A Failure at Raising Money

Back in 2009, we were in our third year of Pardot and things were looking good, really good. We had just cracked $1M in annual recurring revenue (a big milestone!) and went out to the market to raise money from venture capitalists. Only, we botched the process (actually, it was all my fault). Some of the mistakes:

• Made the timeline to raise money too loose such that we were at different phases with different investors over the course of several months (best practice is to run a serious process over 4-6 weeks)
• Made the personal time commitment too loose such that I was still 80% on the business and 20% fundraising when it should be the other way around
• Met with 29 VCs from Atlanta to D.C. to Boston to Silicon Valley and didn’t do a good job of lumping meetings together resulting in lots of flights with only one or two meetings
• Personally prepared the financial forecast without outside expertise resulting in a session with a VC where I was being grilled why gross margins were going down three years out instead of up, and I wasn’t prepared
• Not really understanding how to put more money to work other than pointing to our cost of customer acquisition relative to payback period and saying we’d put most of the money into sales and marketing (a bottom-up SaaS revenue forecast is the way to go)

In the end, it didn’t matter. After doing some spreadsheet jockeying, it was clear that we were better off continuing to bootstrap the business as we couldn’t see a 5-to-1 payback on raising money (e.g. invest $1 and make the business $5 more valuable). Raising money doesn’t ensure success, but if you are going that route, don’t make the same mistakes we made.

What else? What are some more lessons learned from raising money?