From The Editor | January 10, 2018

SaaS Funding Lessons From A Booming Startup

Abby Sorensen July 2017 Headshot

By Abby Sorensen, , Executive Editor

Beyond IPOs: Alternative Funding Options For Biotech Startups

The CEO of a brewery POS software company shares insights from raising a seed round that can apply to software companies at any stage.

David Norman succinctly summarizes the process of raising early rounds of capital for a software startup: “You go out, you deal with a bunch of people, you get 100 no’s, and you'll get one yes.” A nice dose of reality for any aspiring entrepreneurs out there who think their idea-app-product-solution-thing is going to make investors weak at the knees. Norman’s story does have a happy ending, though. The founder and CEO of brewery point of sale software company Arryved has already pocketed more than $1 million in outside funding since founding the company in 2015. Most of this early funding has come from the Foundry Group, a VC firm based in Boulder, CO, focused on making early-stage technology investments. Norman had connections to the Foundry team during his days as a senior software engineer at Google, but that still doesn’t mean the fundraising process was easy. There are three quick takeaways from Arryved that apply to any early-stage software company looking to grow.

  1. Arryved, Inc.

    Founded: 2015
    Employees: 8 full-time, 1 part-time
    Headquarters: Boulder, CO
    Number of Customers: 50
    Growth Rate: Doubling every quarter
    Vertical: Breweries/tap rooms
    Funding: $1 million
    Lead Investor: Foundry Group
    There might be no such thing as a “perfect fit” with an investor, but that shouldn’t stop you. Foundry considers itself a “thematic investor” with a portfolio primarily built around horizontally focused companies. Arryved is a highly verticalized application for a very niche market. Norman explains, “We are outside of their usual scope. They don’t usually do payment systems, but they really just believed in the product and they believed in the team and they believed in the market that we were moving towards to come up with it.”
     
  2. It’s smart to build a realistic revenue model before getting serious about raising money. Any savvy investor can see right through slides in a pitch deck with math that doesn’t add up. Arryved already had a working, proven product with real customer use cases by the time it needed to raise a bridge round. That fact made Norman’s life much easier than it was during his seed stage funding search.
     
  3. Not every investor needs to hear the next unicorn pitch, or even about your exit strategy, but all investors get excited to hear about sustainable businesses that solve a customer pain point. Norman explains, “Naturally, when you go into the investment meeting, they all want to hear that you know what an exit looks like. So if you're truly building a company that you're bootstrapping, your thought isn’t about what the exit is going to be. It’s going to be how are you going to build something that sustains, and that your customers really want to have, that they're so engaged with that they feel they have to have it? If you start from that base, you can work out what exit looks like later.”

That last takeaway is something Norman had to learn during the process of raising money. At first, his pitch tried to cover the whole universe of what his software solution could tackle. The company hadn’t even picked a vertical focus at that point. Investors pushed back on his lack of focus. He says, “Thinking we could take on the world and not having a great story about how to get the market was a crucial misstep. So we changed the approach to bite up smaller chunks and really get hyper-focused on a vertical where we could do tremendously well. What worked was focusing the story around our numbers and how we pitched to our potential customers.”