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Yes, You Can Raise Money In An Economy That Sucks

Talk about coincidences. Last week I downloaded Expensify’s expense report app to my Blackberry. Recovering from some frustrating bookkeeping -  the worst part of which was my expense reports – I hoped the service would live up to its promise to create “expense reports that don’t suck.” Within hours, I received a personal email from one of their developers, Michelle, welcoming me to Expensify and offering to answer any questions. This was not one of canned “we value you as a customer” emails.

I was impressed.

Then a few hours later, as I was tweeting about my “so far, so good” Expensify experience, I got an email from another team member who was unaware that I had just become a customer, but was reaching out to me as a writer to see if I would like to do a story about the fact that they company had just closed a second round of funding. So I asked founder David Barrett to share lessons he learned while successfully raising money – twice – in a lousy economy.

You just closed on a $5.7 million round of funding. Congratulations! Before I ask you about that, let’s go back a bit further. I see you received an initial round of $1 million in 2008. Prior to that, how did you fund the company?

Our last company was acquired by Akamai in April 2007, so we applied our savings from that to bootstrapping Expensify for the first year or so.

How hard was it to land your first round of funding?

Surprisingly easy!  And by easy of course I mean it was enormously difficult and time consuming, but the fact that it happened at all was a pleasant surprise.  Picture yourself in April 2008, at the absolute bottom of the greatest depression since the Great Depression.  It seems like a horrible time to raise money.  But in fact, there was a glimmer of hope on the horizon, and tons of money backed up that needed to be invested.  Investors were still licking their wounds over the latest dot com crash and were rightly skeptical of fad-supported products, so when we came out selling something as straightforward as “expense reports that don’t suck!’ and actually charging subscriptions — we were in a very lucky position to pick from a few competing termsheets after an intense 6 week pitching period.

How about the second time around?

About the same, actually.  6 weeks, very intense, great time in the market — this time not because the economy was bad, but because there was a sense of impending recovery, combined with a recognition that the small business enterprise space had been overlooked too long and was in the midst of taking off.

Did you have a Plan B if you weren’t successful?

Haha.  Personal bankruptcy I imagine.  At one point (for a previous startup) I considered joining the Army to pay off accumulated debt if I couldn’t find a way to make it work.  I’m still a bit wistful about not needing to go that route, but it’s probably for the best.

Was the fundraising process as time consuming and stressful as it is often portrayed?

Time consuming, yes.  It is literally a full time job and more.  I’d stack 2-3-4 calls and meetings a day for the entire 6 week period.  It’s enormously distracting to the team as a whole; make sure your guys know *exactly* what they’re supposed to be doing, and require no supervision (or you can delegate someone else to handle daily decisions) because there simply isn’t enough time to stay up on the details.

Stressful…. well we were in the very lucky position of having a number of very eager investors, so I’m sure that changes the tone by an awful lot.  It gets very stressful at the end when you have a variety of people who are all really great, all trying to offer you really great terms, and you can only pick one.  There’s this awkward breakup period where it’s like “no, it’s not you, it’s me…”  And it’s stressful when you know that new datapoints can come out of left field and throw your whole pitch off — sometimes in the middle of pitching someone who knows something you don’t.

Any lessons or tip for raising money that you can share with other entrepreneurs?

Just make sure you really, really believe in your product.  Ultimately what you’re selling isn’t your product — let’s be honest, at that point it barely exists.  You’re not even *really* selling your vision, because everyone recognizes that’s going to change dramatically.  The only constant thing you’re selling is *you* — your raw energy, enthusiasm, and tenacity to see it through to the end.  So be honest, be genuine, be humble, but be excited.  If you don’t absolutely love what you’re doing — even the horrible, time consuming, stressful parts — then I’d suggest adjusting your plan until you do love it.  There are a couple sayings that I’ve come to believe: “it’s better to be different than right” and “do what makes for the better story”.  Make sure you’re having fun and learning a ton such that even if you burn in flames this time, you’ll have the confidence, experience, and connections to come out the phoenix reborn next time.

Do you know Expensify’s DNB Paydex score?

Hm, I don’t know.

As for my Expensify experience so far? Later that day, I was snapping photos of some cash receipts on my Blackberry and uploading them to my account, then managing them with the intuitive Expensify interface. I haven’t actually had a chance to submit a complete expense report using the service yet, but the fact that I have receipts logged into my account instead of sitting in a pile on my desk is a small miracle. And the fact that I figured out how to use it without my 11-year-old’s help is another. 

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This entry was posted on Saturday, September 25th, 2010 and is filed under Business News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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