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Startup Fundraising Watch: Tales from the Crypt

This is a post that I did on Seattle 2.0 this week.  We talked about launching this last week on the startup whisperer.  Here are the findings:


The Startup Whisperer is tracking four early stage companies over the coming weeks. These companies are all early stage (Series B or lower).  I continually hear from VCs that good companies are still going to get funded.  Trevor Oelschig from Bessemer Ventures (invested in local Seattle companies like Smilebox and PureNetworks which sold to Cisco) stopped by the Mpire offices recently and said that their firm is actually investing more than ever in seed to Series A stage companies. 
Yet, one of our Mpire/WidgetBucks Board members, Rob Solomon, who recently joined the late stage venture capital firm, Technology Crossover Ventures, told me that really good companies in the Valley are having a hard time raising money.  This topic has been reported on considerably in the press and across the blogosphere but I thought it would be interesting to track local, Seattle-area companies.

Ultimately, the message that I get from entrepreneurs is that it’s very tough out there.  I really appreciate the honesty of these four companies that submitted some very detailed information about their progress.  The will remain anonymous (until each CEO wants me to unveil their progress).  This is not a representative sample size but it should act as a folksy proxy on the state of venture financings.  Here are some findings:

Profile Company Background

    * 3 companies are raising money now (2 Series A's, 1 angel)

    * 1 company is raising money in the coming months (Series B)

    * Of the Series A companies that are raising money now, they have talked to approximately 20 VCS since they started fund-raising (14 in October alone), and they have received 10 'no's.  Both Series A companies looking for $3-$4M in new capital, and it’s important to note that the firm that has talked to 20 VCs is already close to one term sheet as of the posting of this blog.  It is going to be exciting to track progress here. The other angel company have received a couple of checks already and not many no's.  Remember,  angel financing is more about finding lots of investors paying smaller increments. 

Here are some interesting takeaways from these CEOs:

    *  "I think traction drives the whole thing. If you don’t have a real product and real customers and a real business model, it would be shocking to raise VC funds now unless you have an A++ team."

    * "It is pretty bad. All the rumors flying around are pretty true – investors getting nervous, staying close to home, not looking at new deals, etc."

    * "Just started in earnest on Tuesday with a small group of Angels.  Went well resulting in a few writing checks in the following 48 hours."

    * "It’s rough but it seems like deals are still getting done.  What we’re hearing/feeling are investors (mostly angels at this point) talking about how dicey times are and how we need to be hunkering down and how valuations are coming way down and … They’re then offering to put money in (in some cases) at pretty onerous terms (compared to what we would have seen a year ago).  Real sales and revenue are required in any case.  That’s what’s saving us at this point.  In the last 2 weeks we’ve closed a few deals with Microsoft, AT&T Wireless, and Palm (all confidential) via their agencies.  That traction is what’s getting investors interested along with the tech and market opportunities"

    * "…it’s all about sales and revenue.  We’re able to show our top-line ramping (albeit from a very low base) due to sales inside of F1000 companies at healthy price points (five figures).In addition, our burn is relatively low so investors are looking at that and seeing a path to profitability even if we fail to raise a big chunk of money in the next 12 months.  That’s still the plan but our plan B isn’t to go out of business which investors like I think."


Not to sound like the Richard Dawson, but, the survey says, "Its hard out there."  No surprise.  I personally know each of these businesses and they have real revenues and have been scrappy around team size and overall expenses.  I would note that all of the businesses currently raising money are not consumer Internet plays.  The implication being that these are businesses that are not reliant on building a huge audience (aka they don't need to rely on Internet advertising revenues).   The sample size is really small (but, I also have a day job).  Like all entrepreneurs, these gentlemen are highly optimistic about the future.  They are keeping their team sizes small and are extremely focused on building companies that have actual business models. More to come.


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