How I raised the first $1 million for our startup without VCs or AngelList joahspearman Follow Jan 11, 2016 · 10 min read

This first version of this appeared on LinkedIn, and an extended version will appear in this month’s issue of The Independent. Order it now.

A lot of founders and VCs give advice to startup founders after they’ve become millionaires and notched some wins, which certainly produces some helpful tips but also loads of success bias. On the other hand, some of the best advice I’ve gotten is from fellow entrepreneurs in the earliest stages of their startups, just like me. I can’t consider myself successful yet, but I can say I have some experiences worth sharing with other entrepreneurs.

One of the most frequent things I get asked is “how did you raise the initial funding for your startup?”

First answer: painfully. No joke, it’s been 3 years of fundraising…one angel at a time, one check at a time for nearly 3 years. We went through our first two years without so much as 3 months of runway. Yeah, that brutal. But through my struggle maybe you’ll do it even better, and maybe my sharing this will help me to have some new observations to help me do it better, too.

I’m hopeful I can share at least seven recommendations on how I’ve gone about fundraising for Localeur (you can learn our story in 1 minute here).

Everyone will have a different way of fundraising for a startup, some - especially serial entrepreneurs - go straight to VCs or self-fund while other founders are busy leveraging AngelList and other crowdfunding platforms. For Localeur, the first $1.5mm we raised was from angel investors, of which 70% were people I knew before Localeur existed (former classmates, former bosses, former colleagues) and the other 30% were people who were just one degree removed (with Kevin Moore being the lone investor I’ve found from AngelList where I’ve started to spend a lot more time/focus/energy).

Over the past three years, my main role for my startup Localeur has been to be the chief storyteller and fundraiser for the company. Simply put, the better I can do at my job of telling our story (and fundraising), the more focus my co-founder (head of product) and small founding team can place on improving our product, enhancing our user experience and building our community. We’re in the middle of a major product upgrade right now, actually, so stay tuned...

Since early 2013, we’ve raised roughly $1.5 million from just over 40 angel investors, some experienced tech industry leaders and many first-time investors whom I’ve known since high school, college or my early professional years. Our newest investors are Tyson Tuttle, CEO of Silicon Labs, Kevin Moore, via AngelList, and Brett Hurt, the founder and former CEO of Bazaarvoice, and one of my earliest investors, Joe Ross the president of CS Identity, just re-invested pushing our rate of angel investors who’ve re-invested close to 65%, which I think is a testament to our growth.

Both my co-founder Chase and I worked at Bazaarvoice pre-IPO, and I’d long been eager to have guys like Brett invest in us given his experience building companies from the ground up (before Bazaarvoice, his company CoreMetrics was bought by IBM), and I had gotten to know Tyson through our shared service on the KLRU-TV board of directors, but it took more months, years even, of sheer persistence and tenacity (plus some solid traction) to secure these types of commitments. Here’s what Brett recently told me when he made the investment, “You are a very persistent entrepreneur and that is perhaps the most important trait of all to be a successful one.” With that behind us and our first institutional round of funding just ahead of us, I wanted to take a moment to share my experiences raising money for a startup as a first-time founder without family money and without a VC firm or incubator like YCombinator (which you can read about here) backing us pre-launch.

Persistent and the ability to execute is table stakes for any of the below advice to be helpful.

1. Take a Job

I’d had two businesses of my own before Localeur, first a pop-up sneaker boutique in Downtown Austin and then an experiential marketing agency that counted South by Southwest and ESPN X Games as clients, but doing a tech startup would require an entirely different set of skills. Thankfully, I knew this going in, and took a job as the Director of Operations and Strategic Initiatives, less than a year before Bazaarvoice’s 2012 IPO, to learn some important elements of a fast-growing tech startup. I’d run businesses before and felt I had the entrepreneurial chops (and risk tolerance), but I really wanted to round out my operational acumen from recruiting engineers and opening a New York office to leading a sales training program and launching a new product, I was able to leverage my time at Bazaarvoice to add a layer of industry credibility to my resume that would prove invaluable to building my network and laying the foundation for Localeur.

Today, I count Bazaarvoice’s VP of Sales, former Chief Operating Officer and, now, founder and former CEO as investors and advisers. I’d say mission accomplished on that front.

2. Liquidate Assets

For someone like me who’d had a couple of small businesses before, the urge to create a tech startup was strong because working at Bazaarvoice during their IPO showed me the potential of building something from the ground up that had real legs and real scalability. I didn’t know the precise idea I’d end up pursuing when I decided to leave, but I knew I was confident I’d learned many of the key things a first-time founder and CEO would need to know to launch a successful startup and the rest I’d learn on the way. I say all this because it takes a very very high level of confidence, self-confidence and hubris honestly, to do what I did which was liquidate all of my stock in Bazaarvoice, empty my savings account and put all my eggs into the basket of Localeur. A basket that at the time had no app, no users and nothing more than a few months of runway in the bank.

One of the things that gave me confidence was that a few years before I’d liquidated my 401k from years working in Washington, D.C., to start my own sneaker shop in Austin, Texas, and although the business didn’t work out in the long run, I felt I’d learned what MBA student go into tens of thousands of dollars of debt to learn by creating something of my own.

3. Hustle Like You’re Broke

One sure way to help raise money for your startup is to hustle like you’re broke. Plain and simple. For people who grew up with family money, this may be tough, especially if you’ve never been broke, but as a founder you’ll probably find out what I mean very early in your company’s life if you’re not growing like Instagram in year one. For example, at one point when we couldn’t afford to pay my co-founder’s salary, or myself I got all my old clothes together and cashed them out at Buffalo Exchange. On another occasion, I took a couple different consulting gigs from a former boss to advise BP and Doritos on some creative projects. I also worked on a project for a liquor brand and another for a local public affairs issue. These projects had very little benefit to Localeur’s mission and growth beyond allowing me to continue paying my rent and paying my co-founder’s rent in order to keep us focused on building our business. Without this kind of hustle, I can truthfully say, Localeur would not exist today. It’s something that carried both Chase and I over in some really tough financial moments in our company history, including moments when we were on the verge of being evicted from our own apartments and (in my case) having my car repossessed and filing personal bankruptcy. Tech entrepreneurship gets a lot of fanfare and press, but this is the rough part of it that you seldom hear about, but several founders encounter at some point in their journey.

4. Ask Friends & Family

It’s not entirely intentional, but only after being willing to take a certain job to acquire key skills and putting in your own money and hustling harder than ever can you truly go to friends and family for money. Without the level of conviction attained by doing all those things, you’re going to have a much more difficult time securing funds from the people who care more about you and the people you care most about. For some founders, many honestly, family money is close by and easy to attain. I’m not one of those founders. I grew up the youngest of three boys in a single mother household in which food stamps and free-and-reduced school lunches were common throughout much of my childhood. I could never go to my mom for school field trip money or college application money or to bail me out of jail or pay for a Europe trip and I knew I couldn’t ask her to help me pay for the initial concept of Localeur, either. So instead I made a list of 10 or 12 people I’d worked with and admired over the years, people I believed to have had some professional success and investment capability. Out of those 10 or 12 folks I called, more than half invested and that became a big piece of the first $125,000 we raised for Localeur. I’m forever grateful to these people for not only backing Localeur, which didn’t yet have a website or app or users, but for believing in me long before the tech industry veterans we now count as investors or venture capitalists would even consider us.

5. Secure Angel Investors

Once you have your own grit and money in along with the support of family and friends, the task becomes getting advisers who can actually help your business grow beyond your personal network. In Austin, I was fortunate to count Clayton Christopher, founder of Sweet Leaf Tea (sold to Nestle) and Deep Eddy Vodka, as a friend and he introduced me to a member of the Central Texas Angel Network who became our early lead investor, helping us syndicate tens of thousands more dollars from fellow angel investors over our first two years. Without groups like Central Texas Angel Network, and more importantly without members like Chris Shonk and Travis Devitt, Localeur would not be where it is today. Again, I’m forever grateful. The key thing to know about angel investors is that a) some of them like to be more involved than others and b) it’ll require varying levels of traction to secure their investments. In meeting with hundreds of angels over the years, I’d recommend you plan on listening intently to what is and is not being said to determine where each of your angel investors may land on both accounts. The last thing you want to do is trip up on an angel investor with misaligned interest or ideas for what kind of traction you should have in a year or when they are hopeful to see a return on their investment.

6/7. Go After Venture Capital & Revenue

Now, there are varying opinions about this next piece. Some people believe monetization of your business should come before venture capital (typically for enterprise and Software-as-a-Service companies) while others (usually consumer tech investors) agree with the idea that you have to reach a certain level of product-market-fit and user traction to start worrying about revenue. Over the last two years, we’ve tried both. We’ve partnered with companies like HotelTonight and W Hotels to generate revenue and we’ve also gone out and pitched a bunch of VCs without tens or hundred of thousands of recurring revenue. I don’t really have a dog in the fight in terms of what to recommend for your particular business; it’s truly a case-by-case thing. What I will say however is that growth concurs all, but relationships win too. For us, we are very much thinking through monetization strategies and how we plan to scale as a business, but for right now — from our board level on down — we are laser-focused on exponential user growth. We are approaching 1,000 percent user growth since December of last year, and are keeping our burn rate pretty low compared to similar companies in San Francisco and New York, so while we focus on user growth rather than revenue, we also understand the need to stay pretty lean to be as efficient as possible with the funds we have raised. Stocks are already liquidated, family and friends have already invested, and angel investors don’t last forever. That said, I’ve taken dozens of trips over the past two years to foster relationships with VC firms between both the East and West Coasts, which I’d recommend any founder do, especially those who don’t have the benefit of being based in San Francisco or New York.

Austin may get on a lot of list for top tech cities, but the consumer tech VC landscape is minimal here compared to SF and NYC and even LA and Boston so spending time on the road getting to know people is extremely prudent as is spending some of your time each week reading up on various funding events for competitive companies, studying the investment behaviors of firms you’d like to get backing from and doing cold emails to investors whom you think may be interested in your particular industry or idea. It may not seem like it when you’re getting dozens of unanswered emails and rejection, but those early interactions help foster relationships that could pay huge dividends for your business later on when you have solid growth to share. Or, if pitching VCs isn’t working out for you, get creative about ways to monetize your business to give yourself as much time as possible to keep the company afloat until you have a better story (with metrics) to tell.

Whatever path you pursue, I wish you good luck on your fundraising and startup journey!