Last night I had the opportunity to sit in on the “How I Got Funded” panel discussion hosted by the Startup Leadership Program and Polaris Venture Partner’s Dogpatch Labs. The first portion of the night included stories from four founders and CEOs who recently raised capital. The audience, who asked questions about specific aspects of the funding process, dictated the second half of the discussion and allowed the founders to share even more about their experiences. This seemed welcomed, since fewer than a dozen in the audience had gotten funding before.

Panelists included Raj Aggarwal of Localytics (analytics platform for leading mobile app publishers), Sidd Goyal of Assured Labor (online marketplace that connects employers and workers in emerging markets over the web and SMS), Leon Noel of Social Sci (survey platform for scientific studies that connects academic researchers and an online community), and Bennett Fisher of Retroficiency (helps buildings identify and analyze energy efficiency options). Shawn Broderick, managing director of TechStars Boston and adjunct prof at Boston University, moderated the panel.

Founder Stories

Broderick asked the founders to explain how they set out to raise funding and how long the process took, each having raised anywhere between $250 thousand to $1 million.

Fisher cited introductions as leading him from his plans to raise from friends and family to an Angel group to a final strategic investor, and shared his story of dragging his feet with investors. Being heads-down building Retroficiency’s revenue stream enabled him to use customer money to bootstrap. Fisher shared his claim to fame, with his investors saying it was “the first time the entrepreneur had gone dark on them.”

Noel, who dropped out of Yale to pursue SocialSci as part of the TechStars program, had an out of the ordinary experience raising capital. Not even two weeks into TechStars, Broderick introduced him to an interested investor and they had a first term sheet a month later.

Goyal, on the other hand, shared his story of bootstrapping Assured Labor for 1.5 years using his own and friends and family’s money. Goyal went through two pivots during that time, finally settling on their current business model and setting out to raise capital after developing traction in the market.

Aggarwal’s Localytics had early success with a small amount of Angel funding the beginning of 2009 after presenting at a TechStars demo day. However, they didn’t close on a larger six-figure deal into well over a year later in April 2010. Aggarwal described how much can happen in a just 2 months — like those 2 months before April when Localytics signed enterprise contracts, started generating revenue, and attracted interest from other investors and acquirers – all of which allowed him to revise more favorable terms with investors.

As for the the length of time the funding process took these startups from start to close, Broderick shared the average is about 6 months and this seemed to be the average for the panelists. Fisher’s experience was 8 months, Noel’s 3.5 months (he closed on a revised term sheet 2 months later), Goyal’s 9 months, and Aggarwal closed his six-figure round in 5 months.

Takeaways

While each founder had a different story and experience, there were two themes that all seemed to agree and hit upon as being important in getting funded: taking introductions and being heads down on building your business and gaining as much traction in the market as possible.

Almost all panelists cited introductions through their informal network as leading them to their most recent funding. The panelists also all emphasized the importance of building your business, creating partnerships, and showing as much traction (not just customers, but customers that use and love your product) and creating as much value as possible before setting out to raise capital. Doing so will open the doors to more funding options, which all lead to more favorable terms and valuations for the entrepreneur.

On the most important thing to prepare before going into a meeting Goyal offered, “Know how much money you want and what you want to use it for … You have to be convincing on why you deserve the money and not the hundreds of others out there.” Noel piggy-backed sharing, “We had ideas about if you give us $250k we can do this, $500k we can do this” and so forth. Broderick went on to offer that, “Investors are in it to make a return, so prove to them how you’re going to make it.”

Other questions and topics the panelists discussed included convertible debt vs. equity, valuations, the affect of the financial fallout on raising capital, targeting investors, financial statements, and taking public money.

Startup Leadership Program is a global organization that runs 9-month programs for entrepreneurs that teach biz skills and help expand their networks.

Dogpatch Labs is owned by Polaris Venture Partners, who operates other labs in San Francisco and NYC. Dogpatch offers “open source entrepreneurship” (space, wifi, coffee, desks, food, community, etc.) to help entrepreneurs connect and launch startups.