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8 tips for founders trying to raise their first round of venture capital
If you’re an avid TechCrunch reader, someone who loves to absorb endless startup profiles and pore through fundraising stories, you might think raising venture capital is easy. In reality, it’s very, very difficult and not the best source of capital for most businesses.
For startups hoping to scale far and wide as fast as possible, VC may be the right fit. To shed light on the process of raising equity capital from venture capital firms and provide some exclusive tips and tricks for Extra Crunch subscribers, we sat down with three experts on the subject. Below are the top pieces of advice from Charles Hudson, founder and managing partner of Precursor Ventures, Redpoint Ventures general partner Annie Kadavy, and DocSend founder Russ Heddleston. The following has been lightly edited for length and clarity.
1. First, make sure your company is fit to raise venture capital.
Charles Hudson: I think venture capital, it’s really a specialty type of capital. It’s really for companies that have the aspiration to grow really quickly, to build really large businesses … If you’re not a company that needs to grow quickly, venture capital might not be the right source of capital for you. There has to be a really big prize at the end of the journey.
2. Raise capital early if you’re stressing about small costs or fretting competition
Russ Heddleston: If you’re thinking about whether or not to raise, there are a couple of reasons that I will often advise people to raise early. One is if they’re really stressing about buying a whiteboard for their office, or like some something of relatively small cost. If you think it could be a big company, and you’re stressing about small things, raise money and buy the whiteboard, hire the additional person and get back to what you should be doing, which is running your business and growing it quickly.
The other thing is if you ask the question, ‘is there a competitor I don’t know about?’ If you heard tomorrow, that competitor just raised $2 million, or $5 million or $10 million, how nervous would that make you? For some businesses, you’re like, I don’t really care, it’s a services industry, it’s not a winner take all market. And other times, you’re like, oh, I’d be really nervous. So if either those apply, that’s a good reason to make a compelling case to someone like Charles.
The number one thing you can do to get a VC’s attention is make [your pitch] really simple. Precursor Ventures’ Charles Hudson
3. It’s OK to take a salary
Annie Kadavy: I’d be hard-pressed to think of an example where a founder is not paying themselves, the question, though, is how much? You’re paying yourself enough so that the basic costs of life and running your business are not giving you anxiety, because as an early stage investor one of our primary roles is to try and keep the baseline stress as low as it can be, because it’s really hard to go build a company.
If a founder is coming in at the Series A and they say I’m going to go pay myself $300,000, we might be like, well, that doesn’t really feel right, shouldn’t you want to put some of that money into the company? The ranges I’ve seen are anything from $60,000 up to probably $120,000 at the Series A, or maybe $150,000. Then, as the company grows and as the balance sheet grows and it’s de-risked, your salary as an executive at the company will scale with that.
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Opendoor appoints CFO, CPO
Opendoor has named Gautam Gupta its chief financial officer and chief business officer, critical roles as the business continues to alter the way in which homes are bought and sold. Uber’s former head of finance, Gupta joined the $3.8 billion home-selling platform as its chief operating officer in 2017.
The company, which has raised more than $4 billion in debt and equity funding to date, is announcing several new hires this morning. Venrock’s Tom Willerer has joined as the company’s first-ever chief product officer. Willerer previously led product at Coursera and Netflix. He joined the Silicon Valley venture capital firm Venrock in 2017 and has since struck deals with edtech startups including Make School and Flockjay.
Opendoor has also hired Julie Todaro as its president of homes and services, another newly created role. Todaro, who spent more than a decade at Amazon, most recently as its vice president of consumer electronics, will oversee market operations, customer experience and home services.
Finally, Carrie Wheeler, a partner at TPG for 20 years, and Jason Kilar, the founding CEO of Hulu, have joined Opendoor’s board of directors.
Founded in 2014, San Francisco-based Opendoor is backed by General Atlantic, Hawk Equity, SoftBank, Access Technology Ventures, Lennar Corporation, Fifth Wall Ventures, SV Angel, Norwest Venture Partners, NEA, GGV Capital, Khosla Ventures, GV and more.
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Why we’re still waiting on the Postmates S-1
In a wide-ranging conversation at TechCrunch Disrupt San Francisco last week, Postmates co-founder and chief executive officer Bastian Lehmann made light of the company’s lack of IPO documents.
The San Francisco-based on-demand delivery business was expected to publicly file its IPO prospectus in September in preparation for a fall exit, sources familiar with the matter told TechCrunch this summer. September, however, has come and gone and we’re still waiting on Postmates to release the critical document.
“The reality is that we will IPO when we believe we find the right time for the business and the right time for the markets,” Lehmann told TechCrunch. “And if you look at the markets right now, I believe they are a little choppy. They are a little choppy when it comes to growth companies specifically … We are hopeful that we find a good window to get out there.”
Lehmann made reference to Uber and other companies to recently float, citing market conditions as an IPO deterrent. Uber, Lyft, Slack and other fast-growing unicorns have struggled since entering the public markets earlier this year despite sky-high private market valuations. WeWork, a money-losing endeavor, recently decided to delay its IPO after demand from Wall Street devalued the business by the billions. Whether Postmates will complete its debut by the end of the year is unclear.
Postmates confidentially filed with the U.S. Securities and Exchange Commission for an IPO in February. Shortly after, Postmates held M&A talks with DoorDash, another food delivery unicorn, according to people familiar with the matter, but failed to come to mutually favorable terms. DoorDash has previously declined to comment on these reports. On stage last week, Lehmann declined to confirm the reports.
“I don’t think it does any good to speculate on M&A,” he said. “I think you have four well-funded players here in the U.S. in this space. I think everyone is well aware of the strengths and the weaknesses of each other and you know at some point down the line, if we take Europe for example, you will see consolidation in the market. People have conversations all the time but I wouldn’t read too much into it.”
Postmates operates its on-demand delivery platform, powered by a network of local gig economy workers, in more than 3,500 cities across all 50 states. The company does not yet operate in any international markets aside from Mexico City, however, Lehmann’s comments suggest the business could be plotting a foray into Europe, where Deliveroo, Just Eat and others dominate the market.
Postmates has raised about $900 million to date, including a $225 million round announced last month that valued the company at $2.4 billion. DoorDash, on the other hand, reached a $12.6 billion valuation in May with a $600 million Series G and has raised more than double that of Postmates. When asked why DoorDash, a similar and competing business, needed that much more capital, Lehmann joked “Maybe [DoorDash CEO Tony Xu] needs a jet, I don’t know.”
Postmates, founded in 2011 by Lehmann, is backed by Spark Capital, Founders Fund, Uncork Capital, Slow Ventures, Tiger Global, Blackrock and others. In our interview with Lehmann, the long-time CEO discussed the ‘choppy’ public markets, competitors, the company’s autonomous robotics delivery efforts and more.
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Symantec’s Sheila Jordan named to Slack’s board of directors
Workplace collaboration software business Slack (NYSE: WORK) has added Sheila Jordan, a senior vice president and chief information officer of Symantec, as an independent member of its board of directors. The hiring comes three months after the business completed a direct listing on the New York Stock Exchange.
Jordan, responsible for driving information technology strategy and operations for Symantec, brings significant cybersecurity expertise to Slack’s board. Prior to joining Symantec in 2014, Jordan was a senior vice president of IT at Cisco and an executive at Disney Destination for nearly 15 years.
With the new appointment, Slack appears to be doubling down on security. In addition to the board announcement, Slack recently published a blog post outlining the company’s latest security strategy in what was likely part of a greater attempt to sway potential customers — particularly those in highly regulated industries — wary of the company’s security processes. The post introduced new features, including the ability to allow teams to work remotely while maintaining compliance to industry and company-specific requirements.
Jordan joins Slack co-founder and chief executive officer Stewart Butterfield, former Goldman Sachs executive Edith Cooper, Accel general partner Andrew Braccia, Nextdoor CEO Sarah Friar, Andreessen Horowitz general partner John O’Farrell, Social Capital CEO Chamath Palihapitiya and former Salesforce chief financial officer Graham Smith on Slack’s board of directors.
“I believe there is nothing more critical than driving organizational alignment and agility within enterprises today,” Jordan said in a statement. “Slack has developed a new category of enterprise software to help unlock this potential and I’m thrilled to now be a part of their story.”
Slack closed up nearly 50% on its first day of trading in June but has since stumbled amid reports of increased competition from Microsoft, which operates a Slack-like product called Teams.
Slack co-founder and chief technology officer Cal Henderson will join us onstage at TechCrunch Disrupt San Francisco next week to discuss the company’s founding, road to the public markets and path forward. Buy tickets here.
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Google veteran Tony Wang joins 500 Startups as managing partner
San Francisco-based accelerator 500 Startups is expanding its executive team with the hiring of Tony Wang.
Wang is joining the early-stage firm from Color Genomics, a venture-backed developer of genetic testing kits where he had served as chief operating officer since 2014. Prior to Color, Wang was the vice president of global partnerships and development at Twitter and managing counsel for Google’s international operations.
“The venture capital world is undergoing a dramatic shift towards globalization where 500 Startups has been the leader and investing for the past decade,” Wang said in a statement. “There’s no question there are talented founders around the world, as proven by the number of unicorn companies in the 500 family.”
500 Startups, led by chief executive officer Christine Tsai, is an early investor in TalkDesk, Twilio, GitLab, Canva and several others.
Through its four-month seed program, the 500 Startups seed fund invests $150,000 in participating companies in exchange for 6% equity. Here’s a closer look at all the startups to finish 500 Startups’ latest program.
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Startups Weekly: Part & Parcel plans plus-sized fashion empire
Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about Stripe’s grand plans. Before that, I noted Peloton’s secret weapons.
Remember, you can send me tips, suggestions and feedback to kate.clark@techcrunch.com or on Twitter @KateClarkTweets. If you don’t subscribe to Startups Weekly yet, you can do that here.
Startup spotlight
The best companies are built by people who have personally experienced the problem they’re attempting to solve. Lauren Jonas, the founder and chief executive officer of Part & Parcel, is intimately familiar with the struggles faced by the women she’s building for.
San Francisco-based Part & Parcel is a plus-sized clothing and shoe startup providing dimensional sizing to women across the U.S. The company operates a bit differently than your standard direct-to-consumer business by seeking to include the women who wear and evangelize the Part & Parcel designs by giving them a cut of their sales.
Here’s how it works: Ambassadors sign up to receive signature styles from Part & Parcel, which they then share and sell to women in their network. Ultimately, the sellers are eligible to receive up to 30% of the profit per sale. The out-of-the-box model, which might remind you somewhat of Mary Kay or Tupperware’s business strategy, is meant to encourage a sense of community and usher in a new era in which plus-sized women can facilitate other plus-sized women’s access to great clothes.
“I bought a brown men’s polyester suit and wore it to an interview,” Jonas, an early employee at Poshmark and the long-time author of the popular blog, ‘The Pear Shape,’ tells TechCrunch. “I was that kid wearing a men’s suit.”
Clothing tailored to plus-sized women has long been missing from the retail market. Increasingly, however, new brands are building thriving businesses by catering precisely to the historically forgotten demographic. Dia&Co., for example, raised another $70 million in venture capital funding last fall from Sequoia and USV. And Walmart recently acquired another brand in the space, ELOQUII, for an undisclosed amount. Part & Parcel, for its part, has raised $4 million in seed funding in a round led by Lightspeed Venture Partners’ Jeremy Liew.
The startup launched earlier this year in Anchorage, “a clothing desert,” and has since grown its network to include women in several other underserved markets. Given her own history struggling to find a fitted woman’s suit, Jonas launched her line with structured pieces, including suits and blouses — though the startup’s biggest success yet, she says, has been its boots, which come in three different calf width options.
“Seventy percent of women in this country are plus-sized,” Jonas said. “I’m bringing plus out of the dark corner of the department store.”
This week in VC
- Affirm is said to be in the market for as much as $1.5B
- Voyage raises $31M for its driverless taxi fleet
- Simbe gets $26M for its retail inventory robot
- Incredible Health’s hiring platform for nurses gets $15M from a16z
- Sidewalk Labs spinout Replica nabs $11M
- Patch Homes locks in $5M Series A
- Accel and Sequoia-backed Middesk secures $4M
- Nigeria’s Kuda raises $1.6M for online banking
Image: Bryce Durbin / TechCrunch
Must read
TechCrunch’s Megan Rose Dickey published a highly anticipated deep dive on the state of sex tech this week. The piece provides new data on funding in sex tech and wellness companies, analysis on sex tech startup’s battle for public advertising and responses from industry leaders on how we can destigmatize sex with technology. Here’s a short passage from the story:
Cindy Gallop sees a market opportunity in every type of business obstacle she encounters. That’s why All The Sky will also seek to invest in startups that tackle the infrastructural tools needed to fuel sextech, like payments, hosting providers and e-commerce sites.
“I want to fund the sextech ecosystem to maintain and sustain a portfolio for All the Skies, to create a bloody huge sextech ecosystem and three, to monopolistically build out the ecosystem to be a multi-trillion-dollar market,” Gallop says.
On my radar
I swung by Contrary Capital‘s Demo Day this week, in which a number of startups gave a 4- to 5-minute pitch. Next on my list is Alchemist‘s Demo Day in Menlo Park. The accelerator welcomes enterprise startups for a six-month program focused on early customer adoption, company development and mentorship.
Also on my radar is Females To The Front. The event began this week in Palm Springs and if I were based in SoCal, I would have swung by. Led by Amy Margolis, the event is said to be the largest gathering of female cannabis founders and funders to date. Here’s how the group describes the event: “Females to the Front Retreat will mix immersive and hands-on workshops, pitch training, investment deck preparation and business skill set education with investor meetings and plenty of shared meals, pool time, yoga, connections, rest and rejuvenation. Every workshop is built to directly engage attendees instead of powerpoint and panels. Be prepared to return home inspired, engaged and with so many more tools in your toolbox.”
For the record, I don’t advertise events in my newsletter just wanted to give props to this one because it’s a great development for the cannabis tech ecosystem.
Time to Disrupt
We are just weeks away from our flagship conference, TechCrunch Disrupt San Francisco. We have dozens of amazing speakers lined up. In addition to taking in the great line-up of speakers, ticket holders can roam around Startup Alley to catch the more than 1,000 companies showcasing their products and technologies. And, of course, you’ll get the opportunity to watch the Startup Battlefield competition live. Past competitors include Dropbox, Cloudflare and Mint… You never know which future unicorn will compete next.
You can take a look at the full agenda here. And if you still need convincing, here’s five reasons to attend this year’s conference from our COO himself.
And finally… #EquityPod
This week, the lovely Alex Wilhelm, editor-in-chief of Crunchbase News, and I gathered to discuss a number of topics including WeWork’s IPO and Uber’s attempts to bypass a new law meant to protect gig workers. Listen here.
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Sidewalk Labs spins out urban data-gathering tool Replica into a company
Replica, the data-gathering tool created within Sidewalk Labs that maps the movement of people in cities, is now a company.
The newly formed company, which is headed by Nick Bowden, also announced Thursday it has raised $11 million in a Series A funding round from investors Innovation Endeavors, Firebrand Ventures and Revolution’s Rise of the Rest Seed Fund. The capital will be used to accelerate Replica’s growth through new hires beyond its existing 13-person staff, expansion to new cities and investment in its technology.
Replica will remain connected to Sidewalk Labs, the smart city technology firm owned by Google’s parent company Alphabet. Both Sidewalk Labs and Innovation Endeavors will be on the company’s board.
Replica, which is headquartered in Kansas City, with an engineering office in San Francisco, plans to launch in several new regions. Replica is already working with Kansas City, Portland, Chicago and Sacramento, with more cities to come this year.
The Replica tool, which has drawn the ire of some privacy advocates, grew out of Model Lab, a project started two years ago to investigate modeling as a way to address urban problems. Early work focused on meeting with public agencies throughout the world to learn more about the data, processes and other tools they used.
The Replica planning tool was born out what they discovered: Public agencies don’t have all the information needed to understand the link and interdependence between transportation and land use. The upshot is an incomplete picture of how people move within cities, leaving public agencies ill-equipped to make decisions about how land is used and what transportation is needed and where, the company says.
“Answering questions like who uses the street, in which way and why, are critical for city planners as they work to make transit and land use more efficient and sustainable,” Bowden wrote. “But current resources available to city planners to analyze people’s travel in urban areas are less than satisfactory.”
The Replica modeling tool uses de-identified mobile location data to give public agencies a comprehensive portrait of how, when and why people travel. Movement models are matched to a synthetic population, which has been created using samples of census demographic data to create a broad new data set that is statistically representative of the actual population. The result, Bowden says, is a model that is both privacy-sensitive and extremely useful for public agencies.
Bowden tried to quell privacy worries Thursday in a blog post, emphasizing that the data has been “de-identified,” meaning that an individual’s location data would be identifiable. The company says it’s not interested in the movement of individuals. Instead, the modeling tool is used to see and understand patterns of movement.
“For this reason, we only start with data that has been de-identified,” Bowden wrote Thursday. “This data is then used to train a travel behavior model — basically, a set of rules to represent the movement in a particular place.”
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Accel and Sequoia seed Middesk with $4M to background check businesses
For those of you that diligently follow the hot startups to graduate from Y Combinator’s accelerator program, you might recall Middesk.
The company was amongst an exclusive subset of startups in YC’s winter 2019 batch to walk into demo day term sheet in hand. Top VCs, like Accel and Sequoia Capital, couldn’t wait until the team’s public pitch was complete to seed the company.
Middesk performs background checks, but not of people; rather, the startup helps companies identify business and regulatory risk in their customer base. Today, it’s announcing its first round of capital, a $4 million financing led by Accel’s Rich Wong, with participation from Sequoia. Founded by two early employees of another YC graduate, Checkr, which automates the pre-employment background check process for companies, Middesk chief executive officer Kyle Mack and chief technology officer Kurt Ruppel wanted to apply their learnings to a business identity product.
“What we’ve built from the ground up is a product to help companies understand who their customers are and what those customers do for their business,” Mack explains.
Selling a product in a traditional and heavily regulated industry, Mack says having top-tier, established venture funds Accel and Sequoia on board has made a big difference for the company. This is particularly interesting, given the round comes at a time in which competition for early-stage deals is greater than ever. More and more billion-dollar funds are moving downstream to purchase stakes in promising companies as early as possible, beating out seed funds by providing better terms and brand recognition.
Accel was also an early investor in Checkr, which most recently raised a $100 million Series C at a $900 million valuation, and was familiar with the Middesk team prior to the company’s formation: “One of the nice things about this job is if you have a chance to do it right, you can build relationships with people and work with them across multiple companies,” Accel’s Wong tells TechCrunch.
San Francisco-based Middesk is working with customers, including Checkr and Plaid, a well-financed leader in fintech, as well as smaller entrants to the B2B market, like the even more recent YC-grad Vouch, which sells business insurance to startups. Mack says they are particularly focused on payments, lending, payroll, expenses and credit businesses, or those with regulatory risk requirements.
“Effectively anyone that’s touching money that’s a B2B business has regulatory requirements to do what we do,” Mack said. “There is a whole new wave of companies applying consumer-style experiences to business products, but the risks they deal with, they aren’t designed to manage those risks at scale.”
With the infusion of capital, Middesk has grown its team from two to seven, creating engineering and operations teams in the process. In the long term, Mack cites Plaid and its proven ability to rapidly become the go-to tool for connecting applications to consumer bank accounts, as inspiration.
“We talk about this idea of becoming a single source for all the external signals you might want to have about a business,” he said. “Plaid has built a single place to get a host of transaction data of people and businesses. We think about Middesk as a single place to find high-quality and trusted information for a single business.”
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Bestmile raises $16.5 million to manage human and AI-driven fleets
Bestmile, a transportation software startup, has raised $16.5 million in a Series B round led by Blue Lagoon Capital and TransLink Capital.
Existing investors Road Ventures, Partech, Groupe ADP, Airbus Ventures, Serena and others also participated in the round. The company, which launched in 2014, has raised $31 million to date.
Bestmile has developed fleet management software that orchestrates the delicate balance between demand for, and supply of transportation. Managing fleets isn’t new. However, the emergence of new and varied ways for people and packages to move within cities has created new opportunities for software companies.
Bestmile is aiming to become the preferred platform for public transit operators, automakers and taxi companies that offer ride-hailing, microtransit, autonomous shuttle services and even robotaxis. While Bestmile emphasizes the ability of the platform to manage more futuristic means of travel, namely autonomous shuttles, fleet management software is designed to be agnostic. This means it will work for human-driven fleets like traditional taxi cabs as well as autonomous shuttles and, someday, robotaxis.
The startup’s investors also see opportunities for the platform that extend beyond microtransit, ride-hailing and autonomous shuttles. For instance, Airbus Ventures sees Bestmile as a key enabler for urban air mobility, according to Thomas d’Halluin, a managing partner at the Airbus’ venture arm.
The platform works by collecting real-time data such as weather, traffic, demand and vehicle telemetry. It then uses the data to squeeze the most out of the fleet. That means balancing demand from customers with the cost of operations.
The startup, which is based in Lausanne, Switzerland and has an office in San Francisco, already has a number of customers, including autonomous shuttle operators. The company’s software is managing 15 deployments globally. Bestmile announced earlier this week that it has partnered with Beep, an autonomous shuttle company in Orlando, Fla.
Blue Lagoon partners Rodney Rogers and Kevin Reid have joined Bestmile’s board. Rogers is now board chairman. The pair, which have first-hand experience as co-founders, should be able to provide the kind of insight needed to scale a company. Rogers and Reid co-founded enterprise cloud services company Virtustream, which was acquired by EMC Corporation in 2015 for $1.2 billion. The business is now part of Dell Technologies.
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Ready, Set, Raise — the Y Combinator for female founders — announces second cohort
About one-fourth of the startups in Y Combinator’s summer batch had a female founder. Not the most disappointing statistic if you consider this: Companies with at least one female founder have raised only about 11% of venture capital funding in the U.S. in 2019, according to PitchBook. Companies with female founders exclusively have raised just 3%.
There is so much room for improvement.
To close the funding gap, programs tailored to female entrepreneurs are working tirelessly to mentor and incubate upstarts in hopes of impressing venture capitalists. Ready, Set, Raise, an accelerator program built for women, by women, is amongst the new efforts to help female and non-binary founders raise more dollars, or, at the very least, build relationships with investors.
The accelerator program, created by the Seattle-based network of startup founders and investors called the Female Founders Alliance, is today announcing its second batch of companies, a group that includes a sextech business, an AI-powered tool for podcasters and a line of workwear created for women who work on farms, construction sites and factory floors.
Ready, Set, Raise has partnered with Microsoft for Startups to provide entrepreneurs $120,000 in Azure credits, as well as technical and business mentoring from executives of the Redmond-based software giant. Other new partners include Brex and Carta, two well-funded companies that plan to lend the support of their executives to teach entrepreneurs about startup finance, valuation and fundraising terms.
“Both FFA and Microsoft recognize a major lapse in opportunities given to women and non-binary founders,” writes Ian Bergman, a managing director of Microsoft for Startups, in a statement. “We look forward to our continued work together to promote this necessary shift in the VC landscape.”
FFA’s founder and chief executive officer Leslie Feinzaig, who launched the organization in 2017, has been an outspoken advocate of diversity in entrepreneurship and venture capital, and well as providing awareness and resources for founders who are also parents.
“My experience fundraising was undeniably shaped by the fact that I am a woman, and at the time was a new mom,” Feinzaig, who previously founded an edtech startup, told Seattle Business Magazine earlier this year. “A year later, I was about to give up. Instead, I started a Facebook group, including all of the founders and tech startup leaders I knew. It was the group that I needed, made up of people who knew exactly what I was going through. That’s how the Female Founders Alliance was born.”
FFA’s Ready, Set, Raise provides its companies childcare throughout the six-week program, in which companies work one-on-one with experienced coaches ahead of a demo day that will take place on October 16th.
Here’s a look at Ready, Set, Raise’s sophomore class of startups:
- Echo Echo: AI-powered tools for podcasters.
- Give InKind: Coordinates support through major life events.
- Honistly: A provider of extended auto warranties to help with short-term cash needs.
- Juicebox It: Modernizes erotica with a chatbot that is arousing and educational.
- Panty Drop: A personalized intimates shopping experience for women sizes XS-6XL.
- The Labz: A platform that protects and memorializes creative content development in real time.
- Tougher: Functional, well-fitted workwear for women in the skilled trades.
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