SEOmoz‘s CEO Rand Fishkin breaks down the company’s venture capital fundraising process and ultimate collapse, and it’s well worth a read. It’s especially notable as this is a company expected to do over $10 million in revenue in 2011 and which has already raised institutional investment from Ignition Partners and Curious Office Partners. The company got all the way to due diligence and then for pretty flimsy reasons, the once-excited VC backed out. This story is well worth reading especially given our venture capital horror stories posting of earlier today so read it here. Rand is very open about the process, his emails, the company’s financials, etc. It’s an inside and honest look one rarely gets so read it!
Read the entire post now, but if time-starved for now, read Rand’s key takeaways and lessons learned which are quoted below.
What Did We Learn? What Lessons Can Others Take Away?
The lessons from this process are challenging to compile, not only because it was such an inbound process, but because so much of the reasons for the final result are unknown. Nonetheless, I’ll try:
• Don’t Let Fundraising Distract You from What Really Matters – If I had this to do over again, a big part of me would still want to have the slower-than-expected growth in July to make sure we didn’t get a fairweather friend who didn’t really believe in the company onto the board, but I also know we could have been much more disciplined. Spending the team’s time not just on phone calls and webinars to walk investors through our numbers, but time researching, pulling metrics, re-inforcing market questions, etc. was a waste. We should have let the investors do more of the work and kept the team more focused on the mission at hand. If an investor really wants to be part of Moz, a few missing, non-standard business metrics aren’t going to change that.
• Inbound Interest is No Guarantee of Getting Funded – For some reason, I had this idea stuck in my head that if the company is being pitched to take funding by investors, the deal will be dramatically easier to do. This might be true, but “easier” doesn’t mean “in the bag.” Our first round did work largely this way – Michelle and Kelly pitched us, we said yes, money arrived. This time, Neil, Reggie, Todd and plenty of other reached out to us, pitched and at the end of the process, nada.
• Be Careful About How & Where Funding is Communicated – We tried to be cautious this time around, not wanting to get our team or ourselves too excited before money was in the bank. Nevertheless, we definitely started planning ahead a bit prematurely. The nights and weekends (and a few days, too) spent brainstorming and roadmapping an SEOmoz with another $18mm in cash was time we certainly could have spent on more productive, realistic goals.
• Be Excellent to Everyone, All the Time - I can definitely confirm that the world of venture capital and private/growth equity is a very tiny one, and that entrepreneurs, partners and service providers talk incessantly and vociferously about nearly every experience with an investor or company. If you’re in the startup world on any side of that equation, it pays to be a great human being and to treat everyone with respect (this is probably another full post worth writing at some point). We heard some not-so-great things about several potential investors, and it made us pull back pretty quickly. Folks in the Valley often talk about how “reputation is everything,” and this experience re-inforced that for me.
• Never, Ever Get Cocky – I have to admit that sometime around the end of June/beginning of July, I was starting to feel pretty good. A bunch of investors wanted to put a LOT of money into our company. We were beating revenue month after month. We turned away investors instead of the other way around. I tried to stay humble, stay hungry and not get overly excited about things, but the idea of having liquidity for my family, the ability to grow Moz in a new and exciting way and, yeah, the idea of finally having some personal savings were all dancing in my head.
• Remember What Really Matters – No matter how this VC story went, I’m an incredibly lucky member of the human race. The big stuff is going amazingly well. My grandmother, who had a fall back in May, has almost entirely recovered. I’m surrounded by people I love to work with, all of whom are excited to come into the office every day, investment or no. And I’m married to her