NewsGator announced that they closed their second round of financing today. They also added two executives to their management team – Sandy Hamilton (EVP Sales and Business Development) and Mark Nass (VP Finance and Adminstration.)
When we made our seed investment in NewsGator in June, we didn’t expect to start raising another round until January and didn’t expect to close it until late Q105 / early Q205. However, I’ve been completely blown away by the progress NewsGator has made since we invested. There are occassions as a VC where you do an early stage deal hoping you’ve got something huge (every deal) and then wake up one day and realize you’ve really got something huge (very few deals.)
I had one of these days in October. After wandering around enthralled with NewsGator for a couple of days, I talked to my partners about simply doing a significant round on our own so the company could focus on building the business rather than spending a few months on the road fundraising. Based on the progress NewsGator had made, this was an easy decision for us. We ran our internal process over the span of a couple of weeks and made an offer to the company.
JB and Greg – to their credit – wanted to test the market to make sure the deal we were offering them was fair, so they talked to a handful of high quality firms that had expressed unsolicited interest in the company. Their goal was to quickly ascertain if someone would invest at a higher valuation than we were offering and be able to move quickly. These were both key conditions for them – an incrementally better deal wasn’t worth it if it took six months of work, due diligence, and partner meetings. Given our willingness to invest on our own, it was easy to create a quick feedback cycle. After a handful of meetings, JB and Greg concluded that the deal we were offering was fair and it wasn’t worth going through a multi-month process to get a second investor into the company at this point.
While I like doing early stage deals with other investors, I’m not afraid to do an early stage investment on my own. One of the investments I made in 2000 – Gold Systems – was done without any co-investors. I’m extremely happy with the business today, although it went through some rocky times during the 2001 and 2002 tech implosion. Ironically, it was probably easier to deal with things on our own as I could be patient, work closely with the executive team, and ride out the storm until the world got better. We did and the company is once again doing great.
A key attribute of going it alone is the quality of the CEO / enterpreneurs – in both NewsGator and Gold Systems cases I’m dealing with A+ folks that are in a position to create a self-sustaining (e.g. profitable) company on a well-quantified amount of investment which is within my capacity to do on my own. As a result, the pressure to syndicate the deal (e.g. bring in other co-investors) doesn’t exist from a financing perspective since I feel comfortable that we can fund the company on our own if we want to. While I’d still welcome co-investors into any of my deals, it’s nice to be able to move quickly and go after an emerging market without the requirement of a syndicate.