Lessons in Fundraising

When we launched symphonie.ai, my co-founder and I had zero experience raising capital for a start-up. We were 1) ex-Amazonians; 2) ex-c-suite senior leaders (previously Chief Supply Chain Officer and Chief Technology Officer at unybrands, which has sadly been in the news for the wrong reasons since we left); 3) very experienced hiring & developing multiple large teams; 4) have 20-years of experience in e-commerce, technology and supply chain; and 5) a very deep professional network. All that experience enables us to understand very well the e-commerce business and technology we are building, but did not help us to navigate the world of venture financing.

We needed a guide and we wanted to learn fast. This post will tell you the story of what we did – we did some things right, and we made some mistakes – its certainly not the only way to do this, but it's our story and it might give you some nuggets you can use in your own journey. Along the way I will tell you what I would do differently based on hard-won experience.

In the Beginning... there was Nothing

When my co-founder and I agreed to launch a start-up, we met at a local Starbucks and drafted the idea behind symphonie – in a nutshell we noticed that it is very difficult even today to optimize decision-making for e-commerce brands at scale. So, we wrote a classic Amazonian 6-page document laying out our vision for symphonie: what the business would do, how it would do it, why it was a valuable opportunity, the risks, and how we would execute while managing those risks.

The decision to launch was easy because it was a classic two-way door decision: we could always "walk back through the door" and take the other door. I am forever grateful at learning the concept of "two-way doors" from Amazon – it has literally changed my life and how I decide so many things.

In this very first step, there is the first lesson: many start-ups are launched as side-gigs while in an existing role. That is, instead of leaving your current role and going full-time into the start-up, many people start building their start-up while in their current role. This will make lawyers nervous – especially if you signed an employment agreement that grants all rights to your employer for anything you build while in their employment. In our case, we did not have any existing legal restraints, and nothing about symphonie existed until well after we were full-time on symphonie but we still hired Goodwin – an expensive, well respected law firm – to officially bless us with a clean bill of (legal) health.

My first lesson: If I were to do it again, I would launch a start-up while in prior employment for the simple reason that the legal risk is highly theoretical: if your start-up is ever valuable enough to launch a legal war over, there will be plenty of money to pay off the other parties. In return for the (theoretical) legal risk, launching your start-up as a part-time project enables you to leverage your existing income to build the foundation of your start-up. At a minimum, I would begin writing code for a software start-up, lining up design partners (i.e., VC-term for beta testers) and doing low-volume beta testing. This is especially viable and attractive if you are a technical co-founder who can write code yourself.

Most people think of the law in terms of "right and wrong", but it is really shades of gray and what the (non-criminal) law actually is – is what you negotiate. So, "damn the torpedos and full speed ahead" is what I would do.

How are you going to pay for it all?

Among many first decisions, we had to decide between 1) bootstrapping; and 2) raising friends & family, angel or VC capital. I considered this funding decision also a two-way door: we could pursue raising capital and – if we did not succeed – walk back through the door and pursue bootstrapping. Notice that if you launch your start-up and build the foundation while still at an existing role, you can invest your own capital in the beginning and pursue the start-up full-time immediately after you get your earliest traction.

I unilaterally discounted raising "friends & family" capital because I have a very strong innate dislike of mixing business with friends or family. As Shakespeare eloquently wrote in Hamlet (Act 1, Scene 3) :

Neither a borrower nor a lender be,
For loan oft loses both itself and friend

So, we pursued angel and VC capital. The problem is neither my co-founder nor I had any professional network with or experience raising capital from either source. We needed a guide.

Life is like a box of chocolates... you never know what you're gonna get

By coincidence at nearly the same time a former Shopify ex-senior leader that I know and respect joined Forum VC, which has an accelerator program. In return for 7.5% of the start-up's equity, they will cut you a $100,000 "first check" into the start-up. This is a very expensive check – more on that later – it values your company at roughly $1.3M post-money and the investment happens through a SAFE.

I called my friend at Forum VC, mentioned what my co-founder and I wanted to do, and asked her to educate us. At the time, I didn't know anything about SAFEs and had only a vague understanding of what an accelerator did. My friend graciously educated me about angel and VC capital, and asked me if I would be willing to take a check through Forum VC's accelerator. My answer was immediate and unhesitant: "yes, absolutely".

Let's pause here and discuss why I was so unhesitant. I suspect some readers will object: 1) you should have shopped around other accelerators; 2) there are accelerators that give you better terms than a $1.3M post-money valuation; and 3) a famous accelerator like Y-Combinator will give you better terms and open doors because VCs respect it so much (i.e., VCs are often like lemmings just following the cool-kids and don't think for themselves – a post for another time). All these objection are accurate. I still disagree with them.

I disagree because of another great lesson I learned at Amazon: Bias for Action. "Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking." When my co-founder and I launched symphonie, we could have invested significant time carefully weighing one accelerator versus another, debating the valuation, and so on. That would have slowed us down. Could we have gotten better terms? Perhaps. What is not "perhaps" is the time and momentum we would have lost. I preferred to get to building as soon as possible.

We participated in an accelerator program because it 1) would be a paid crash course on angel and VC capital; and 2) it would kickstart our network in the VC financing universe. That is, Forum VC would connect me to its network, and through that network I would connect to other networks. Of course, you have to do the hard work of networking, asking to be introduced, following up, learning how the network operates, what people look for, and so on – but it was a great kickstart to building a network in a space I had none. Would I do it a second time? Of course not. Over the prior 18-months I've grown my network, people know who I am, and I've come to understand the VC space reasonably well – though I learn more every day.

I think that symphonie is just my first start-up. Handing over 7.5% equity in the first start-up to an accelerator is well worth the knowledge and network they enabled me to build. In my second or third go around, I would drive a much harder bargain because I won't be so "green". Thus, in my opinion, the second lesson is the hefty cut and low valuation an accelerator gives you is nothing to spend even one minute thinking about (for your first start-up) so long as you leverage the opportunity diligently and squeeze every bit of knowledge (and network) you can out of it.

So, "life is a like a box of chocolates" because I never expected that one phone call to a person I've known for years would yield a $100K check in what was less than 8-hours of total work. I am deeply grateful for her and the doors she opened for me in this phase of my life. By the way, I met this person and learned the very large value of "asking for help" and "building a network" from Collaborative Gain, which is run by Phyl Terry.

Run like Pheidippides

After the first two lessons learned:

1. Consider building the foundations of your start-up prior to leaving your current role
2. Leverage an accelerator as the "first check in" so you are "paid to learn" and rapidly build a network in the angel and VC capital network

My next lesson is that the "first check" is just the start. It took more than 80 additional conversations to raise the remainder of our pre-seed round. Fundraising is a marathon. A very long, very exhausting marathon similar to what Pheidippides undertook about 2,500 years ago. And just like him you might expire at the very end of the run, but what a thrilling run it is.

In a subsequent post, we will dive into some of those 80 conversations to cover some very specific, strategic and tactical lessons learned. I began as a terrible "salesman" and graduated at the end to a "decent" one – I am still learning of course. I use the term "salesman" very deliberately because your job as the co-founder of a start-up is to sell a dream of what could be.