Raising money as a first-time entrepreneur

Posted 07/23/2010 – 5:21 pm by Marco

We recently closed an angel round a couple of weeks ago, and I thought that I’d share my thoughts on the process.

As a first-time entrepreneur, you will initially be judged by proxy. The main criteria people will use to evaluate you and your business is what other people think about you and your business. Frustrating? Sure. But the people you are most interested in pitching are the ones with the least time to spare–which is why Ron Conway only meets people on referral. Getting the first bit of outside validation is the most difficult part of the entire fundraising process. (Note: signing up advisors doesn’t count as outside validation.)

We went to a lot of meet-ups, presented at various start-up competitions, and took every meeting we could get, but by far the best resource we found to jump-start the process was Open Angel Forum. They do an incredible job vetting the applicants, and the angels that come are earnestly engaged and actively looking to make investments. It was here that we got our first commitments, from Joshua Schachter, Cyan & Scott Banister, and Jason Calacanis–all of whom we’re grateful to have on board!

With this validation in hand, we turned to Venture Hack’s AngelList. There is no better way to get into the inboxes of quality investors–truly, they’re all on AngelList. But as they stress on their application, already having the buy-in of respected players is really important.

I honestly don’t know how we would have raised our round without OAF and AngelList.

As for actually pitching angels, here are my take-aways:

  1. Show product. This is especially true if you’re a consumer-facing product. The first concern for potential investors is can this person get quality product out the door? Don’t use a PowerPoint presentation. Spend whatever face time you have walking through the product you’ve built and the vision for where you’ll take it.
  2. Tell a story. Describe a problem or inefficiency in today’s world and how you’re fixing it. Sell people on your version of the future.
  3. Write your own term sheet. You have a lawyer already, right?  Great.  Get them to write you a plain-vanilla term sheet that has all the normal rights and provision. The people you are pitching have seen hundreds of these–this isn’t a place to be innovative. It turns out that you don’t need a lead for an angel round.
  4. Expect it to take longer than you think. Then be patient when it takes even longer.
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  • FrankDenbow
    Saw you guys on ThisWeekIn, love the concept and hope you guys do well!
  • Don
    Hey Marco, a great story and great tips! I was wondering if you can let us know if you got 100% of what you asked for in funding from the Angels? Also in response to the question above, how much traction did you have before you felt comfortable enough to raise capital? Thanks in advance!
  • Hey Don -- We got everything we wanted in that we didn't have to change the term sheet that we drafted. That said, we were very careful about creating a term sheet that would be acceptable to all parties.

    As for traction, we had more than 10,000 users at the time. But more importantly than the number, we had proven a strategy to attract users at scale -- that's really the important part.
  • Don
    excellent, thanks for putting it in perspective!
  • Jujubya
    Hey mark, Would love to have a word with you about your experience. First time entrepreneur myself based in SF and looking for all the help I can get from folks like yourself who have been through it. What you think, got a few minutes to spare? I can DM you in twitter for contact.
  • Email is best: marco@thumbtack.com
  • Jujubya
    Marco, would you say that having traction for your product made a difference in whether you got funded or not? As a first time entrepreneur, I imagine that would be one of the main concerns the investors had.
  • Absolutely--and for a consumer internet start up I think it's a must. But it's not necessarily about having ridiculous growth and more whether you've shown the ability to build thoughtful product and can convincingly articulate your scalable user acquisition strategy.
  • Interesting post. Thanks. What I'm most curious about is what kind of terms did you get when discussing your idea with angels. What kind of equity stakes were they wanting?
  • Hey Aurangzeb -- we went to the angels with a term sheet already prepared. Because the terms were fair to both current shareholders and new investors, there was no debate over them. And none of the angels had a specific equity stake they were targeting. I think they probably have an investment amount that they target, but not an equity stake.
  • Guest
    Hey Aurangzeb -- we went to the angels with a term sheet already prepared. Because the terms were fair to both current shareholders and new investors, there was no debate over them. And none of the angels had a specific equity stake they were targeting. I think they probably have an investment amount that they target, but not an equity stake.
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