Today we announced that we closed a $5 million Series B financing. A lot of entrepreneurs complain about their investors and most see venture capital as a necessary evil – and based on our past experience we understand the sentiment. Yet behind every deal is a story…this is ours.
Jeff and I started BigDoor in early 2009 with the grand thesis that websites and apps needed a better way to engage users and a more interesting method for making money. That may sound a bit broad, and that was our intent because we figured that somewhere within that thesis was a really interesting business – we just weren’t quite sure yet what it would be. My long-time friend Andy Sack, general partner of Founder’s Co-op was brave enough to make an early bet on us by writing us a check and joining our board. The Founder’s Co-op investment was quickly matched by 11 fantastic angels, and we were off to the races.
We started out by building a “pay wall” for non-game digital publishers. Our thought was that the same functionality that OfferPal and SuperRewards provided to the game developers would be needed by non-game websites and apps. We worked hard, launched a product, got some great traction and then realized that there was a different role in the “stack” that was much more interesting and was begging for a solution. We quickly concluded that we needed to kill everything we had just spent six months building and go back to the drawing board. Given that we had only two months of cash in the bank at the time, this decision wasn’t an easy one but we felt strongly that it was necessary. At a critical stage like this, most entrepreneurs would be exceedingly nervous to approach their investors and board to tell them that they were shifting strategy after some promising momentum and very little cash in the bank – but not so with our investors. Andy has a favorite saying, “We know your plans are wrong, we just don’t yet know how wrong.” This attitude as an investor and board member set the stage for us to be able to make a difficult decision significantly easier. Jeff and I met with Andy in Vegas and told him about our plans to scrap our budding new business and technology and pursue something much bigger. Andy listened intently, probed with questions and within 30 minutes said, “Great, let’s do it.” Encapsulated in this one simple response is an unbelievable depth of understanding about how a startup works. We had made commitments to Andy and our other investors, and changing direction like this meant he was willing to forget every one of those prior promises and start down a new path. We needed more capital and more runway than initially planned, and our investors immediately got behind us. Jeff and I toasted each other repeatedly that weekend, reminding ourselves how blessed we were to have a partner that allowed us the flexibility a startup needs in its early days.
Our small team returned the love to our investors by buckling down and working an insane amount of hours over the next few months. When we launched our virtual economy platform with BuddyTV in February, we went from 0 users to 8 million users in an afternoon. This was an amazing accomplishment, and one that wouldn’t have been possible without an investment partner that truly understood the twists and turns most startups must navigate to be successful.
As we were in the middle of this strategy transition, Andy introduced me to Brad Feld. Andy warned me ahead of time that Brad hadn’t been a fan of my last company, and as we met Brad eyeballed me as if he was searching for my pitchfork and tail. Despite his preconceived notions, Brad heard me out because he and Andy went way back and Andy was insistent. Andy repeatedly proved that Founder’s Co-op is the best pre-venture round investor in Seattle by being our loudest and most adamant cheerleader. Brad intrigued me because he didn’t come across like any venture capitalist I had ever met. Brad and Andy are cut from the same cloth, have the same “I’m not going to conform” persona, and are both passionate to their core about helping startups. I know a number of people who had worked with Brad in the past and I began hearing stories about what he was like to work with, each of them confirming that he wasn’t your typical VC. Brad is an early investor in Zynga the undisputed king of social gaming. Our new strategy was to arm non-game websites and apps with a platform to add game-like mechanics to their site or app (notably, not at all competitive with Zynga). With our recent shift in strategy we knew that having Brad as a partner would give us a huge amount of credibility with potential customers, so we began stalking him.
Brad’s process was simple, he told me that he wanted to get to know me and understand our company – and that each interaction had to be more interesting than the last. That’s it. When I told him that we didn’t have an investor presentation put together yet he quipped, “The last thing in the world I want to see is a fucking presentation.” That moment confirmed that we wanted him to be involved with our company – the trick was to get him to share that sentiment. Brad and I spent the next six months getting to know each other, during which Brad and his partners repeatedly drilled us on our thinking, our strategy, our technology and our market approach. We told him we would invite him into the “sausage making” process, and he readily donned his hairnet and dove in. We mostly went back and forth via email, where niceties were commonly replaced with a raw curiosity of how best to build BigDoor and how we would meet the coming onslaught of demand for our platform. Brad was direct and often told me where he thought I was wrong, which laid the groundwork for me being able to do the same with him. We found some common ground and a fair amount of areas to disagree and challenge each other. We joked about 80’s bands, compared reading lists and shared paranoid rants about how machines will eventually take over the world (they will). But what’s most notable is what we didn’t discuss. Never once did anyone at Foundry ask us for projections or historical financials. We didn’t talk about the deal, valuation or board composition and we never talked about exit timing or how much money they needed to make. Product, customers and philosophy – that’s where we spent our time.
On two separate occasions Brad told me he was “out” and wasn’t going to invest. Both times Andy gave me a strong (and encouraging) kick in the ass and gave me another of his favorite quotes, “The word ‘no’ is simply a milestone on the path to ‘yes’.” This emboldened me to go back to Brad and tell him he was wrong and that he was the perfect partner for us. I made no attempt at all to posture or play hard to get – and on more than one occasion I equated the whole process to a negotiation conducted with our pants around our ankles. This wasn’t done out of desperation – we had multiple offers from other great VCs – we conducted ourselves in a completely transparent fashion because that’s how Foundry was toward us.
Our plan had been to wait until later this year to really begin seeking venture capital, but the conversations with Foundry continued until one day Brad sent an email that said, “Ok – I’m ready (and psyched) to do a deal.” He then laid out deal terms in one very simple paragraph. I responded with a very long email that ultimately asked for just one change, and he simply responded with “Deal.” That was it, that email exchange was the extent of our term sheet. Instead of grinding us on terms, Brad spent the three weeks from our agreement to closing making introductions for us to potential customers.
Jeff and I have raised just over $190 million in various debt and equity financings over the past 10 years, and I can honestly say that we’ve never had a deal go this smooth nor have we ever had anyone who was so awesome to work with on the other side of the table. The reason for this is that like Founder’s Co-op, Foundry has a deep understanding of the stage of company they are dealing with. If we were three more years down the road, the diligence process would have been completely different – but at this point Foundry knows that forcing us to spit out balance sheets and two year financial projections would be a complete and utter waste of time. Instead we spent our time making sure we were aligned philosophically and strategically; knowing full well that there will be time for the serious business when we actually have a business to be serious about. This has allowed us to focus on our customers and to be maniacal about discovering what they love (and hate) about our platform.
I’m sure many people will accuse me of being a “Sack and Feld Fanboy” (which I am). Having partners that truly understand startups and create an environment where we can focus on what matters is worth every bit as much as the checks they write. We currently have 27 different developers and publishers who are actively in the process of implementing our platform that are direct introductions from one of our investors. Having great investors isn’t just about warm fuzzies, it should (and does) also result in real customers.
So that’s our story. It reads (and feels) more like a romance than a venture financing. Only time will tell if the romance will continue, but at this point I’m highly optimistic that we have two financial partners in Founder’s Co-op and Foundry that will help us through the many ups and downs awaiting us as we endeavor to weave the BigDoor platform into the very fabric of the Internet.