The Incredible Intercontinental Series A Round, or, how we raised $9m from top US investors
So you might have heard the news. Shit just got real. Yesterday we announced to the world our exciting series-A round, led by Google Ventures, with participation from Greycroft, The Chernin Group, Allen & Co and Cris Conde. We assembled a proper dream team of backers from London, NYC and LA that bring solid expertise and insight across technology, media and entertainment.
To have such an amazing group put their faith in us is both energising and humbling.
This has been in the oven for over 6 months now and we learned a lot. 589 emails, 32 meetings, one term sheet and many sleepless nights. Here are some notes and tips from the process.
(note: it's the first time we're raising on such scale, which in no way makes us experts. Proceed with caution).
Why we raised money?
To date, in just over 2 years, we have sold over 600,000 books in 136 countries. We were completely overwhelmed by the love and incredible feedback we got from parents and kids all over the world. It is also very strong evidence for a product-market fit. We learned, in a good way, that the market for beautifully and thoughtfully executed personalised products for children is infinite - there are very few markets that replenish themselves steadily like the one we operate in.
The scale that we reached in only two years, the first of which was in a pet-project mode, gave us the confidence and huge motivation to take this even further. We are going to build an amazing global business that combines the power of stories with the possibilities of technology to create magical experiences for children and families.
So why did we raise, you ask? Well, this round was predominantly strategic for us. We were incredibly fortunate to have proven profitability and scalability, and the best time to raise capital is when you don’t really need it. We raised because we realised that, while financially we can continue to happily bootstrap, to be able to deliver on these hugely ambitious goals we set ourself to achieve, we will need some extra capital and seriously strong partners to help us along the way. None of us in the building has ever done anything near the scale we aim for so we need to extend the team - internally and externally.
The goal is to grow the company to the next stage and investors, advisors and board members who have business leadership experience in your industry at later stage companies can help propel your business into that next phase.Admittedly, when you’re in a startup mindset, which we were in from day one, it’s quite seductive to play the game - to take some big bucks from top investors and go ‘all in’. Vanity? Perhaps. But we were also convinced that, with the right backers, we have a better chance of success. And so we set ourselves on a mission to find the best partners/investors to help us realise this dream of making millions of magical bedtimes.
Our strong starting point to the conversations with VCs enabled us to think carefully about who we wanted to bring on board and to optimise for the right things. We considered capital as a commodity and were carefully looking for value beyond capital.
Optimise for value, not valuation
That was our second rule. The first and most important thing for us to optimise for was chemistry. I’ve heard more horror stories about investor relations than marvelous ones, and we made ourselves a rule that the people we brought on board must be genuinely nice people, people that we actually want to spend time with and will enjoy working with. We wanted our investors to be hands on, to challenge us, and, above all, to hustle their ass off for us.
Like many things, the idea of optimising for value - not just for valuation - started merely as an intuitive mantra, and it took me a while (and some good few conversations) to focus and be able to articulate the challenges and risks we are going to deal with, where are the gaps, and what kind of investors can best help us on this journey.
Time you spend fundraising x finding the right partners x getting the minimum deal you are happy with.
Capital raising is some kind of a juggle, struggle and a compromise between these three parameters. You can spend a year on optimising for the perfect investors at the best valuation but when you have nailed that deal you probably don’t have a startup to go back to. Similarly you can jump on the first term-sheet and close in 2 months only to later find your investors are useless or worse, destroying value.
Take your time but don’t take your time.
If you’re in a good place - you’ve found your product-market fit and you are profitable and scalable - raising capital should be fairly easy. There’s tons of capital in the market and therefore healthy competition on ‘quality’ deals. Everyone who's been there rightly says that capital raising is a full time job, that everything else takes backseat. That’s mostly true. There’s a lot of frustratingly dead time between meetings and emails and DD but it’s less about time, it’s more about your headspace. Most of the time in the past 6 months, even after a term sheet was signed, (perhaps even more) I felt that even when I was at the office I was only at 50% capacity, as no matter how smooth is your process, and ours was as smooth as it gets, it occupies every minute of your waking and sometimes sleeping hours. It can really suck your energies. And there are consequences of being in reduced capacity for good few months - fundraising creates almost inevitable leadership and management debt.I now know that I’ve lost a full quarter of a year in some of the business areas I look after and I need to find ways to accelerate paying my debt. So optimise for whatever you need, take your time to do proper screening and due diligence on your investors but try to do it at the shortest time possible.Final tip: beware time wasters. We had quite a few people that for a while didn’t say no, but didn’t say yes either. A decent VC will get to you with clear next steps (no / we want to hear more / come meet other partners / send some docs) within days or a week maximum since you’d last been in touch. If they don’t, they probably just want to keep you semi-engaged (i.e. hopeful) while they procrastinate, busy with other deals or just waiting for others to blink - none of which are great signals for respect and transparency.
Optimising for value
Finding the best partners in the shortest amount of time can only be done if you can be super clear and focused on what you understand to be of added value to your business. Big VC brands could have an advantage, or not, but much more important is the person you end up working with. Some VCs are compulsive name-droppers. Do your diligence - talk mostly to founders from their portfolio, preferably both successful companies as well as failed ones. You will learn tons. As part of our own DD, we crossed referenced with portfolio companies founders and asked all potential investors to answer the following questions for us: * Where specifically do you think your fund add the most value as an investor ?
What do you think you bring to the table that is better / different than other traditional funds?
What outcome are you expecting from this investment?
What do you consider a success?
What kind of access we have to the wider fund team / network?
How do you connect your portfolio companies together so they can learn from each other?
What companies do you wish you could have invested in? Why? What value would you have added?
Which other VC's have you enjoyed / benefitted from co-investing with both in UK and US?
Do you offer any operational support to your portfolio, eg engineering, recruiting or legal?
What do you think are our weaknesses and how do we address them?
It took us a good few meetings to learn what VCs can and cannot do for you, and we ended up with the following wish-list:
USA focused USA has been our biggest market since the beginning of this year and we strongly felt that to properly crack this market we would need a strong USA base and network. So while it would have been much easier for us to raise in the UK, we decided that it was worth the time to make friends and optimise for USA investors. A quick piece of advice - it’s not easy (more so for non USA based startup) to get to a meeting with top VCs. An intro from a founder they backed goes a long way.
Passion for, and experience with, tech + media startups Our business is quite unique in many ways. We are not aware of another full stack, vertically integrated publisher with a content+commerce business models (with some inspiration from SAAS). But we operate in a world where new business models are popping up around the broader area of tech + media or tech + entertainment. So we looked for people who have interesting experience in founding, building and scaling global new media companies. Naturally, these investors are passionate about the power of the web to invent new exciting ways of directly creating value for people, and directly extracting value from people, in the areas of tech and media.
Diversity of skills and networks We wanted to have different investors with different backgrounds, with super strong networks. From London to LA via NYC, from Fortune 500 CEOs to outstanding exits to Disney, from powerful engineering cultures to Hollywood vibes, we assembled a proper team of incredibly smart people. In a world so biased towards men, we’re particularly proud of having two women on our board (Avid from GV and Dana Settle from Greycroft).
Final tip - put your ducks in a row, and don’t pitch to the people you think you want most in your round, first. You really do get better over time so keep the best ones to the end.
Getting the right deal
Finally, you want to be happy with the deal/valuation you get. As I mentioned earlier there’s a great competition on quality deals and coming to the table with solid revenues/profits. This gives you a lever to stick to what you believe is a good deal. And if you read tech press you know that in the current climate, valuations are much more of an (abstract) art than a science. Ask your angels or just someone with a lot of experience how would they go about arriving at a valuation of your company.I’ll say it again and again, (from my very short experience of capital-raising) optimising for valuation is mostly wrong. So the common practice of getting a term sheet and then shopping around was completely out of the question for us. We proudly ran an open, honest and transparent process. It paid off at the end. We got the best people we wanted at a valuation we are very happy with. A win-win.We managed to get through this daunting process and still enjoy it, most of the time. We could not have done it without the fantastic help of our friends and angels. For their time, effort and great advice I’m forever grateful.And now….back to work!