After a hectic couple of months, I am finally able to sit down and share some exciting news with you guys. The last 2 months have been incredibly intense for me to the point of affecting my regular writing on this blog. However, I do have a good excuse. If you haven’t read the news, I am super happy to announce that KidoZen just completed a $5M Series A led by Third Point Ventures!
Since the Wall Street Journal broke the news two weeks ago, I have been having different conversations with different folks from different backgrounds: VCs, journalists, entrepreneurs, partners, etc, explaining our reasoning and experience during the process. Based on those conversations, I thought it might be a good idea to share some of those insights with you guys. In that sense, I summarized some of the not-so-obvious lessons that I either learned or validated during the process.
While I work with various VC groups as a tech advisor, this is the first time I have raised institutional capital. In that regard, you might find some of my perspectives useful if you thinking on starting the process of raising VC money for your company. For the purpose of this blog post, I am going to keep the explanations short and simple. We can expand into the details in subsequent blog posts.
If you can, only raise capital when you are ready
From a financial standpoint, KidoZen didn’t need to raise capital. We have a large number of paying customer and revenue numbers on the mid seven figures. We decided to raise capital because we felt the company is at an inflection point from the growth perspective and we have a very aggressive roadmap in order to continuing acquiring meaningful market share. That position gave us a lot of leverage during the process in order to bring on-board the right partner under the right terms.
You are always raising
Officially, we met with different VC groups the last week of September and received the funds the week before Thanksgiving. While you might think that was a very rapid process, the fact of the matter is that we have been having unofficial conversations with different VCs for the good part of the year trying to identify the right partners for a company like KidoZen.
As a CEO, I am of the idea that you are always raising capital. Whether you are officially raising or having informal conversations, it’s your job to keep potential investors interested and up to date about your company and progress. If you only go on a fundraising exercise when you need it, you will put yourself and your company under unnecessary amounts of pressure that might result in an unfavorable deal.
Keep the team focused (or don’t tell them anything)
When we started our official fundraising process, the KidoZen executive team made the decision of not sharing the news with the entire company. While that might look contrary to the principles of transparency we constantly predicate, we decided it was very important for the team to remain focus on the product, customer and partner acquisition and not add any additional distractions.
Raising capital is a very stressful process. As a CEO, you need to decide whether you want to share that pressure with your team or put that burden upon yourself and keep the team focused on execution. There is no right answer, it all depends on your current state and culture of your company.
In our case, we decided that sharing that level of pressure and uncertainty with the entire company was going to become an unnecessary distraction. At the same token, we made the commitment to share the news with the team as soon as we knew the outcome regardless of whether we were successful or not.
Be honest, all the f… time
I can’t stress enough the importance of this. If you are truly partnering with your investors to build a great company, you need to be completely transparent with them. We see our investors as part of the team and not as an external entity. If your investors really believe in your company and are really interested on investing, they will roll up their sleeves and help you address any problems that are an impediment for the fundraising process.
Make sure your company is organizationally ready for institutional investors
Complementing the previous point, If you are thinking about raising institutional capital, I would suggest you take a serious look at your company and make sure it can undergo the detailed due diligence process which is typical is series A-B-…Z. in our case, I completely underestimated our readiness as a company and encountered numerous challenges throughout the Series A process. Thankfully, our investors, legal counsel, finance group were incredibly efficient fixing any unexpected issues and brought the process to a successful closure. At the end, I think that exercise made KidoZen a stronger and certainly more operationally organized company.
Trust your investor
Either you see your investors as true partners and part of your company or as a glorified ATM. If the former, is your duty to be completely honest with them, trust their judgment and accept the occasional criticism in order to make your company better. If you don’t like to be challenged on your decisions or have a problem when people disagree with you, I would suggest you explore other avenues to raise institutional capital. Dealing with VCs is too painful to do it just for the money.
Get help, don’t do it alone
Another one of my mistakes. I really thought that I could handle most of the fundraising process by myself with the help of our legal counsel and finance team without the need of additional help. What that ended up being mostly true, the process was as painful as short. Raising institutional capital can be incredibly stressful and not having anyone to share your challenges and frustrations with makes it even worse.
In my case, there were a couple of times on which I felt completely exhausted about the whole process. At the same time, I didn’t want to communicate that state of mind to the team because I felt it was very unfair to them. To this day, I can’t thank enough my dear friend (and new KidoZen board member ;) ) Jason Port for his support and help during this process.
I know a lot has been written about the process of raising institutional capital. I hope some of this ideas resonate with you as I was positioning them from my own experience. I will share more details in a future post.