Aviel Ginzburg

Our decision to pursue funding started with a simple realization, jumping startup to startup, we didn’t have enough cash personally to fund the company and our basic living expenses of rent and Ramen. From Damon’s experience at his last startup, we also knew that we didn’t want to get sucked into the full time consulting mouse-wheel (we got REALLY close). So, we decided to raise a little capital to focus on doing what we do best: building social media products that make people’s lives better and easier.

Informed by Damon’s 6 months at Madrona Venture Group, we knew that we had no business looking for VC money (wrong scale) and my experience raising an angel round, I knew that we’d have challenges completing it because we didn’t have a complete beta product.

So we turned to the several options we saw in the market of incubators and seed stage funds: YCombinator/TechStars and seed-stage investment funds like Founder’s Co-op. The next question of course, was how much money we needed, and how much of the company we were willing to give away to get it.

Interestingly enough, nearly every person Damon talked to in the startup community asked him if he was going to raise money, followed immediately by a warning not to pursue venture capital.

A lot of people hold the belief that every percent of ownership in a seed-stage startup or idea is sacred, often failing to realize that seed capital exists for a reason. While we certainly didn't want to give up a large chunk of our company, we knew that we needed something to keep us going. An idea is nothing if you don’t execute on it. Simply put, 100 percent of a potential something is still nothing.

Previous Installments:
Taking the startup plunge, and taking you along for the ride.

Who owns what? How to split equity in a startup company.

Learning how to rely on your co-founder at a startup

Thankfully, there was little disagreement between Damon and I about giving up equity for funding and guidance. We looked at how much burn we expected, how much runway we felt we needed to get us to product/market fit, and came up with a comfort zone of percentiles. We chose to narrow it down to a zone rather than specific target because a straight trade of money for equity wasn’t what we were looking for.

In many ways, the amount of money we needed to raise to get us where we wanted to be was secondary to our desire to find experienced entrepreneurs and mentors who could help guide us as we grew the company. We recognized our own inexperience and tendency to get distracted by shiny objects and side-projects, and knew that the money alone wouldn’t be enough to get us where we wanted to be.

We didn’t have to look long when opportunity presented itself at the end of 2009, when YCombinator announced "RFS 3: Things Built on Twitter". It looked like a decent fit for us, so we applied.

But by the time we heard from YCombinator that we were through to the interview round; we had already found a more preferable option here in Seattle: Founder’s Co-op. And oddly enough, our relationship with them had begun almost nine months earlier.

In May of 2009, Andy Sack, a General Partner of Founder’s Co-op, had just started getting into the Twitter/social media space. He was introduced to Damon by Greg Gottesman as the best twitter developer in Seattle – and at the time, the Twitter Entrepreneur-in-Residence at Madrona.

Unbeknownst to Damon, I had also gotten to know Andy through a friend of mine that had recommended me as a developer who could talk him through the feasibility of a Twitter project he was contemplating.

Now nothing ever came out of those individual connections Damon and I had with Andy, but the relationships were there.

Months later, Damon and I approached Andy, initially looking for guidance and advice more than anything. While having coffee, we told Andy that we were founding a company together in the social media space.

Sack

Andy paused, looked at the wall for a second, looked back at us, and said: “Sounds exciting. How can I help? Why don’t you guys work at FC. I’ll set the two of you up with desks. When you want feedback on your ideas, I’m happy to be a sounding board.”

We didn’t pitch him for funding. In fact, we didn’t even ask for the desks. But the pre-existing relationship we had made over the past six months made it so we didn’t have to (at least not yet).

There was no talk of funding or money of any kind, after all we had no concrete business plan. But we were welcomed into the Founder’s Co-op community with no obligations from either side. We had all we needed to get moving -- desks to work at and develop our ideas and business plan, support from the co-op as a welcome guest, and insight from Andy Sack, an experienced entrepreneur, who could help guide us in the very early stages of a technology startup. Essentially, it was a trial period for both us and them.

Over the next couple months we constructed a plan and put it into a Powerpoint deck. We presented it to Andy, and then Chris DeVore his partner, and ultimately after they seemed to like it, we presented it to the limited partners. Like that, we were approved for funding and became official members of Founder’s Co-op.

The end of it may sound straightforward and easy, but it’s not that simple.

A lot of the process for us really came down to history and serendipity. What I’ve realized looking back, is that through the projects Damon and I have been building over the past two years here in Seattle, we’ve really been in fundraising mode the entire time, just never before having asked for the check. We built the relationships we needed, earned the trust we needed, and built the software and experience needed to prove that we could deliver.

From where I stand, seed rounds seem to be more about people than plans or ideas (which change). Find someone you respect and want to learn from, get to know them, get them just as interested in you as your idea, and you may just find what you’re looking for.

Editor's Note: Startup Confidential is written by Aviel Ginzburg and Damon Cortesi. The series will follow the ups and downs of the Seattle technology entrepreneurs as they try to get their new business off the ground.