Loggly just closed an A round with True Ventures on Wednesday. From start to finish, Raffy, Jon and I talked to over 20 capital firms, with fund sizes ranging from a few hundred thousand dollars to over a billion dollars invested. In all, we spent exactly 90 days on our capital raising efforts, starting with essentially nothing, and then authoring and tweaking the executive summary, financial model, and investor presentation as we went. Oh, and we wrote a crapload of code in there too. The Loggly Beta deadline waits on no man.
Perhaps it was fate that we spoke with Puneet Agarwal at True Ventures first. True has a massive amount of experience investing in and managing early stage companies. Their record of past successes speaks for itself, and their team has experience with over 100 early stage investments that have generated significant investment returns. Frankly, Raffy, Jon and I are extremely fortunate to be working with the True Ventures team.
That first meeting with Puneet was actually quite easy; we had no other expectations other than sharing what we were thinking with someone who knew the space well. That was the calm before the storm though – over the coming weeks we struggled with writing our investor deck, meeting schedules, market size expectations, investor lack of familiarity with our market, and became consumed with correctly casting the “going big” portion of our pitch.
The best way to describe what “going big” means is to just be blunt about it. It means, “How are you going to make your idea – your startup – compete effectively in a multi-billion dollar market?” You know, how are you going to get big like Apple, or SalesForce, for example. “Say what?”
A bunch of you capital guys and seasoned entrepreneurs will nod your heads vigorously at this statement. “Yes, yes. You need to show how this gets really big!” And, for all practical purposes, you guys are absolutely right. For a largish VC, say with a fund of a billion or so dollars to invest, they HAVE to go with early startup guys who are going to go really, REALLY
big. It’s not a matter of money, it’s actually a matter of time. If you have a BILLION dollars, and you invest a million in each company you fund, that’s a THOUSAND companies you need to talk to, investigate, vet, poke at, wrangle with, grow to love, etc. Yeah, no. That’s not going to work unless you focus on a given market.
You’d have to filter fast. Kick out the guys that MIGHT do a run rate of low 10s of millions a year (crazy, right?) because they aren’t big enough. Shoot for the guys who tell a good story about how they are going to turn into Twitter, or Facebook, and exit for billions. Find those guys! This results in an investor funding a bare handful of early stage startup each year, even if they say otherwise on their website.
It also serves another purpose, all those meetings with those small startups. It allows an investor to form early relationships with companies who are successful at getting through the valley of death. If an investor finds out a startup they talked to early on is doing well, has revenue coming in, is growing, and expanding to the “going big” event, then maybe they might need some more capital. Maybe it’s time to invest.
If you are doing an early stage startup and are going to raise capital, you need to toughen up a bit before you go out. Remember, it only takes one firm to believe in your idea, but you are going to get an inverse number of rejections before that event transpires. If you get a bad review from someone, take their advice in stride and figure out how it applies to you. Tweak as needed, and move on to the next firm to vet what you’ve discovered.
Above all, be honest with yourself and your assumptions and don’t give the investor who gave you a bad review a hard time. If you think you’ve been asked to prove something unreasonable, like how you are going to become a billion dollar company when it’s just the 2 of you and a 1,000 lines of code, then say as much to the investor. Don’t be afraid to say you don’t know, or restate what you do. Don’t be afraid to talk through how you get big with the investors.
After being asked how we got to a billion dollar valuation by one VC, I turned it around on him and asked how he knew he was going really big on his company (which exited for >$1B). His answer? “We didn’t know until we got there!”
Loggly is going to go big, of that I assure you. But first, we have a product to build, customer and partner relationships to forge, and problems to solve for storing a ridiculous amount of log files. Once we have these tasks behind us, we’ll have a great handle on how we’re going to go really, really big.