Raising Capital is a gas station along the road to the Future

Blog 4 minutes read October 2015

Jack Ma, the founder of Alibaba wrote this great line about raising capital in his letter to employees following the IPO filing. Fundraising can be a non stop process for entrepreneurs.

Danielle Morrill wrote extensively about her experiences. This December, the Foundry Group led a $6.5 million investment in Mattermark. Mattermark’s mission is to organize the world’s business information to answer questions about the companies you want to do business with or simply learn more about. For me, as a Venture Capitalist, Mattermark is really interesting to follow as the use of data increasingly can be the signal that helps identify the trends or the company. The use of data for VC’s is not the topic of todays post however.

Mattermark is a great story for every entrepreneur to learn more about fundraising dynamics. The company was founded in 2012 as Referly. The founders raised some money, realized they weren’t making any progress, shut down Referly, but took their remaining capital and pivoted to what became Mattermark. Founder Danielle Morrill wrote a great post on Medium where she writes openly about the funding process she went through since 2012. It is an interesting read (including the hyperlinks) and stipulates some of the fund raising dynamics in San Francisco compared to, well lets say Amsterdam. Morill and the other founders of Mattermark started with $200K in the bank. They paid themselves nothing, and had prepaid the rent on the apartment for a year to make sure they could “keep the band together” no matter what. I understand the $200k was raised in part by some angels who wrote a check that allowed her to quit her job at Twilio and work on the startup full time and get into Y Combinator with Referly, where she probably received some the remaining part of the 200k in exchange for equity. The Y Combinator  Demo Day after three months in the program helped Morill to raise $1 mllion in seed funding. So: USD 1,2 million raised 6 months in the making.

Three months later the team at Referly decided to shut down the company and pivoted the company by raising another $400k 3 months later.

With USD 1,2 million raised Morril and team had enough runway for another year. The year passed quickly building product and team and a good start into making decent revenue. In June 2014, Mattermark announced a $2m second seed round. 95% of money in the round came from investors who were already paying customers — including VCs, angel investors, family offices, hedge fund managers, founders and executives. The rise of the second seed round was never easy though. Morill originally pitched a dozen carefully selected investors for a larger series A round but switched to another route and opted for a second seed round. The second seed round essentially developed into a tranched Series A round as other investors began to follow suit and was extended from an initial $2m to roughly $4m. Interesting is the FG Angels syndicate for Mattermark which helped them to acquire new subscribers (users) of the product but also helped them to reach a cap table with a total of 99 (!) investors.

Since June 2014, after strong demand from the syndicate, several months of solid sales growth and expanding the team, other investors were starting to get interested and this spurred Brad Feld from the Foundry Group into a second Series A of $6.5 million.  If a do the math correctly, Mattermark now raised a total of $12,1m (Crunchbase has a lower number). Morill told her investor that she never wants to do a fundraise again but I am pretty sure that she is working hard to deliver the rights metrics for a series B somewhere down the line. I don’t think building the Bloomberg for Private Investors ends with a Series A. Its just another stop at the gas station.

Danielle Morill gave a lot of insight in the fundraising process and as an entrepreneur you should read her posts about it. Compared to the fundraising climate in Amsterdam there are some huge differences. First of all, she received two checks of 50k each to quit her job. Those examples will be hard to find in Amsterdam. Also, pivoting the company and do another 400k round is something we would not see a lot, as failure is not celebrated in the Dutch culture. Finally, I believe the power of the Angel Syndicate is fascinating. For us (Europeans), it would be strange to learn that there are 99 investors in the cap table. Danielle clearly wrote about the advantages of having a large investor base. I will spend some more time writing about the rise of syndicate deals in another post.

 

Edwin Hengstmengel
Partner Endeit

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