We’re super excited to announce that we’ve successfully closed our seed round, which you can read more about in our press release here. A few friends have asked us what the process was like, so we’re going to reflect on some of our experiences in this blog post. While every fundraising round is unique, we hope this may be useful for other first time founders out there.
Looking back, here are some things we had in place before we started to raise that turned out to be really important:
- Pitch deck, business plan, 3-5 year financials. The vast majority of investors didn’t ask for a formal business plan, but we found that creating one was really helpful for organizing our thoughts and being able to put together a comprehensive pitch deck. We got a ton of help from our mentors (can’t overstate this) to make sure our projections were reasonable and that our strategy was cohesive. While projections are inherently speculative and no one expects them to be perfect, investors are mostly interested in seeing how you go about sizing your market (yes, it’s more work, but a bottom-up analysis is more impressive than pulling numbers from a market report). We did our due diligence by going through our network, talking to experts in the field, and working on the ground in hospitals and in the field to get a better picture of how many units of something are used per day, how things are manufactured and procured in our space, and so on. The extra effort of validating something in person is worth it, and you get to build better relationships with people when you see them face to face!
- Law firm. Our advice is to choose someone you really connect well with and feel comfortable talking to – if you would hesitate calling them after hours or they don’t respond quickly to your emails, then you can find a better lawyer. The law firm we ended up going with was genuinely excited about what we were doing as a company and bought us lunch, which was the quickest way to win over our hearts. (Okay, they also offered us a discount and had a great payment deferral policy, but those sandwiches were amazing.) Shop around: get referrals, talk to multiple firms, compare rates, and go with your gut.
- References. For pre-revenue seed stage companies, the bulk of due diligence comes down to expert opinions. Especially for young founders, the people who vouch for you and their level of experience matter. We put in a lot of effort to build strong relationships with high caliber advisors over the summer, and because of our good rapport, they were willing to talk to investors about the value of what we were doing. Importantly, though, we asked these people to be our advisors because they’re fantastically smart and we like to spend time with them, and having them talk to investors was just an additional perk.
Early during our raise, one VC group gave us some sage advice: The best pitches are when the investors are engaged and talking, and it feels more like a mutual discussion rather than a one-sided pitch. We can confirm here that they were spot on, but we’ll also note that even some of the best conversations ultimately didn’t lead to an investment for many reasons (e.g. investing cycle didn’t match with our timeline, raising too little, etc.).
Of course, the advice above only really applies for closed door meetings. If you cast the net wide like we did, you’ll start with everything from video chats to phone calls to 3-minute rapid fire pitches to 40-minute presentations with Q&A. The goal of the first pitch is always to get another conversation in that closed door meeting. If you never meet with a sophisticated investor one-on-one in person, the chances of getting their money is low.
While the goal is to get those one-on-one meetings, there are some benefits to pitching to a larger audience like an angel group or pitch night. Not everyone will invest but we’ve made some great connections to potential partners ranging from joint development to distribution in other verticals. It’s not a bad idea to pitch if you get invited even if the audience ostensibly doesn’t seem like the best fit.
3. Who Your Investors Are
You’ll always read about this in blogs and startup posts, but raising money really does take more time and effort than you expect. Especially as first time founders, we had to work hard to find early commitments. In the beginning, it was frustrating because it seemed like there was a lot of interest and people were returning our emails and calls, but nothing concrete ever came out of those talks. One reason is that we made a point of only looking for VCs and angel groups specializing in medicine and healthcare, but we didn’t really fall under the traditional biotech categories of pharma, medical device, or IT. We eventually came to realize that investors can provide a lot more than just domain expertise – whether it’s connections, pointing out assumptions in your business model, or understanding how and when to grow, it’s helpful to have a holistic view of the value an investor can bring. In fact, if you decide to pitch to an angel group, the investors that take an interest will often not be in your space (and if you’re concerned about domain expertise, you can always pad your Scientific Advisory Board or Board of Directors). Once we expanded our search to sector-agnostic groups that invest in early-stage companies, we had a much higher success rate.
For us, we were lucky to find a group of investors who were not only well connected in our space and experienced business people, but who were also personally vested as mentors who wanted to help some young entrepreneurs succeed. We’re really happy that we’ve been able to build a strong relationship with our lead investor and feel like we can pick up the phone at any time to ask him anything. Some people like a more hands-off approach when it comes to investors, but from our experience, we’ve benefitted from being transparent and keeping our investors well-updated.
4. Once You Have Traction
Regardless of where your first commitment comes from – whether it’s a warm introduction to a VC, one of your mentors investing, or going through the screening meeting/general meeting pitches of an angel group – once you secure a decent chunk of the round, your value as an attractive investment opportunity will suddenly shoot up. No one wants to be the risk taker, but no one wants to miss out. After we found a lead investor, a lot of the groups who took a pass when we first approached them decided to take another look. This is why it’s always good to keep in touch or remain cordial with investors even if it seems like it won’t work out.
A complicated challenge we faced with this newfound interest was balancing closing the seed round and talking to as many investors as possible. On one hand, after raising a round for a few months, there’s a certain point where you don’t want to spend any more time pitching and you want to get back to doing real work. On the other hand, you want to leverage this favorable supply/demand dynamic to get the best possible investors to join the round.
Our solution was to let our lead investor know there was additional interest (he supported the idea of bringing on other strategic investors), and setting a date by which we would effectively close off the round from any other investors. This solves the problem of dragging on the process for too long and also has the benefit of forcing interested people to make a decision quickly about whether they want to join the round. The downside is that some investors will feel too rushed and back out because there’s not enough time to conduct due diligence. In a lot of cases, the lead investors’ due diligence documents will suffice, but some investors prefer to do their own digging around.
To be honest, being a first-time founder (especially just out of college with no higher degree or long-term job experience) with a pre-revenue company is a really difficult position to negotiate from. We had to make a lot of compromises when it came to the term sheet, and this is where having a good startup-specific lawyer comes in who can tell you whether the terms are fair or not given the current stage of the company. That being said, it was definitely useful to have a bunch of competitions and grants behind us, traction with large medical organizations, and strong advisors. Take the time to really understand the terms (whether it’s asking your lawyer to clarify, reading books like Venture Deals by Brad Feld, etc.) – don’t sign anything you haven’t read through and don’t be afraid to be honest when a term makes you uncomfortable. If someone is set on putting money into your company, it means they like you a lot and they value a good working relationship, so they should be willing to meet in the middle.
6. Moving Forward
Generally speaking, once the term sheet is signed, the deal will almost certainly go through. However, sometimes it will still take additional time before the closing documents are signed (days to weeks), so don’t celebrate until money hits your bank account.
And that's it! It sounds cliche, but it really was a rollercoaster ride with lots of ups and downs throughout the process. Now that we've got the capital, we're planning on making 2017 one hell of a year to remember. Keep reading below for a few quick updates!
Aside from raising our round, we’ve also been busy at work. Kevin presented at TEDMED back in December and made some great contacts. Official link to the video coming out soon (we'll update on social media when it does). Edit: Here's the link!
We moved out of Columbia Startup Lab and into the Downstate Biotech Incubator in Brooklyn at the start of 2017. The Startup Lab was a great office space, but we also needed to get our hands dirty and get back to more R&D, so we decided to move and our new lab is currently in the process of being built out. One of the perks of being at the Incubator is that we qualified for the StartUp NY program, which means our employees don’t need to pay state income tax and we get reimbursed for sales tax on purchases, among other things. Pretty sweet.
Also in January, we traveled to Washington, D.C., and presented to the American Red Cross’s Scientific Advisory Council. It was a humbling experience to interact with such a high caliber group and quite validating to see that they were excited by the potential of what we were doing.
Something we were really proud of is that Katherine was featured by the United Nations as part of the International Day of Women and Girls in Science! They made a fantastic video which you can watch below.
Most recently, International Medical Corps finished a pilot of Highlight® in Haiti for the cholera outbreak. Highlight® was used in two Cholera Treatment Units on multiple surfaces including walls, beds, and bathrooms, and the healthcare workers found it to be very effective and recommend its use in ensuring proper coverage of disinfectant. If you've been following our blog, you'll recognize IMC as the same organization we previously field-tested with in Guinea back in June 2016. They're a fantastic NGO with boots on the ground in some of the toughest places, and we’re proud to be working with an innovation-focused organization like IMC!