A website by Jeffrey Veen more →
17 Nov 2011
There are lots of reasons to do a startup. Sometimes, there’s an idea you just can’t stop thinking about — a thing you absolutely want to exist in the world. Or sometimes you see a gap in how an industry is evolving, and with a small team of talented people you think you can fill that gap much faster than the big companies can.
Both of these things were true when we started Typekit three years ago. Web browsers started implementing @font-face and a lot of people started wringing their hands over the issue of intellectual property and typefaces. A debate sprang up: Web designers were embracing new CSS features like never before, but font designers worried that their craft would go the way of Napster and BitTorrent. It was a recipe for disruption and opportunity, and we jumped in.
For us, so much was uncharted. The four of us who founded the company had worked together and built products before, but we’d never been down the venture capital path. We scratched up a little cash putting on a conference and doing some work with our friends at Twitter. Still, it was clear that if we wanted to build Typekit at the scale we imagined, we’d need some real money.
Cloud computing has really made it inexpensive to try out new ideas. I mean, seriously, it’s crazy cheap now. Case in point: when we started Measure Map in 2005, the table stakes were about $25,000 for a rack of Dell servers just to see if it would work. The machines were shipped to us and we took them to a data center and opened all the boxes and plugged them in and spent a few days configuring everything. Six years later, that feels as antiquated as starting your car by turning a crank.
So yes, it’s true that cloud computing has changed the startup world. It’s cheap to build stuff now, and that makes things less risky. But a great team costs money, and that hasn’t changed — nor should it. Experienced designers and engineers can’t pay their kids' tuition for 10 cents an hour or spin down health insurance when it’s not utilized.
You need a team. I don’t believe you can do it all yourself, or even with a co-founder camped out in your parents' garage. Examples to the contrary are the exception. It’s rare that one person can write all the code, craft an exceptional user experience, communicate transparently with customers, and manage the financial health of the business. Yes, you can build tangible proof of your idea. You can even launch it and get traction. But to really build something that has broad reach and significant impact, most of us need the diversity of talent and experience that comes with a team of collaborators.
So when we started Typekit, we did some math. Given our track record and how much we believed in the idea of fonts on the web, how much of the theoretical future value of the company should we take in advance? With that up-front capital, could we actually put together the team we wanted and move fast enough to get a compelling product to an audience that would pay for it? And even if we could, would it generate enough revenue to both share with our partners (since we didn’t actually have any fonts for our font service) and grow into a sustainable business?
When I say “math” above, I run the risk of implying some rational process. Sometimes, I wished there was a simple algorithm or an actuary table for startups — plug in your numbers and out comes the answer. Unfortunately, it’s nothing like that. Financing a startup has as much to do with timing as it does with the track record of the founders or the attractiveness of the idea. The first browsers implemented CSS font linking just around the same time as the 2008 financial meltdown. Was that good for us? Was that bad? Tough call, but it certainly was relevant. We iterated our business model as much as we did our interface.
There are other models for getting started, of course. We bootstrapped Measure Map with the profits of Adaptive Path’s vibrant consulting practice, following the model we saw 37signals forging. When you’re a consultant, you trade your time for money and once you’ve done the work, you can pretty much do whatever you want with the cash. But it’s distracting. For me, doing my best possible work requires complete focus on a single problem. I couldn’t solve other people’s problems to make money and build a great product at the same time. To do that, I needed — again! — a great team. So at Adaptive Path, some of the people earned the cash, while others burned through it building a product using — again! — the same sort of undocumented math as a VC-backed startup.
Ultimately, we did what might be called a traditional round of funding for Typekit: A VC firm led the round that included a number of angel investors.
Our lead investor was Tony Conrad. I first met Tony when he was one of Adaptive Path’s clients a bunch of years ago. He was on the entrepreneur side of things back then as the CEO of Sphere, and was looking for help with visualizing his product concept through Adaptive Path’s user-centered design process. This was during the time I was transitioning to Google, so we didn’t get the chance to do day-to-day work together, but we did spend a lot of time talking about the product and how he was designing the business to support it.
It was immediately clear that Tony put a lot of work into surrounding himself with very talented people, regardless of whether he could convince them to actually take a job at his company. In every project he’s taken on, I’ve watched him build up a network of advisors, and then trust what they would tell him. Later, when he launched about.me, the product’s initial growth was driven through Twitter. His group of advisors collectively had millions of followers to help him get the word out.
It was through Tony that we meet everyone else at True Ventures. He’s a partner there now, and when I left Google and started thinking about doing something with Bryan, True was our first call. They were one of the early VC funds, about five years ago, to focus exclusively on seed-stage companies — small teams that haven’t taken a formal round of financing yet. These companies are the riskiest investments since the team usually hasn’t even started building their idea. True focuses not just on giving them money to give it a go, but reducing the overall risk by attempting to eliminate as many of the factors that tank a company in the first year.
Specifically, True puts a tremendous amount of effort into the community of founders with whom they work. They host frequent events, bring in experienced and inspiratiional speakers, and help the entrepreneurs they’ve funded connect with each other. We knew we could pick up the phone and talk not only to the partners, but to any of the other founders and we’d find someone who’d been through whatever we were facing that day.
I may have lots of experience developing products, but navigating the ambiguity of a startup is a very different set of skills. I learned while working on Typekit that both the product and the business benefit from a user-centered philosophy. When you’re stuck with a problem and don’t know what to do next, talk to people. Ask them what they think. Collect a bunch of perspectives. Filter what they say through your own intuition and experience. Then ask them who else you should ask. Keep going and never stop. To put it simply: Great products are built on solid relationships.
So we took Tony’s advice and surrounded ourselves with people we respected. And it turns out that the best way to get someone’s continued attention is to take their money. We set aside a portion of our first round equity for a group of angel investors who, in Bryan’s words, “Would make the most interesting dinner party ever.” And, as soon as we’d got everyone signed on, we sat down for dinner with Evan Williams, Caterina Fake, Matt Mullenweg, Chris Sacca, Josh Felzer, David Samuel, and the legendary Ron Conway. Some of them I’d known for years, like Ev and Caterina who had both been clients at Adaptive Path. Matt became a friend back while I was working on getting Measure Map integrated with WordPress. I worked with Chris at Google and he helped me to think about how things can get really, really big. But Josh, David, and Ron were new relationships we developed and I’m grateful we did. Everyone’s combined experience — and their willingness to share it — was both a tremendous head start and a reassuring saftey net for us.
My only regret in this whole funding process was that we weren’t able to work with twice as many people as did. We had so many great meetings and offers for support. In the end, we had to find a balance between how much of the company we were willing to part with and the number of investors who would end up with a reasonable stake. It was amazing that so many people believed in us, but it was difficult to make the final decision.
If I were an advice-giving guy, I’d tell entrepreneurs this: Raising money for your startup is not about the money. It’s about finding people to work with that you like and trust. Someone you wouldn’t hesitate to ask anything, and won’t make you feel stupid when you do. Use this test: Imagine your phone ringing; does the name on the screen make you feel eager to answer? Not nervous. Not dreading the call. Excited.
If you do go down the VC path, choose wisely. Your investors are one of the most important hiring decisions you’ll make.