We’ve just raised a $9M Series A financing round. Leading the round was Brad Feld from Foundry group, which puts an unusual burden on me as CEO: following in the footsteps of my friends and role models Rand and Danielle, it’s time to write a very long blog post about the whole surreal experience.
We initially planned to bootstrap Glowforge ourselves. But a crazy and wonderful thing happened. As I went through asking smart people for advice about the nascent company, they started asking if they could invest. That was pretty neat. Before long, we had an amazing list of angels like Google’s Chris DiBona, Greg McAdoo formerly of Sequoia, Renee DiResta, coauthor of “The Hardware Startup”, OnVia founder Kristen Hamilton, Cards Against Humanity‘s Max Temkin, and Exploding Kittens‘ Elan Lee.
I just had one regret coming out of the process. We stopped by True Ventures to meet Tony Conrad (hereafter TC), one of the founding partners there and a legendary good guy. We knew it first-hand: after my cofounder Tony Wright (hereafter TW) graduated Y Combinator in 2008, True Ventures led the investment round in his company, RescueTime.
Once we told him about Glowforge, TC blew us away with his knowledge of the space. He told us about a conference where mutual friend Brady Forrest had dragged him over to a corner to meet a Seattle schoolteacher who was playing with laser-cut plywood boxes filled with reels of plastic. A then-unknown Bre Pettis showed him a robot jerkily piling gobs of plastic goo on a plate. That’s how TC became the first investor in Makerbot, later introducing Bre to Brad Feld who lead his Series A round. TC went on to introduce us to his partner the incredible Jon Callahan, now the president of the National Venture Capital Association, and we continued to be impressed by the wisdom of the team True had put together.
Unfortunately, TC told us that our angel round was just a little too small for his fund to participate in, and that the Series A we were contemplating soon was just a little too big. We were the anti-Goldilocks. This stunk, but we finished up the investment round with a respectable seventh digit in our bank account and used it to accelerate our development process.
But hardware is expensive, and the Glowforge is particularly expensive to design and develop. Part of the way we’re able to drop the price of a desktop laser from $15,000 to under $2,500 is by investing in specialized design and tooling, and it adds up fast.
As a result, we knew we’d need a multimillion-dollar round of VC funding to bring the Glowforge to market. Raising this financing round was more scary than our angel round. There are lots of angels, and each angel often does many deals. Early stage angel investing is a hot space.
Conversely, the average VC does just one deal a year, so any investment has to be a near-perfect fit for them to say yes. What’s more, there’s been an explosion of early-stage angel deals, but the number of major venture investments hasn’t increased to boot, meaning more companies seeking the same number of dollars (the so-called “Series A Crunch“).
Investors usually consider companies based on team, technology, and market. While I’m lucky to have solid-gold co-founders (team) and the Glowforge makes people’s eyes pop when they get a demo (technology), the market scares off those who are fainthearted. As best we can tell, the worldwide market for non-industrial laser cutter/engravers is about $100M. It sounds like a lot of money, but at VC scale, that’s a fail in the market department: too small of an opportunity. For an investment to make sense, a VC has to believe that we are going to create new markets for laser technology, tenfold larger and then some. That’s a lot of faith.
Sam Altman of Y Combinator described it thusly:
a huge VC blindspot is focus on current market size. what matters is the market size in ten years.
— Sam Altman (@sama) May 19, 2015
worth remembering: the ridesharing market and the electric car market were both near $0 when uber and tesla started.
— Sam Altman (@sama) May 19, 2015
We made a list of every firm we knew – nearly a hundred of them – and then started striking them off the list. It was disconcerting how many dropped by the wayside. Some were too early stage like True; some were too late. We didn’t want to be the VC’s first experience with hardware, so software-focused firms got crossed out. Others stayed on the list until I spoke to friends who’d taken their money – entrepreneurs are a chatty bunch, and we heard about everything from micromanagers to sexist jerks. The most painful one were the conflicts: anyone who was an investor in a company that we thought could intersect with our business was taken off the list as well.
Once I got off my high horse, I found myself with a distressingly small number of investors left. But I buckled down and started making calls.
Every firm was more or less the same process:
- Last week of March: intro from a friend or investor
- First week of April: meeting with one of the partners
- Second week of April: meeting with more of the partners
- Third week of April: spring break and passover, just email Q&A
- Last week of April: full partnership meeting with everyone at the firm.
The one exception was Foundry, who seemed to be moving in a process from a parallel universe. Before I explain how the Foundry conversation came to be, though, I should share a bit of background. When I started working on my first startup in 2005, my go-to resource was Brad’s blog. When I wrote my book Hot Seat: The Startup CEO Guidebook, I referenced Brad and Jason’s book Venture Deals often enough to qualify as a running joke. I heard tales of wonder from two of my favorite startup CEOs, Rand Fishkin and Ben Huh, about how great Brad was as a board member. Entrepreneurs I admire like Danielle Morrill and TA McCann had raved about him. I got a little breathless and excited when he showed up in the comments of my blog.
It’s fair to say I was a bit of a Brad Feld fanboy.
As with most of the VCs I approached, I asked a mutual friend for an introduction – in this case, Ben Huh of Cheezburger (I’d already bugged Rand for other intros). Our first email exchanges consisted of Brad asking a couple of smart questions, followed by me keying out overwrought essays in response. I’m surprised he managed through them. Brad introduced me to his partner Jason Mendelson, which I figured was going to be the end of things – Jason had very thoughtfully, politely, and quickly shut down my call about investing in Sparkbuy (my startup two companies ago) for being off thesis. But this time Jason and I had a fantastic call, and he deeply understood what we were working on in a way that few others did.
The next step in our conversation happened during week two, when I got a last minute email from Jason saying he was going to be in Seattle tomorrow and could we meet. I was in the valley, pitching everyone else, but I invited him to visit the office without me. He dropped by and got to chat with everyone on the team in person – except me. Our shop supervisor, Lauren, made him a leather Moleskine cover on the Glowforge with the Foundry logo engraved on it. He held it up to his heart and proclaimed it the best startup giveaway he’d ever had. The team called me up and said, “We really, really like this guy.”
Brad and I scheduled 30 minutes for a Google Hangout. Hangouts choked so we switched to Skype. Brad asked me some smart questions and I asked him some dumb ones. We ended the call on schedule.
We exchanged some more emails and he started introducing me to a host of spectacular people. Bre, Makerbot’s cofounder & CEO, had already invested in Glowforge but Brad connected me to Jennifer Lawton, who was with Makerbot since 2011 and took over as CEO once Bre left. We had an amazing phone conversation and I immediately started scheming to get her more involved (she joined our board of advisors a few weeks ago). I talked to Brad’s other two partners, Seth and Ryan, and the conversation ranged from our business model to the time I accidentally smashed our mezzuzah with a chair and laser cut a replacement a few minutes later. They seemed like a good group. I wasn’t quite sure how they were going to get to a decision, but I was enjoying the conversation.
Then something bad happened. Brad suggested bringing Tony Conrad and Jon at True Ventures into the round as partners if Foundry did the deal.
That may not sound bad: I wanted to work with that team. I thought they were great. But they had passed on us.
Most people, if they decide not to do something, will back up their “real” reasons with rationalizations. After passing, True had probably decided we were not just wrong-stage, but wrong-time, wrong-place, wrong-shoes… we would be sour grapes. And Brad would hear all about it.
I wished I could somehow wave Brad off for what I was sure was going to be a doomsday call with TC, but didn’t have any good reason other than a sense of foreboding. I told him the truth: I would love to have True involved, but they wouldn’t have me. Brad said he’d give them a ring. A few hours later I got a call from TC. He told me he was delighted to have another chance to invest, and if Brad and I could work out a deal, he hoped I’d let him invest. Hooray!
Finally schedules lined up. Brad told me he was going to be in New York at the same time I was flying out for some other final meetings. This was my chance to close the deal. I got ready for what was likely to be the definitive meeting: the one that would ultimately determine if we were going to get terms from the guy who was frankly my dream investor.
Then Brad sent me an email with the subject “Foundry/Glowforge Status”. My stomach dropped. That’s not the subject you use for a status email. That’s the subject you use for a “status change” email. The bad kind of status change. It’s like the skinny letter from the college admissions department.
What did I do wrong? We hadn’t even met yet! I opened it up and Brad told me that they had decided…
I had yet to meet a single member of the Foundry team in person.
What followed was, according to my attorney, the one of the easiest startup financings in his many decades of experience. We used Brad’s documents and Brad used our lawyer (saving us tens of thousands of dollars in legal fees). We never bothered with a term sheet; a few emails and a short call or two settled every outstanding questions. We signed and funded in a month. And today I want to welcome the whole Foundry and True families to Glowforge. Brad’s going to be joining our board of directors, and I’m looking forward to getting out to Boulder to visit.
We’ve got a lot of work to do together.
I can’t wait.
(By the way: if you’re curious about what we’re cooking up with all that dough, sign up on gfclone1.wpengine.com and we’ll let you know just as soon as it’s ready. And if you want to be a part of the team that makes it happen… we’re hiring!)