Reflecting on a failure to fundraise
The meta-game of fundraising, and some tactical advice
Like most founders, I'm guilty of only sharing wins.
This is no exception - I wrote this in the middle of a failure, with every intention of sharing it.
I did not share it. But, now that I feel somewhat successful again - here’s the post!
It's hard to share failures in real-time.
Typically I’d wait until I came up with a brilliant pivot, 100x’d our revenue growth, and then tell the glorious story of how foolish the investors were who passed on us.
Not this time. Well, not yet.
I think I’ve succeeded enough that my ego will let me talk about current failures.
(Author's note: no, It hasn’t).
2020 was a bit of a crazy year. I was in Sri Lanka negotiating the sale of my last company.
Our flight through Shanghai was cancelled, but we managed to book the last flight home through Tokyo before the world shut down.
Lockdown happened, and I was sitting on a side project myself and my friend Kalv had built - Holopod.
Holopod’s mission is to help individuals take back control of their day, manage distracting notifications, and get back work/life balance.
We launched a Slack app, and hundreds of incredible companies signed up - including Netflix, BarkBox, SurveyMonkey, and StitchFix.
I wasn’t sure I wanted to start another company quite yet - I had some cash in the bank and was probably a little burnt out.
But sitting at home behind a computer during lockdown, what else was there to do?
I dove in, and decided to make it a success.
Ultimately, it was not a success.
The past few months I went all-out to raise a seed round for Holopod.
I spent 3 months failing to raise capital.
In the best capital-raising climate in venture capital history.
I’ll break the failure down into 2 meta-mistakes, and 3 tactical ones.
Mistake #1: Do I care enough about this problem?
I was a user of the product. I like and believe in the market (remote is the future!), and we had some great momentum.
It ticked a few boxes, and I managed to convince myself that the mission was deeply important to me (helping people take back control of their work days).
But I wasn’t obsessed with it. I’m not a productivity geek, and I don’t care that much about making already great teams marginally more productive.
On the shitty days (and there are lots of them), you really need to fall back on caring about your users and the problem you’re solving.
Mistake #2: Is this the right mountain to climb?
My personality is similar to many founders.
If you put a mountain in front of me, I’ll run up it as fast as I can. This is usually a good thing, but often I don't stop and reflect on whether it’s the right mountain.
It’s been true my whole life - put me in a system and I'll find a way to beat it. The issue is I've never really had time or space to go from “I’m here, let’s win” to “here’s what I actually want to spend my time working on.”
It still felt like I have something to prove in the startup game, and this was the best chance to prove it. Looking back, I should have spent a little bit more time in the nebulous “what should I work on phase.”
Places like South Park Commons are great for this.
Anyways, enough navel-gazing. I made those mistakes, and jumped right into it.
Despite a solid product in a growing market with amazing retention and great companies using it - we were unable to secure funding.
It was not a volume problem - I talked to almost 100 investors.
Raising money isn’t a win by any means, and I suggest taking everything VCs say with some scepticism. Don’t let it emotionally impact you. They’re often wrong.
But, they’re also often right. They do this professionally. VC’s are not dumb.
If there are emerging patterns and insights, you should reflect on them.
Here are the three main tactical reasons why I failed to raise:
1. Too much competition (for venture dollars)
As a startup, you shouldn’t worry about direct competition. At least not too much.
But when you’re competing for venture dollars it becomes very relevant.
We were in the “remote work/virtual office” category. Billions of dollars were already deployed into that space - with no breakout successes.
When VCs have already deployed billions in capital into a space into companies that might converge with yours at some point - you significantly reduce your chances for funding.
Lesson: If billions of dollars had already been deployed in your category with no clear winner - it’ll be a lot harder to raise money. Figure out how to reposition your business and narrative in a more compelling category.
2. The uncanny valley of growth
Our numbers were good, but not blowout good. The second you give someone numbers to evaluate, they will look at those numbers. We were growing at 15% m/m, which is fine. But it’s not startup level growth.
If investors are looking at your spreadsheets in detail at the seed stage - it means they're finding reasons to opt out.
You either need no graph, or an exponential graph in your pitch deck.
Lesson: Raise money before you have any numbers, or make your numbers way better.
3. Shallow product
Our current product depends on the Slack ecosystem. It was a strategy that allowed us to penetrate massive teams we likely wouldn’t have acquired otherwise, but also left us solving a smaller problem within an existing ecosystem.
There are always issues with building on top of someone else's platform, but it can also be a winning strategy.
The juice just needs to be worth the squeeze. It's up to you to decide if it is.
I no longer fully believe that building small wedges in existing ecosystems make for venture-backable opportunities, but there are many counter examples.
Lesson: Pick a more important problem, go deeper on the current problem you are solving, or pick the right platform to build on.
The meta-mistakes are way more relevant that the tactical ones.
Raising money all comes down to conviction.
If I had the conviction to keep going despite not raising money, we would have been more successful at raising money. The biggest issue was that for me to be happy with Holopod, it needed to be successful.
That is kind of a metaphor for life - if you need to be successful to be happy, you’re likely not going to be happy. And likely not successful.
When building a venture scale company, success is obviously the ultimate goal.
But the bet needs to be worth it, even if it doesn’t succeed.
The only question that really matters is whether this is the thing you want to spend the next 10 years working on.
Companies have the opportunity to shape society. To build it.
To create a future that you want to live in.
You only have so many shots to take, so don’t squander them climbing the wrong mountain.
Update: Holopod was acquired by Pulse (now Mozilla) in July 2022, and I started a new company shortly after (Durable). We just raised 6.25m.