them, can you? Know what you can and cannot live with, and don’t make a square peg fit in a round hole!
- Find the right investment partners. Don’t be afraid of asking what exits they’ve overseen or been a part of. Do they have experience in your industry and share your vision of your ideal exit?
- There’s a lot of talk about Silicon Valley investment. Don’t believe the hype. Silicon Valley is definitely the place for some companies, but not all. Know your own business; is Silicon Valley the right place for you?
- Narrow the geographical location for your investors. Whether you like it or not, investors like to feel connected to businesses they support, so proximity matters. As well, their networks will be close to where they are, so let them help you by being nearby. Are you close to your ideal investors? Should you move?
- Be coachable and listen. Trust your gut. I wish I had trusted my gut that year way before our investment went sour.
- Know your metrics. What are you measuring? Why? Be able to explain that to potential investors.
- Research the right investors before reaching out to pitch to them. Warm introductions are always best, but emails that are succinct and to the point (unlike this wordy blog!!) are appreciated by busy investors. Why should they care about you and/or your business?
- Keep your finance people in the loop. I’m terrible at this, but we have great bankers we work with (RBC and BDC), and they can help you secure non-dilutive funding or bridging debt or other creative solutions if you keep them apprised of your situation. How do you communicate with your stakeholders?
In my experience, fundraising is a strange experience, and we’ve yet to close our SEED round (fingers crossed!). But I feel that if you believe in your product and your business, then it’s exciting to get other people to share in your vision and want to change the world.