IVCA Feature: ‘Closing a Growth Financing Round,’ an Overview of the IVCA Education Luncheon on Sept. 27th, 2016

IVCA Feature: ‘Closing a Growth Financing Round,’ an Overview of the IVCA Education Luncheon on Sept. 27, 2016

October 12, 2016

IVCA’s latest event focused on the process followed by four successful start up companies to raise Growth Financing Rounds.  Discussion focused on how they identified prospective investors, managed board relationships, negotiated valuation and terms and how they managed their ‘day jobs’ while raising money.

Michael Gray of Neal Gerber Eisenberg moderated the discussion with his usual combination of insight and humor.

We were fortunate to have four of Chicagoland’s star entrepreneurs participate in the very insightful discussion.

  • Talia Mashiach (Founder and CEO) of EVED, provider of an online marketplace that communicates with vendors and event management. EVED is on their third round of financing, and has raised $26 million to date.
  • Aashish Dalal (CEO) of PARKWHIZ, an online platform for reserving parking in real time. PARKWHIZ is on their fourth round, and has raised a total of $37 million.
  • Justyn Howard (Founder & CEO) of SPROUT SOCIAL, specializing in online solutions with a suite of scalable software products that drives customer and business engagement. The company is in its fifth round, and has raised a total of $42 million
  • Jason Weingarten (Co-Founder and CEO) of YELLO, which provides web and recruitment software, plus the services in association with that product. They are also on their fifth round, with a total of $61 million raised to date.

Below are some highlights of the panel discussion:

Talia Mashiach: In the last company I had and sold, I was the sole owner, I never brought in outside investors. When I started Eved, I knew we were creating a big enterprise play, it was going to be big or be nothing. It was going to be a marathon, as there was no such thing as spend management solutions for the event spaces. We knew we were going to have to raise capital, if we wanted the big exit.

The way I thought about capital, even as I put the first million in, was to come up with specific objectives...I have to prove that event businesses would transact online. With the angel that came in, I wanted to prove the next set of objectives. So each time, it was about X amount of dollars combined with ‘this is where we need to be.’ With each round, we’re goal oriented to where we want to be, and what we want to do. In knowing that, it’s about building those relationships in advance of the round.

Jason Weingarten: On our last round of fundraising, I spend a quarter of my time talking to various venture capital firms. I have conversations with one or two on a daily basis, so when we're ready to raise capital, the familiarity is already there.

Justyn Howard: In most cases, there are differences between ‘A’ and ‘B,’ and when we get to ‘C’ and later. You take most of your dilution early on, you’re raising on your idea and your team and whatever traction your have at the time. There aren’t many hard metrics being evaluated.

‘B’ rounds become challenging, depending on the trajectory of the business, but ‘C’ is more binary, later stage investors are looking for a certain profile depending on your business, consumer success or whatever it might be. But if we’re on track, finding the investor becomes easier, it just becomes a matter of what team we want to work with, and the term sheets.

Another benefit in the later stage rounds is that investors are more interested in putting the money to work, then they are with the percentage ownership targets, which works in our favor. Once the right partner is found, and the amount is determined you want to raise, we work backwards to get where we want to be. What is the value created in it?

Jason Weingarten: Raising ‘A’ round was difficult, ‘B’ and ‘C’ was easier. The initial round was selling the dream, the market and the team. With the later rounds, it’s about metrics – if you’re hitting growth, if your returns are good and you have great customer testimonials. It’s less hard to raise ‘B’ and ‘C’ with the capital available.

We’ve seen $25 to $50 million is the range, and if it goes north of 50, then overall valuation goes up, and it becomes about making the mechanics work. How do you show that your addressable market is growing? How does that continue to increase?

Aashish Dalal: It’s an organic process as the funding rounds are raised. We’ve been very fortunate with our relationships, with most of our capital coming from Chicagoland, and we work on the buy-in of new board members by emphasizing capitalization, and open communication.

One of the things I learned early on as an entrepreneur, is that every investor knows every other investor. Based on that, if I think I’m the first to know, then I’m the last to know. It’s a small community. When you bring a new person in, socialization is key, so tactical strategies break down barriers, and also getting to know people at their core. On their end, it’s about getting a feel for knowing their place in the dynamic, and understanding the relationship overall.

The 2016 IVCA Awards Dinner is will be selling tables and tickets shortly. You may contact Kathy Pyne at [email protected] if you are interested in purchasing a table or tickets.