Apr 29 2015

Transparent Funding Announcements

We are in a cycle again where how much you raise is the story. It’s what the press likes to write about (e.g. Company X raised Y from A, B, and C). Now that everyone is overly focused on unicorns, the headline number on the valuation (e.g. Company X raised Y at a valuation of Z from A, B, and C) has crept into the story on big rounds.

While this makes for press release fodder and ego gratification, it’s of very little use to entrepreneurs. There’s no real story there. No understanding of the human dynamics behind the financing. No understand of what actually went down. No underlying metrics that drive the financing. No real perspective on how people thought about things and the choices they made. Just happy talk focusing on the dollar raised. Zero educational value around anything.

Recently, the gang at SalesLoft told the detailed story of their $10m financing. Kyle and his team went through Techstars Boulder in 2012 before moving back to Atlanta and being leaders in energizing the Atlanta startup community. Kyle followed the tradition of extreme openness about the financing process that I think Rand Fishkin started with his post three years ago titled Moz’s $18 Million Venture Financing: Our Story, Metrics and Future.

If you’ve never read Rand’s post on our financing, it goes through an extraordinary amount of detail about Moz’s business, the financing process, the terms, and the timeline. Rand did NOT run this by me before posting it – I saw it at the same time as the rest of the world. He did ask if it was ok with me that he’d be this transparent. I reminded him that I signed up for TAGFEE when I invested, it was his company, and he could write whatever he wanted.

After he posted it, he sent around the link to a few prominent people in the tech media. None of them covered the financing in any way. A few days later, I sent out a few emails asking folks I knew at these sites why they hadn’t written anything, since they so quickly write Company X raised Y from A, B, and C. I didn’t get responses from everyone I wrote, but the ones I got back said something like “Rand wrote too much – there was no story here once he put that post up.”

I found that fascinating. When I pondered it, I realized how divergent the media was becoming from what entrepreneurs were thirsty for in terms of substance.

Late last year, Danielle Morrill followed in Rand’s footsteps with an epic post about our $6.5m financing of Mattermark. In it, she talked a lot about the process, just like Rand did, along with disclosing all kinds of information about the business, the valuation, and what she experienced. I also wrote a post about the financing using Mattermark as An Example of How We Decide to Invest.

Interestingly, the media wrote more this time. I don’t know if it’s because Danielle is in the bay area (while Rand is in Seattle), or the story has broadened. But when I go back and read the media stories, they are still overly focused on the amount of the financing, rather than the story behind it.

Another company that did an awesome transparent funding announcement was Buffer (and app and company I love, but am only a tiny investor in via an AngelList syndicate) when they announced We’re Raising $3.5m in Funding: Here is the Valuation, Term Sheet and Why We’re Doing It. Data, data everywhere. And lots and lots of story.

Now, I’m not suggesting that every entrepreneur should write transparent funding announcements. That’s up to the entrepreneur. But I think it’s super valuable to read the ones that are out there. The amount of useful information to entrepreneurs who are building their companies, both for process, dynamics, and comparables, is enormous. And, while these funding stories are positive, the path to them is often a complete mess, such as Rand’s Misadventures in VC Funding: The $24 Million Moz Almost Raised or Danielle virtually stomping her feet in frustration when she wrote Mattermark Has Raised $2M in Our Second Seed Round.

In my book, this is a lot more useful to read than Company X raised Y at a valuation of Z from A, B, and C. Thanks to the entrepreneurs who are brave enough to put this out there.