Jason Goldberg and Bradford Shellhammer founded a gay social networking site called Fabulis a couple of years ago, I was lucky enough to meet Jason as he was thinking it through. Within 3 months of launch the site had attracted 50,000 members, only to plateau 9 months later at 130,000 members, with only 30,000 active. Facing this slowing of demand the team took the brave decision to go back to the drawing board, believing that they wouldn’t be able to iterate their way to a business model. Their one glimmer of hope was that a flash sale feature they had added to the site, a “Gay Deal of The Day,” had achieved some success – they had sold over $40k worth of product within 20 days of it being launched. That ‘feature’ became Fab.com and 3 months after its launch it was profitable with 600,000 members and six-figure sales days.
The potential was clear and Goldberg decided to raise a significant funding round last October in order to meet it. However, he worried that fundraising would divert his management team’s time and attention away from running the business at a critical time (their first holiday season). Instead of potentially losing focus and perhaps failing at raising the capital perhaps they should simply slow their growth?
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Instead, Goldberg decided to proceed with fundraising and saw the process itself as a design opportunity. While redesigning the process Goldberg put off VCs that approached him with the message: “Thanks so much for your interest. Sorry, but we’re really heads-down right now running the business. Will circle back to you when we’re ready to have a serious chat about fundraising in the near future.” He had learnt from experience that there was little value in spending time talking through his business until he was ready to raise.
Once he was ready he created a shortlist of VCs that added the specific value he was looking for: the ability to write a large cheque, recent success with ‘hot’ startups and experience scaling e-commerce businesses.
The team then approached its shortlist, giving each a login to the Fab.com metrics dashboard before agreeing to meet. This open approach is wildly different from most funding processes I have seen in the past (in which teams go through rounds of meetings before metrics are discussed in detail), yet rightly VCs look at metrics closely. By providing full access to the data Goldberg sent a clear message to potential investors; “here we are, here’s the data, we’ve got nothing to hide, take a look and decide for yourself if you want to pursue investing in Fab.”
In the end, Fab.com had the choice of multiple firms that wanted to invest, ultimately choosing to take $40m from Andreessen Horowitz. The process had worked well because they were able to pick the partner they wanted to work with while avoiding disruptions to their operations…
- Looking out for features or aspects of your offer that are gaining traction even if it isn’t as a whole?
- Avoiding wasting time talking to financiers before you’re ready to finance, you’ll have to go through the same process in due course anyway?
- Being proactive rather than reactive in looking for funding partners?
- Making your metrics available to funders before meeting them, ensuring they understand the business and traction in advance?