Why we walked away from a $1.5 million seed round and shut down our company
The end of the beginning
I’ll start at the end. We were offered seed funding, a chance to build a team, upgrade our office space with plants and ping pong tables. But we turned it all down in the end. Why did we choose to turn down more than $1.5 million in favour of an uncertain future?
With these types of decisions it’s difficult to boil it down to just a few points but when I look back there are three questions that helped answer this question:
Am I excited to get up and work on this every day?
If I knew what I know now 1.5 years ago, would I still have started this company today?
Do we have new ideas around offering meaningful value to our customers?
In the end the majority of these questions started to drift towards a clear no for both of us.
This is the story of how we got started, tried to raise money, failed and succeeded, iterated, created value for customers but ultimately came to the decision to wind up the company.
How to start a company without a co-founder and no idea
I was at Google for 5 years and getting a bit too comfortable. I knew that I wanted to start a company and take on a new challenge but didn't know what to start with or with whom. A friend mentioned a pre-seed accelerator called Entrepreneur First (EF) that claimed to be a place where you could arrive without an idea or a co-founder and pay you for three months while you try to figure both things out. I thought this sounded too good to be true, but decided to give it a go with just a few hours left before the application deadline. I got an interview and travelled to London to a place called Bermondsey (not on your usual tourist route) on a cold December morning in 2017 to meet with the EF team. To my surprise, I got an email later that same day that I had been accepted. This gave me the confidence to leave my job that same week and, three months later, I packed my bags and moved to London to try to build a company without an idea and with a person I hadn't yet met.
EF threw us in the deep end with what they call co-founder dating, where you try to work with different people from the cohort until you find someone you feel you can be productive with. It was a fascinating experience being part of a 100 person experiment and something that would probably qualify for a reality show some day. I met Mario before the program had officially begun; we immediately hit it off and decided to team up on day one. Mario was going to be the CTO and I was going to be CEO. Through a series of turns and pivots we ended up settling on a product to make it easier for product teams to discover User Experience (UX) issues on their websites.
The EF programme is a well-oiled machine with clear deadlines that helps add structure to the otherwise chaotic startup life. Of the 100 people in our cohort, 70% ended up finding a co-founder and out of those, half made it through the Investment Committee (IC) round, where you need to convince EF that your idea and team is worth investing in. In return you get an investment of £80k (~$110k) and get to be on stage at Demo Day in front of hundreds of investors in London. Not a bad deal, having had no idea or co-founder just a few months earlier! We were among the teams that made it through the IC round and fast forward three months, our early product was live with 10 customers and we were ready to pitch at Demo Day. Here's the pitch from that day in September 2018 if you're curious (it still makes me cringe to watch myself on stage).
While the company didn't work out the way I had hoped, I'm incredibly thankful for the EF experience. I met life-long friends (below is a picture of a bunch of us at a wedding of one of the cohort members in Greece), got to pitch in front of most investors in London and got to see others succeed in either building their companies to dozen of employees or getting more money than I could ever imagine by getting acquired.
In the following sections I'll go into details about the journey after EF, chasing investment and trying to build a company. I'll start at demo day, which took place at the six month mark after starting EF.
Takeaway: An incubator can help you try to get something off the ground without burning through your savings while providing some structure. The friends I made during the startup journey is the most valuable part of it all.
Chasing VC investment (and not getting any)
The whole EF experience culminated in demo day and we were all riding high on the prospect of raising millions of pounds for our six month old inventions. At the time, we had a nagging feeling that we weren't quite ready to raise money. We didn't have any meaningful traction, only had a vague idea of how this could become a "billion dollar business" and felt like we still had a lot to learn from our early users. We still decided to make the best of demo day and to get the full fundraising experience. In the four weeks after demo day I sat through 45 meetings with investors mostly introduced to us through the Entrepreneur First network. This took a staggering amount of time and some days I travelled all across London to meet five different VCs only to spend the evening responding to follow-up questions.
One meeting with a high profile US investor was particularly comical. He was in town only for a day and wanted to meet at a coffee shop in Soho on a Friday evening. When we arrived, the coffee shop was closed and, for the lack of better options, we tried to pitch our idea to him while walking through the early Friday evening crowd of drunken Londoners starting their night out. It was to no surprise that there was no follow-up meeting. The fundraising adventure even took me on a two-day trip to Berlin to pitch to German investors, which wasn’t very fruitful aside from enjoying some Weissbier and Frankfurter in the late September sun with fellow cohort members.
Most meetings went alright (I later learned that alright is the last thing you want in an investor meeting). I was able to answer most of their questions and demo our product. They all seemed somewhat excited with responses ranging from "we love what you guys are doing" to the all so common "it's just a little too early for us but come back when you have 10 more customers". Although we got some next stage meetings it took me a while to realise that they were all different versions of no. I only learned what strong interest looked like when we went out to fundraise six months later but more on that further on in this story.
After four weeks and only lukewarm interest, we decided to pull the plug on fundraising and go back to working on the product and getting more customers.
Takeaway: Raising money is hard and investors will rarely tell you no directly. An incubator can be helpful with introducing you to investors.
Building the product and creating customer value
Six months after demo day and after a long winter it was now April 2019 and we had reached the one-year mark of working together. We had some traction with 20 customers using our product, a successfully onboarded enterprise client that was willing to pay us £1000 per month and was starting to see some meaningful engagement, and daily usage with a few of our customers. Still, it didn't feel like we were delivering enough value to customers to really make it a hit.
I spent countless nights pondering the question "how do we create meaningful customer value and what's the feature that will get us there". On darker days the question sounded more like "this idea will never work and we might as well throw everything out the window". To this day I still find understanding customer value to be one of the hardest elements to grasp when building a product.
Before we talk more about this, let me explain what we were building. The gist of our product was to automatically detect User Experience (UX) issues so companies could create better websites, save money and get more happy customers. You would add our script to your website and we would automatically look out for moments of frustration, such as rage clicks or angry scrolling. Once friction was detected, we asked the website visitor for feedback on the problem. This in-the-moment user feedback would give product managers and designers an overview of all their most pressing UX issues and the ability to spot new issues as they occurred.
Video of product in action
As mentioned by every startup expert out there (but also easily forgotten) we made an effort to start with the problem and not the solution. Here's how we would describe it to potential customers: "Do you know that feeling or tapping your mouse in frustration because that checkout button doesn’t work? Or reloading your browser when a page loads too slow? Bad user experience is everywhere and it's costing you thousands of pounds each day in lost sales. We make it easier for you to automatically find issues and areas for improvement in your user experience. In short, you put a script in your website and we automatically find areas of frustration".
I don't think there was anything particularly wrong with this idea or problem space. On the outset, this idea was also a good fit for our skill sets. I came from a data science background and was interested in product and analytics. Mario is a top notch full stack engineer with a flair for design and data. In hindsight it was also a really hot market with companies in the same space raising hundreds of millions over 2020 (see Quantum Metric and ContentSquare).
Measuring customer value
We both knew intrinsically that the customer value wasn't there or at least not sufficiently for enough customers. Measuring customer value is hard! Especially when it’s not there. We had different indications that customers weren't getting enough value. Usage was not that high and customers didn’t reach out when we launched new features. A lot has been written about this topic, with Superhuman's product/market fit survey being top of the list.
After we got our first 20 customers, something happened where certain customers started getting a lot of useful feedback through our product. It was an important lesson for me that we could only discover where customers got value and make small pivots by putting our product out there and getting it in the hands of enough users. There's no way we could have whiteboarded or brainstormed ourselves to these insights.
We adopted a framework to apply these learnings and decide which customers to double down on. After a lot of iterations we were able to much more narrowly define what the ideal customer for our product looked like:
Websites with complex flows and more than 100k visitors per week that has at least one person full-time on UX without being an enterprise
Getting to this statement really helped us and is something I would try to do much sooner if I start another company. This not only helps with deciding which customers to spend time on but also allows you to be more targeted in your outreach to new customers. Another lesson we learned from onboarding a larger enterprise customer is that although they're willing to pay much more, the problems and needs of those types of companies, the internal bureaucracy and focus on proving ROI makes them an entirely different beast. Tread with care in enterprise-land!
Validating an idea (I'm not sure you can)
We read all the books we could find from The Mom Test to Lean Startup and anything in between, and interviewed 100 different designers and product managers. While this was somewhat useful, 99% of the crucial lessons we got were from getting a product out there and putting it in hands of users. Jason from basecamp posted a video on Twitter saying that you can't validate an idea. I'm starting to think that he's right.
Takeaway: Measuring customer value is incredibly hard but you can only get there by putting something out there and getting it in enough peoples hands. After more than 100 interviews I'm skeptical that you can validate an idea or maybe we just didn't find the right one.
Learnings from other cohort members
We were surrounded by other awesome people building companies in our cohort and a few lessons stood out that I would apply if I were to start another company
They build stuff quickly, iterate and are not afraid to put something out there for the world to see
They had a somewhat successful launch at some point in their first six months. This gives a lot of momentum which in turn boosts morale. This is probably the most important lesson as nothing can kill a startup faster than founders losing motivation.
Some examples from our cohort of launching and iterating fast are Paperswithcode (top of Hackernews), MagicSandbox (top of Hackernews) and Metomic (1000+ upvotes on Producthunt)
If I were to start something again I would aim to launch quickly and try to build up initial momentum.
Takeaway: Launch and iterate quickly. Build momentum from early launches to keep yourself and your team motivated
Pitching investors round 2 (this time it's different)
In July 2019, after six months of heads-down development of the product, getting customers and iterating, we felt that the timing to try to raise money again was right. This was partly motivated by the fact that we had a better value proposition but also we were a few months away from running out of the initial £80k investment, which meant we would no longer be able to pay ourselves a salary.
Getting my fundraising gloves on again, I reached out to a few investors who seemed most interested the first time I met them, for a follow-up meeting. I kept it casual and instead of a formal pitch I reached out to see if they wanted to get a coffee so we could show them what we'd been up to.
This time things were different. At the end of the first 30 minute coffee meeting the investor said "are you free to come pitch to our other partners this week?". In hindsight it was clear that the "we love what you guys are doing" comments that we’d heard from investors six months earlier were merely a polite way of saying no. The follow-on meeting went well and shortly after we had our first term-sheet (a piece of paper that indicates that they're willing to invest a certain amount of money at a given valuation). Not bad!
Not all the following investor meetings went as smooth but it was clear that we had a much better chance this time around. After two months, 38 more meetings, countless follow-up meetings and another demo day through the Xoogler (ex-Googler) community, we had term-sheets in place that, combined with angel investments, offered us £1.2 million (or $1.5 million) for a part of our company.
Below is a redacted list of our investor funnel we kept in Notion.
You can also see the pitch deck we used here
https://www.slideshare.net/secret/45Dvjwx2IfeEen
Takeaway: It's useful to have build a connection to investors from previously when you're fundraising. If an investor is interested you'll know and the next steps will be within days
Turning down the investor money
As the eye-catchy headline revealed, we ended up turning the offer down and shutting down the company.
While we were fundraising the second time, we both started to have serious doubts about our solution, the market we were in and, simply put, we were running out of ideas and experiments to run. We had been at it for 1.5 years and had been through most of our ideas. We felt like some customers were getting some value and a few were getting meaningful value. However, we couldn't confidently say we felt that we could get many more in the meaningful category without a significant pivot.
At that point I also personally felt quite burned out and the thought of getting money and having to hire a team for an idea I only partly believed in felt anything else than exciting.
Mario and I had a heartfelt conversation about this over a few beers and gave each other the weekend to think about it. The following Monday we both agreed we had lost motivation and belief and, with that, it became clear that we were not going to take the money and commit to something we didn't have our hearts in.
Winding up the company
The following days I went around London to tell investors that we decided not to take the money and shut down the company instead. I feared that they would be upset but my fears turned out to be completely misguided. Instead, everyone told us that they fully understood and if we were to start something again their door was open.
We had gotten close to some of our customers and had spoken to them dozens of times. it didn't feel right to just send them an email so we decided to buy some high quality chocolate and visit our most engaged customers in person to tell them the news.
This is something I can highly recommend and I was surprised to see how sad some of them were but it also felt like a worthy ending. Interestingly, when we spoke to our customers about shutting down, we got some feedback we hadn't gotten before. In hindsight this gives you an option to get absolutely candid feedback and I wish we would have had a way of getting this feedback from them earlier. Here's one particular email from one of our smaller customers after we let them know we were winding down our company.
Time off
I took three months off after shutting down the company and those three months are some of the best I can remember. I barely opened my laptop and only rarely thought about work or what to do next. In that time I went on a trip to San Sebastian and Biarritz with my girlfriend, went hiking in Chamonix for a week with my dad, went to a wedding with fellow EF cohort members in Greece and spent time with my family and got to enjoy late summer in London. I can highly recommend taking time off and especially cherished the time where I was not pondering what to do next.
Takeaway: Don't burn any bridges with your customers or potential investors. Take time off after you've worked hard.
Closing thoughts
If I were to start a company again (and I really hope I will) I would
Have a personal conviction of the problem I'm solving and not have to rely too much on potential customers telling me what their problem is.
Have a clear plan for when to question the vision and future of the company. You can get consumed by questioning everything all the time. Set aside time every two weeks to reflect and otherwise focus on executing.
Without compromise, search for customer value. I know what it doesn’t look like, what it kind of looks like and I really hope I will recognise it when I see what it really looks like.
Launch quickly and try to build some early momentum. I wouldn't be afraid to throw things out that don't stick.
Think much broader about what a business can be. I've found it incredibly inspiring to see other indie hackers such as Daniel trying to build a portfolio of bets, Lynne building a simple but well articulated job page and Jordan with Closet Tools building a Chrome plugin for a product I'd only heard about a week ago. I would consider all these options just as viable as building a SaaS.
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