“Fundraising was easy” - said no one.
I’ve been averse to fundraising since I was kid. You name it: boy scouts, student council, math club, youth soccer. I was the kid who was reluctant to knock on doors to ask friends and family to buy lollipops, cookies, or whatever we were selling. Every fundraiser, I would ask my parents to buy out my share (and was fortunate enough to make that happen).
That sentiment stuck with me until recently. We originally thought we’d bootstrap Grata on revenue and profits. Fast forward to today: we closed nearly $10M and couldn’t be more excited about the company we’ve built and people who’ve joined us for this journey.
Don’t get me wrong - there are good and bad sides of raising. Most of them are obvious: more money means you can hire more people, pay your employees better, invest more in your product, and acquire more customers. In exchange, you give up equity and governance. Over the years, though, we’ve learned that there’s a lot more to this equation than meets the eye.
I’d like to share those non-obvious learnings with you.
What raising money means for your company
One word: talent.
Outside validation sells: When I started Grata, I thought to myself, “I’ve spent my whole life trying to get into Harvard, get good grades, get a good job, impress my bosses. Finally, I can do my own thing and don’t need anyone to validate that.” It took years for me to realize that raising money wasn’t about validating myself: it was about validating everyone else. Prospective employees care that smart people believe in you, trust you with their money, and think your company will be worth a billion dollars someday. Imagine explaining to your parents, partner, and/or friends that you’re going to leave your stable, high paying job for a startup they’ve never heard of. That’s a tough conversation. With investors, that becomes easier. While Andrew and I were content with ourselves, we completely underestimated the power of outside validation in attracting talent.
Your equity is worth something: Equity levels the playing field. It often looks small at first glance but actually ends up being a large part of an employee’s compensation. It lets you compete with high paying jobs in big tech and private equity. In those jobs, you generate wealth off your options and carry, not your base salary. While we were bootstrapped, it was hard for anyone to conceptualize what their equity was, or could be, worth. Now, having raised money, it’s easier to explain equity in dollars. It’s meaningful to our employees today and everyone knows how they can personally better the company and make it grow tomorrow.
It’s easier to build diversity: This was, by far, the least obvious to me until recently. When I look back at the early days of Grata, we were almost entirely composed of young, privileged men. We couldn’t pay market rates and we were a high risk proposition for early employees. Now, look at Grata and you can’t find two people who look alike (granted, we think of diversity as less about looks and more about diversity of experience and thought). We’re particularly proud of the team we’ve built, hailing from different walks of life that make Grata a more empathetic and stronger company. We couldn’t have done this without funding.
What raising money means for your customers
Longevity (bigger deals and deeper relationships): This didn’t strike me until I was on the other side of the table. When we raised money, we could actually afford to buy more tools and resources and I took more meetings with vendors. Small, bootstrapped technology companies pitched me on compelling value propositions but we couldn’t move forward with their products. How could we train our team, rebuild our infrastructure, and trust them if we didn’t have confidence that they’d be around years later, let alone months? As a startup, you sell 50% product and 50% dream. If your customers buy into your vision, they’ll want to know that you’re going to be around for the future you’re painting.
Solve the problem, not the customer: This point is a bit more controversial, as conventional wisdom tells you to build for your customer. In our bootstrapped days, we would find ourselves building for our biggest customers. That’s not a bad thing per se, for an early stage company. However, when we ran the numbers, we realized that there are a handful of big customers in our market and the majority of our long term revenue would come from the tail of small to mid sized companies. We were wrapped up in our customers’ problems and not the market’s problems. When we shifted our strategy, our biggest customers started learning from us, understanding how their peers were solving problems they hadn’t yet seen. To get the impact and adoption we have today, we solved the problem, not the customer.
I don’t necessarily believe fundraising is right for every business, but I do think it was right for us. If you want advice about fundraising or are just interested in Grata, I’m always happy to chat. You can reach me via email or Linkedin.