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06/17/2010 11:19:00

Lessons from raising a seed round


by dixieroadrash on Flickr
As TechCrunch, VentureBeat, and ReadWriteWeb recently reported (and as we confirmed on our blog), BlockChalk has just closed a round of seed financing and is now hiring.

We thought it might be useful for other entrepreneurs if we shared the story of how we raised this round and some of the lessons we learned along the way.

Update: VentureHacks has just written about AngelList’s role in our funding process. Check it out!


Find those early supporters

Everything starts somewhere. For us, things truly began to roll when we secured the early support of two key investors.

Our first supporter and advocate was Joshua Schachter, founder of del.icio.us, inventor of tagging, and an active angel investor. Joshua has a unique talent for recognizing non-obvious problems and opportunities. He immediately grokked the big picture behind BlockChalk and lent us invaluable support in the form of investor referrals, product advice, and pitch feedback. His involvement served as critical social proof that helped us in winning over nearly every other investor who followed. Someday we will name a BlockChalk neighborhood after Joshua. We have that power, you know.

Another key early supporter was Satya Patel of Battery Ventures. Like Joshua, Satya quickly grasped the opportunity we were working towards. But he wasn’t just looking for a solid product strategy; he was looking for a team of entrepreneurs he thought could get the job done, adjusting course as necessary to reach the larger goal. Satya’s perspective was a breath of fresh air, so we were thrilled when Battery decided not only to invest but also to lead the round. Satya also made numerous introductions on our behalf, including to angel David Liu who chose to sign on. It’s been a pleasure working with Satya; he is definitely one of the good guys.

AngelList pwns

You know about VentureHacks, right? It’s the place to go for the best startup advice, period. If you’re an entrepreneur and you’re not reading it, you need to start now. Go ahead, we’ll wait. Back now? Cool.

Babak Nivi and Naval Ravikant run VentureHacks. When we first met them they had recently started AngelList, a service that sends pre-screened startup pitches to angel investors who sign up to receive them. We wrote up a version of our pitch that matched AngelList’s requested format (an exercise that in itself was very useful) and submitted it. They sent it out to the list and within a day we had received ten quality angel inquiries. In just a few days, we had our first new commitment — Tom McInerney.

After Battery Ventures signed on to lead our round, Nivi and Naval sent BlockChalk out to AngelList once again. With this new added social proof, the response was even stronger than the first time around. We literally received dozens of new angel inquiries and things began to rapidly come together. In the span of a few days we had a commitment from the legendarily awesome Mitch Kapor. We also met Josh Stylman who signed on and also introduced us to Chris Dixon and Eric Paley of Founder Collective (who themselves signed on).

AngelList is a remarkable experiment that is redefining the way entrepreneurs connect with angels. It’s something you want to be a part of.

The team is key

We found that the makeup of our founding team contributed directly and measurably to our ability to raise funds. Stephen’s background with del.icio.us showed that we could design, build and manage successful web-scale businesses. Dave’s relationships at Stanford’s d.school led directly to a number of important connections, most notably Michael Dearing of Harrison Metal who ultimately signed on as an investor. And Josh’s engineering experience at both del.icio.us and Craigslist provided clear evidence that we had the technical chops required to meet the challenges ahead.

It’s hard to go it alone. It’s probably also not smart in most cases. A powerful team is greater than the sum of its parts, and investors know that.

Always be tweaking

We never stopped tweaking our pitch. Every meeting we had was an opportunity to both audition our latest pitch and to gather feedback for the next iteration.

The simple fact of the matter is that you probably don’t know the best way to pitch your idea‚Ķ yet. We certainly didn’t. Like a stand-up comic testing out a new act, you will need to test your pitch over and over again, continually refining it until it is as focused and brief as possible. You’ll probably never reach the ideal, but that’s kind of the point.

This shouldn’t be just a surface exercise. Your pitch is an extension of your product and your business, and any learnings should flow in both directions.

Prototypes will love you and leave you

There is no substitute for real feedback from real users. With that in mind, BlockChalk started as an idea and a functional prototype. We chose to “soft launch” that prototype in order to get early user feedback. It worked and we learned invaluable lessons that we applied to a new and improved product strategy.

But there was a side effect we didn’t expect. Some prospective investors saw this early prototype and instead of digging deeper assumed it represented the sum total of our efforts. Consequently some of them didn’t give us the chance to explain our real strategy.

If we could do it again we might have launched our prototype under a different brand. Or perhaps emblazoned it with the word “beta”, or even “alpha”. But at some level this is the price you pay for having a “product” before you have funding. Prototyping is a double-edged sword. Be prepared for both blades!

Conclusions

We’ll be writing more on these issues in the future, but for now that’s a good overview. Raising this round was a challenging, at times frustrating, but ultimately rewarding experience. We ended up with a roster of investors we truly respect. We found a lead investor who shares our perspectives on the marketplace and the entrepreneurial process. And we now have the resources to hire a stellar team and prove the value of BlockChalk. There isn’t much more we could ask for!

Stephen, Dave, and Josh





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