How we raised a $1.1M seed round without customers, revenue or even a product. | Hacker News Reader

How we raised a $1.1M seed round without customers, revenue or even a product.

john-sheehan.com

76 pointsjohns34 comments

I raised a $1.1M seed round a few years ago without customers, revenue, or product. This is not unusual for a seed stage. What many entrepreneurs miss is the lens through which investments are made at each stage. That lens evolves over time.

Roughly:

(Seed) They are investing in your potential.

(A) They are investing in your market's potential.

(B) They are investing in your execution potential.

At the seed stage it is often not obvious that the market exists or that you can find it, nor is it obvious that you can execute a product once you establish the existence of a good market. Instead, they are making a guess on that later stuff and investing in your ability to take the company far enough that things like market and execution become clearer.

Congratulations to the author and he does do a good job of negating the horse I'm about to beat to death, within the article itself.

Unfortunately, most people will just read the title of the post; which I wish the author would have spoken more about how awesome their domain knowledge is (or whatever factor he felt really led to their funding) as _most_ can't just walk up with just a story and land this type of money.

The catch-22 about the title is that it gives people hope, when they should not have any hope, if they think they can replicate his funding story easily.

That was kind of the point though, there is no funding story that's repeatable. Maybe didn't emphasize that enough.

I appreciate the reply! I guess my only sad face was bc I used to run a tech accelerator and I have seen how pervasive the title of your post actually is. That is, people just think that with an idea and a team then the money will come pouring in.

I think it would be good to have a follow on post with something that spoke to a) what key domain knowledge gave you a leg up b) what terms you got that let the investors feeling confident you would deliver without a product at the moment c) something that is repeatable to other founders.

To me, and I may be misguided, but it read more like a lottery-ticket funding rather than the hard work that and network that you had which shows your grind!

Just my two cents! Great read and congratulations again!

> people just think that with an idea and a team then the money will come pouring in.

If anyone thinks this, email me and I'll tell how much it's not the case. It was really hard. We got rejected A LOT. Like most companies. That said (and going back to the point I didn't make very well), every company is different. Don't let one person's experiences box you in.

The primary problem with these "how we raised..." posts is that the authors rarely acknowledge that raising money with or without x, y and z is in most cases largely a function of the current market and economic environment and less a function of their "story" or fundraising wizardry. In other words, if you have an idea, decent track record, the financial markets are not depressed and capital is cheap, you can probably find somebody who will cut you a check.

Unfortunately, during down cycles, you don't see many "how we failed to raise money even though we had x, y and z" blog posts, even though plenty of those stories exist.

Fair point. Someone still has to put all the pieces together at the right time though.

Sure. Don't get me wrong: not everybody can raise money from professional investors, even when market conditions are working in favor of founders.

But all the attention that gets focused on fundraising (instead of building a successful, self-sustaining business) is akin to focusing on putting on one's shoes instead of actually running and completing the marathon.

This is akin to a new hire getting excited about a compensation package of salary + 100,000 shares. 100,000 shares, out of how many outstanding? 1 million shares? 10 billion shares? He raised $1.1M, but at what valuation? After reading the article, I was left wondering if the valuation was low. The team has not proven that they have reached product/market fit or found a scalable marketing channel which makes this a risky bet for investors.

I can't discuss the terms obviously. All I can say is that we felt they were very fair.

I didn't expect you to discuss the terms, but the amount raised doesn't really mean anything given there's no context.

It doesn't mean nothing. There's a range of equity that will be given away during any round. I don't know how high the variance is but it's probably less than 30% and more than 10%.

I mean, you can. You are CEO, and there is AFAIK no legal restriction on you releasing details of your funding. It's just not in your interest to do so.

Most likely a convertible note - the investment is taken as debt that converts into equity when the venture raises a priced round (viz. a series A). Neither party has to value the venture at the seed stage, which is usually for the best as it's too early to tell.

Congrats John!

How a company with no revenue or product can have a "low" valuation that results in a $1M+ investment is beyond me. Any value beyond $0 is hyperbolic. No revenue, no product, no proof, no value.

Yes, you can have potential value, which is of course what seed round investors invest in, but I find it astounding that there are seeds for technical products that reach even this size. You can produce a prototype for $100k. When it's time to market it, Series A.

I'd love to be happy for you but as someone who's spent a decade building a profitable business and SaaS that's still apparently worth nothing because we make money I can't accept that a $1m+ investment at seed round is a "low valuation". It's not. It's a very generous valuation. Until you have paying customers, your value is $0.

Please don't get me wrong - not trying to denigrate what you guys are doing, or to piss on your parade, but I just find the entire idea that people would say this is a low valuation mind-boggling.

All these posts about raising large amounts of money make me wish for follow-up posts about how the money will be, or was, spent. Without customers, revenue, or product, how do you figure out how much you need?

This post doesn't really say much at all. I think he is leaving out a lot of information.

What would you like to know?

I think a lot of people never really know the true reasons why something happens. I find it hard to believe these were only three reasons. Did you ask the investors why they invested and this is what they said or is it your own feeling? Plus you don't really go into details on the points so I didn't really learn anything or find it useful.

The investors told us it was attractive for the three reasons I listed: team, market, and plan of attack.

Edit: I left out more specifics for length reasons. May do a follow up post on more of the details.

I'd love to know more about the plan, and the milestones you set for yourself. Without a product in market, how did you come up with feasible numbers to reach for?

Here are a bunch more questions just as fodder:

How much did you have to adapt your pitch based on the investor? Did you have multiple pitches, geared to things you knew about an investor going in? Or did you do more of your adaptation on the fly, based on the reaction of the investor?

How many nos did you get before a yes?

Where would you say you wasted the most time, and you would not pitch that type of angel, or not pursue that kind of introduction, etc, next time?

Thanks for the post, and looking forward to your follow up(s)!

Good story? This sounds like a business plan with numbers replaced by envolving words. But a plan nevertheless.

Mentors may say what they want about how founders should hustle to find a business model and have traction to prove you found, but at the end of the day, all a investor wants is to believe on a plan (or story).

Besides the fact that the author is clearly an 'API-go-to-guy' (ex-Twilio, ex-IFTTT so I'm sure he knows his stuff!) I wonder if this is also because of the ecosystem which is OK with betting on the confidence of the founder.

Good stuff!

Definitely. I don't think we could have done this outside SF. It's a very friendly environment for dev tools/API companies right now.

Neat. I love http://requestb.in/ which you guys recently acquired? Can you share more about plans if any for that service? Thanks!

No immediate plans other than making sure it's up and running reliably. The 'Request Captures' feature of Runscope does essentially the same thing with some other niceties added. That's where we hope people end up.

Worthwhile story and I've always thought that entering a space that already exists is a better bet than trying to create a market.

Selling to developers can be tough because they aren't shy about telling you what details you left out that is just obvious and necessary according to them.

Do you envision the "product" initially being willingly customized when a well-paying customer comes along or do you feel it's already viable for a wide variety of needs?

What differentiates you from say apiary.io ?

I like how Grace Hopper is making a bug report. Nice touch.

Thanks :)

> How many apps can you imagine not talking to a remote web service in the future?

Since server based structures make it very easy for intel agencies to gain mass access via one contact point, I'd actually suppose the answer to the question above will increment faster than thought in the post Snowdon era.

Like someone else mentioned earlier, can you please elaborate on how you ended up with 1.1M as the appropriate amount to raise?

How do you estimate how much you should raise without any revenue or customers?

How big did you estimate / project the market / potential revenue for your company to be?

WTF, I wish Ben would print up some money and give them to me. I'll only ask for 500k.

Reply on news.ycombinator.com