When we were starting UserVoice I felt from the get-go that we’d need a non-technical co-founder who’s sole job would be “business stuff”. (Eventually I realized that was overrated, but we did need someone who was a great evangelist.)

While “dating” folks for this role I spoke to an MBA grad. Everyone technical in Silicon Valley has a very low opinion of MBA grads but I felt inclined to investigate anyway.

He turned out not to be the right guy but that doesn’t mean he wasn’t without value. We met at Starbucks (ironically, the one that’s across the street from what’s now our San Francisco HQ). We didn’t really hit it off...but he did drop this gem:

Mr. MBA: “I like what you’re doing but I really don’t like the name."

Fair enough. Mind you, this was before The Social Network made renaming companies a pop culture reference. At the time, what is now UserVoice was named UserSuggest, which doesn’t necessarily roll off the tongue and is extremely literal (as engineers are wont to do when naming things).

Mr. MBA: “I have a better name but unfortunately it’s already owned."

I was thinking that I wasn't quite sure what good that did us, but what the heck.

Me: “Okay, so what is it?”
Mr. MBA: “UserVoice.”
Me: “Wow, that is much better. Who owns it?”
Mr. MBA: “A Richard White from North Carolina.”
Me: “...”

I was stunned. I wondered who was the bigger idiot between the two of us: him for not realizing that I am “Richard White from North Carolina”, or me for not having checked what domains I already owned before we started the company.

In the waning days of Kiko (online calendar, first YC batch; sold on eBay) I wrote down 4 ideas that I wanted to pursue and apparently bought domains for all of them. 2 years later when we actually started on UserVoice (after completing two of the other ideas I wrote down: ActiveScaffold & SlimTimer) I had totally forgotten about those domains.

I thanked Mr. MBA for his time, went home, and immediately renamed the company.

What do you think? Did we make the right choice or is UserSuggest better?

Photo courtesy of Madaroni.

As announced last week, we just raised our Series B round of $1MM. We wrote a long post about our Series A round, so I wanted to provide my perspective on this round especially since it’s uncommon to raise a small, inside B round and be happy about it (which we are). Every company is different but unfortunately most funding events are decidedly homogeneous. In our case we’ve happily rejected the status quo. Hopefully by giving you the background on why we did so will help you choose whatever path is right for your business.

Why raise funding now?

Earlier this year we did two key things that (positively) changed the slope of some of our key metrics: we launched our new Helpdesk product and we converted to a per-seat pricing model. Those two changes improved trial conversion, paid conversion and increased the number of upgrades. The percentage of people answering our customer survey question of “How disappointed would you be if UserVoice was no longer available?” with “Very Disappointed” surged past the 40% mark (considered important by folks that think a lot about measuring product/market fit). But most importantly, it changed our monthly retention rate.

Our initial round of funding was over two years ago. We had been growing organically and putting profits back into hiring and building the team, but still ran a pretty lean ship. We reached 70K+ signups without dedicated sales or marketing staff. The change in our metrics was a signal that it was time for us to raise money so we could fund - ahead of our revenue curve - a step function in team growth, one that would take us beyond a team that’s great at building products to one that’s equally great at bringing those products to market.

So why raise only $1MM 2yrs after raising roughly the same amount?

This is where I take issue with the talk about the impending A Round crisis. For a lot of SaaS businesses, the A Round and even the B Round are outmoded concepts. With scaling revenues you can raise multiple seed-size rounds and keep dilution low while you build out the business. Once you’ve reached economic scale you can skip to a growth round. The abundance of angel investors and smaller funds isn’t going away and I predict you’ll see a lot more of the seed-seed-growth pattern from SaaS startups going forward.

Our expansion plan is, with scaling revenues, only expected to cost $500K so it hardly seemed worth going through all of the effort required for a VC round. We also investigated non-equity options (various debt instruments) but felt that given the friendly market climate and the stage of the business, now wasn’t the time to get too aggressive about dilution and run the risk of under-capitalizing an important expansion.

Time away from the business matters. Going out and raising a VC round would also have required a lot more time away from the business at a very critical point in the company lifecycle. We were a 13-person company at the time of this funding and both myself and my co-founder, Scott Rutherford, are actively involved in day-to-day.

How did we go about raising money this time?

When we last raised money a lot of time was spent spidering the network to find potential investors. Wow, what a difference a few years makes! For this round we used AngelList, where lot of that legwork has been done for you.

One thing about AngelList is that it seems to be pretty feast or famine (a microcosm of where our world is moving in general). When we posted our profile, we ended up at the top of the “Hot” page and rang up ~40 introductions in the first few days. Granted, we were a bit of an odd duck on AngelList; in a sea of early stage startups we had proven traction and brand equity. From talking to other people, it seems that AngelList may actually make it harder for very early-stage companies to build that important social proof since there’s less asymmetry of information.

Having said that, I would definitely recommend AngelList for filling out a round like we did. We met a lot of highly-relevant contacts that I otherwise would not have known about in a small space of time. If you do it right it allows you to really compress the process down quite a bit.

Doesn’t an inside round mean things aren’t going well?

Nope.

Traditional thinking is that you never get a good valuation from existing investors and so they’re considered your funding source of last resort.

There were 3 reasons for our inside round: expediency, comfort, and control. I already mentioned time away from the business, but in addition, bringing in a new lead investor would have greatly dragged out the process by tacking on an extra 2-4 weeks for due diligence. It also would likely have meant adding another person to our board, which currently includes Scott, myself, and Steve Anderson (Baseline Ventures).

In the end, you could say that Steve Anderson was the single reason we did this as an inside round. When we were raising our first round in 2009, during very different market conditions, we made a concerted effort to optimize for great people over valuation. I think that strategy has borne fruit here for us and I’d advise anyone raising seed stage funding, especially if it’s your first venture, to strongly consider picking quality investors...not necessarily the people willing to stomach the highest valuation. Not only were we are already comfortable with Steve, but it also helped that he has the means to lead follow-on investments.

That the offer was on valuation 7X over our previous round made it all together a no-brainer for us. Because we had the same lead as our previous round we were able to re-use (roughly) the same docs and get this done in a matter of days rather than weeks (kudos here to our awesome counsel: Andre G of Silicon Legal Strategy).

Ours was a rolling close which is *so much easier* when dealing with a number of angel investors where you’ll always, despite best intentions, have someone who’s out of the country and can’t wire the money when you want. This probably saved me a good 5 points on my blood pressure. :)

So what’s next for UserVoice?

This funding enables us keep innovating and start to really amplify our message. UserVoice makes customer communication simple, humane and, dare we say it, fun. In the coming year, we plan to add many new features that will delve even deeper, re-defining the way businesses understand their customers, are able to to improve customer retention and ultimately, drive critical business results.

THANK YOU to our investors, our team, and our customers for helping us get here. It’s truly been a team effort.

Richard White is a Co-founder and the CEO of UserVoice, where he focuses on making sexy products for un-sexy markets like customer service. Prior to UserVoice, Richard was the lead designer on Kiko.com, a Y-Combinator-funded Calendaring product that drew praise for its clean design, which was sold on eBay for $258K. After Kiko, Richard founded SlimTimer, simple time tracking for freelancers, where he experimented with name-your-own-price Freemium models.

Coin photo courtesy of JD Mack.
Inside photo courtesy of eskimoblood.

The following is a post I outlined in 2009 about our fundraising process that was never finished. We decided to publish this anyways because it’s apparently never to late to publish stuff like this and because, though the environment for raising capital has changed dramatically, it’s still a useful story.

I share this story not to pat ourselves on the back, but rather to share some lessons for fellow entrepreneurs. Nobody’s story is going to be the same, and the more you hear, the more you know. I know I’ve learned a ton from reading what others have posted, so hopefully this helps someone out here.

The Plan

In December 2008 we decided to make a serious go at raising a seed round. We'd been sniffing around for about 6 months prior but with the launch of our paid services on the horizon we decided that now was the time it had to happen. Yes, the market for raising capital was terrible but we were running out of time. I was going back to family members every couple months to get another cash infusion to keep us afloat and that well was rapidly running dry.

We had decent traction. 40% monthly growth on sign ups and a decent list of leads for people interested paying us for a premium offering. (We had just announced pricing plans; you couldn't sign up, just express interest - a lead list basically. It should be noted that just announcing the paid versions cut our monthly sign ups in half.)

We set a goal of raising $500K.

We had our first investor meeting in December. It went well and we actually got an offer but the valuation was too hard to swallow. Getting that offer gave us the confidence to say "we can do this" and so I set about setting up meetings with investors after the holidays.

First Meeting

Fast forward 4 weeks to the end of January 2009 and we're sitting down for our first meeting. We drove up US1 from Santa Cruz to San Francisco, EVDO cards blazing, working on our pitch the whole way. I’m not sure if it was nerves or motion sickness but by the time we got to San Francisco I thought I was going to hurl.

The meeting went pretty well. Over the course of 90 minutes, we had lively banter back and forth and delved into the specifics. We went a bit off the script but it felt good. We pulled up our internal dashboard and it showed that we were on track to make $89 that month (we had just launched our paid services earlier that day and it was cool to point to the fact that we had people willing to pay... even if it was only a single person).

The Low Point

A couple of weeks later we got the call back. They were going to pass. They didn't see the big opportunity. I realized we had made a huge mistake in letting that meeting get off track. We got mired in details and didn't sell them on the bigger story (we had figured we'd surely get a 2nd meeting and could get into that stuff then). We let them come to their own conclusions and they concluded it wasn't a big enough opportunity.

We had had a couple of other meetings but we just didn't click like we did with this investor. We had one meeting devolve into debate over core business metrics.

What was frustrating was that we felt that our pitch was getting better with every meeting but it was still not quite there. We had lined up a few interested angels but not enough to get us to $500K and probably not enough to get the critical mass required to close a round of any size.

It didn't help that in early 2009 there weren't many angels or early stage VCs to pitch. What angels were left in the market were savvy: they didn’t go in alone and they didn’t do notes. It also didn't help that one of our primary competitors had already raised capital from a lot of them.

I was starting to get worried that this might not work out and that we needed a plan B. That first offer we got was really tough but we needed the money. Money is money, valuation be damned. I went back to that first group and told them we wanted to talk. I was trying to figure out how to position it so it didn’t seem like we were crawling back with our tail between our legs to their original offer. We set up a meeting in 10 days.

Tipping Point

Just a few days before my scheduled "mea culpa" meeting I got an intro to another angel (Dave McClure). An angel I had specifically told people NOT to introduce me to. Not because he wasn't awesome (he is) but because he was very metrics-focused and I was worried that we would get eaten alive by him on what I considered our mediocre efforts in metrics and instrumentation. My fear went something like this: "Have you talked to Dave McClure?” “Yes, but he passed.”

Against my better judgement we took the meeting with Dave anyways. We showed up and launched into what was by now a pretty polished pitch. I reluctantly showed him our various internal dashboards and metrics. Then something crazy happened. He was impressed. The thing I figured he’d eat us alive on was the very thing he was most impressed by. 30 minutes into that meeting he wanted in on the round. I was absolutely stunned and elated (and struggled to put on my best “of course that went well” face).

Breakthrough

We now had some momentum (enough to change the whole dynamic of our other meeting from "mea culpa" to "we're making progress”) but we still didn't have a lead investor. I was feeling that we had enough interest that we could probably write our own term sheet and pull together a round without one. After seeing friends try to push the envelope with valuation and come up empty I figured that less dilution was not worth the risk at this point. So we sat down and picked a valuation we felt we could be comfortable with and that would be a no-brainer for investors. Our counsel drew up a term sheet to present to the band of investors we currently had in the "yes" column.

It's always easier when you have a lead investor to rally the troops, so in parallel we continued our search. With a decent group already committed, things started to get a bit easier. I got an introduction to David Lee at Baseline Ventures (now at SVAngel). I had a bit of a deja vu moment. We had talked to him & Ron Conway 9 months earlier. They just didn't get it, compared us to people we were clearly not and eventually passed. So I was a little hesitant. Man how things had changed! That meeting went well and led to us sitting down for drinks with Steve Anderson (Principal at Baseline Ventures) at Perry’s on Union St. a week later. We spent two hours covering everything about the business. No deck. No pitch. Just us and him talking about the business and where we saw it headed.

One week after that and roughly 6 weeks since our first meeting I was standing in front of our small “compound” in Santa Cruz when I got the call from Steve Anderson of Baseline Ventures saying that they would be happy to lead our round. Yes! We left for SXSW a few days later completely renewed and reinvigorated about our future.

Postmortem

Our first meeting was on Jan 22 and we had our "phoneshake" and closed the round on March 5th. We ended up bumping up the round from $500K to $800K to fit everyone in, and still we had to tell a lot of people that we simply couldn't take their money. We had offers for about double the capital we took, but since we had already set our valuation, taking more money would have hurt our dilution.

Because I'm a huge nerd I kept track of all of our leads, who introduced us to whom and who invested (click for a larger image):

Some takeaways from the graph:

• I’m using the term VC here for anyone who has LPs. Our lead investor, Baseline Ventures, is about the furthest thing from a VC that I can think of (in a good way) but they have LPs so I’m putting them in the VC column. (Sorry Steve!)
• Angels refer more people than VCs. David Shen was one of the first people to say they were “in” and he was crucial helping us bring the rest of the round together.
• Lawyers and bankers are your friends - Andre Gharakanian (Silicon Legal Strategy; who’s truly awesome) and Shai Goldman (Silicon Valley Bank) see a lot of deal flow and can provide a lot of intros. They’re obviously not as strong as an intro from another angel but still better than a random email on your own.

With that geekery aside I'd like to reflect on what did and didn't work for us:

What DIDN’T work

Going to your A-list targets first

Our first meeting was with our #1 target for funding. That was foolish. If we had to do it over again we would have cut our teeth on meetings with “lesser” investors and work our way up. We were so confident that it would go well that we didn't even think about this.

Letting investors drive the discussion

There's a fine line between a good meeting where you've got investors excited and a friendly back-and-forth banter and a undirected meeting where you're just having a conversation rather than selling the story. The few times we let the conversation go off the rails we got burned badly. Stick to your pitch, allow for some leeway, but don't be afraid to bring the conversation back to your carefully-crafted story progression.

What DID work

Having enough data to get excited. Having not enough data to kill that excitement.

One thing I think we did nail was the timing of our paid services launch. In our first meeting we had only a few paying customers; by the time we got to our last meeting we had $10K/mo. We'd always go into the meeting and pull up our internal dashboard of live revenue. Thankfully it kept going up and to the right during the entirety of our fundraising process. The best part of it was that we only had 30 days of data. That means no churn and not enough data for people to make meaningful projections. It was just enough to say "something's happening here, we don't know how big it could get but you better get on board now."

Connect and survive instead of divide and conquer

Some entrepreneurs may have the leverage to keep all your leaf nodes (investors) separate and play them off each other to get a better deal. We did just the opposite. When we had someone say "I'm interested" we would connect them to the other people that said the same thing. In this way our investor nodes became more of a mesh than a tree and that worked well.

Setting our own valuation OR optimizing for people over dilution

Following up on the previous point, we also took the initiative to set our own valuation. Investors were very value-conscious in those days. It's not just enough to be a solid opportunity, you also need to be a good value. We set a price we thought was fair and wouldn't generate a lot of push back. Then we had an easier ask "We're asking for X at Y, are you in?” Less variables makes it easier to get a yes/no answer. It also helped because in what was a crazy market, no one was really sure what the right price was and everyone was afraid to guess wrong. In the end this helped us to become oversubscribed but instead of optimizing the valuation we could optimize for the "right" people.

Raising money in a down market with actual revenue traction

Yes, it was a terrible time to raise money and Yes, our valuation took a hit because of that but I don't know that we could have raised money 8 months earlier. The tide had risen and investors were less interested in the next social do-dad and more interested in solidly-built businesses. The kind of businesses that already had a plan, or in our case, were already making money. It was the worst time to raise capital but it was the best time to pitch a revenue-generating B2B business to Silicon Valley angels.

----

In all it was quite a roller coaster ride. The pressure of the fundraising process really forced us to answer tough questions about the business that I don’t know we would have addressed otherwise. We learned a lot about business and even more about ourselves over the course of those 12 weeks. Many thanks to everyone who made that journey possible. I hope this helps other entrepreneurs with their funding adventures, and I'd be happy to answer questions in the comments below.

Richard White
CEO, UserVoice

Cash photo courtesy of Andy.
Highway photo courtesy of Dawn Endico
Dave McClure photo courtesy of Laughing Squid.
Handshake photo courtesy of Corey Olsen.
Magic photo courtesy of Jon Curnow.

3 years ago yesterday I got the papers from our lawyer saying that UserVoice was now an official Delaware C-corp. I found it amusing that the company's birthday was my own as well. That wasn't planned but it's quite fitting as the two of us have been soulmates for these last 3 years.

A lot of entrepreneurs have told me our blog post about our first year, the Year of the Scrappy Startup, was great so I figured a follow-up was in order. When we last left off we were 3 guys, 1 woman, 2 kids and a dog living in a house on the west side of Santa Cruz...

While we were writing our year one post we were actually finalizing our first (and to date, only) round of funding - an 8 week roller-coaster of a ride. I'm pretty proud of the fact that we were able to raise money during one of the worst investment periods in recent memory. That’s a whole separate post for another day.

What's most interesting looking back is how easy raising money was compared to growing out a business.

Yay, we’ve got money! Now what?

Most people I've talked to say that by the time you finish your round all the excitement of it has worn off. It's really anti-climatic. You get the handshake deal and then it's weeks through the doldrums of due diligence to the finish. So by the time you get to the end you're mentally over it and focused more on how to put that money to work.

What was most difficult was figuring out how to spend the money. Clearly we needed to hire some more team members and we had things to do. We had infrastructure that had been creaking along and could use an upgrade. We still had a lot of day-to-day things to deal with. You're still only 4 people, even if you have $800K in the bank. You think you'll take that money and do a lot of amazing things from day one but the reality is that things don’t change as much as you think and you spend a lot of time putting out the same fires... just now without the “if I had money this would be different” excuse. Money is certainly an enabler but you still have to get your lunch pail and go to work every day.

We survived the whole first year of the company on $125K of friends and family money and I think we spent that much in the first 3 months post-funding. Everything suddenly costs real money and people no longer do you favors or (rightfully) give you the deals they once did when you were essentially a starving artist. We had revenue projections that said that our spending plan was sound and that we'd get to profitability long before we ran out of money...but when you're burning $60K a month and those projections are based only on 45 days of data it's pretty scary. I think at times we'd worry too much about not blowing it rather than blowing it up. In the end those projections ended up being off by only 3%. You just gotta believe in what you’re doing (and have a decent model).

Does it smell in here to you?

One of the other casualties of having a business bursting at the seams is that sometimes you put off things longer than you should. Soon after we raised money we moved the company to San Francisco. Scott and I scored an apartment first (making sure we didn't have any adjoining walls between our two bedrooms after spending 6 months in a studio together) and set up a makeshift office in the living room. We figured we'd get a real office when we had more people and more time to look for one.

Unfortunately we never seemed to have time to take a few days off to look at offices (imagine that) and so we ended up working out of that apartment for 6 months. At first it was just a few of us and was a totally fun time hanging out and hacking but as the team grew it got a bit cramped and uncomfortable. We had a great view of the Bay Bridge...which came in handy when people were forced to work out on the balcony because the main room was too crowded (or loud). By the time we moved out we had 8 desks in a 500 sq ft room.

When we moved into our office on Bush Street it was a huge relief. We were completely over the lack of work/life separation. More importantly, having a dedicated office had a positive effect on our collective psyche. We took ourselves a little more seriously and I think potential hires did as well.

Turning the corner

It's often said that a startup is your baby and UserVoice certainly has grown up much like a child. Year 1 was doing whatever it took to survive. Year 2 was learning to crawl.

Year 3 was the point where we actually started becoming our own person. We put out a lot of the major (technical) fires, rectified hiring missteps, and got some of our swagger back. We got back in touch with our customers and really started not just listening but focusing on understanding where we could be doing more to help them. We started to lay the foundation for the rest of our growth as a company. We completely rebuilt our admin tools, launched a new API which served as the backbone for an iPhone and Facebook versions of UserVoice, tripled our revenue, launched translate.uservoice.com, redesigned our sign in process to make it the easiest process among our competitors, but most importantly we’ve re-emerged as much the fiery, competitive company we were in Year 1, now with the knowledge and experience of how to get things done more efficiently.

I’m most proud of the team and product we’ve put together. One of the hardest lessons to learn as a workaholic entrepreneur is you can’t do everything. You just don’t scale. What scales is a great team all rowing in the right direction. We’ve got that now and I think you’ll like Year 4 a lot.

-Rich White
CEO, UserVoice

Christmas photo courtesy of Joshua Rudd.
Laptop photo courtesy of Travis Warren.

Today is April 17th. A year ago, at noon o’ clock – UserVoice opened it’s doors to the world. I remember sitting at my desk in Wausau, Wisconsin thinking, “Wow! We’re really doing it!”

Five companies signed up the first day.

Not exactly the big bang of growth we had hoped, but at least we had stopped talking about the idea, and now we were actually making it happen.

Earlier, we had set up a UserVoice page internally for ourselves and a couple other projects. For us it was working, but we wondered if anyone else would care as much. In the end, this proved to be hugely invaluable as users told us what was most important to them. Rather than build what we thought they wanted, we built what we knew they needed.

This of course was what UserVoice was built for, so we discovered very quickly what worked and what was junk. So, we tweaked and adjusted as we grew to streamline the service.

We Built It, Now What?

The next step was promotion – being an early Twitter person, this was my natural inclination. Considering we had very little money, the cost was perfect – FREE! Twitter served as a fantastic marketing tool that helped us generate new leads and make a name for ourselves. Suddenly writers were doing stories on us and things began spiking on up to early Summer.

Here we were, getting calls from major brands & agencies! They wanted features we didn’t have and APIs we didn’t yet provide. The thing was… we were out of money. We all started hustling design jobs or contracting – but we kept at it. Some days were much harder than others.

We were afraid that the initial interest in our project was a false positive — it seemed to be taking forever for big companies to make decisions. Could we create revenue faster by simply making smaller, more departmental sales?

None of us were sleeping well, and stress does pretty weird things with your frame of mind – a little touch and go there for awhile.

Making A Decision

And that’s when something amazing happened. A muggy July evening, Rich and I had a long phone conversation. We talked about what we wanted to happen – how neither of us were happy trying to make it work. We wanted to MAKE it work. We decided.

We quit the side work the very next day and just focused.

Soon after we secured a couple of paid pilots. Family members chipped in. Money trickled in. It wasn’t much, but we were happy and watched things blossom accordingly.

Live, Work, Repeat

We needed to cut our costs, so in September we moved to Santa Cruz, where we found a vibrant new tech community beginning to flourish. If we needed to, we could still get to the City (San Francisco), but housing was considerably cheaper and the quality of life was wonderful. We found a small bungalow with a guest house in the back (occupied), so Emily and I rented the main house with our two kids (we’re married), while Rich slept on the couch.

By October, the economy was sliding. Rich moving out was becoming less likely. In December, the guest house out back opened up and we added a new team member, Scott Rutherford. Together they moved into the guest house where our dog, Rocky now likes to check in from time to time for a good scratch. We were still, and still are, all living on the same plot of land!

By shacking up together, sharing home-cooked meals, and eventually getting office space donated at the local coworking space, NextSpace, we were able to keep our initial costs down, streamline our efforts, and be amazingly efficient.

When you work AND live with your co-workers, there is no “9-5.” It’s 24-7. Our home became the UserVoice “compound,” which is one of the reasons we think made this work. We supported and encouraged each other to keep going. When one was down, the rest worked to pick the other up. This proved vital to our early days as a pre-revenue start up.

One Year Later

So all of that under our belt, we now have 13,683 organizations using our feedback service including Fortune 500 companies, startups, non-profits, education organizations, politicians, open source companies, rock bands and financial institutions! What a difference a year makes!

Anyway, we’re very pleased to have had the opportunity to share this last year with you. In the coming weeks we’ll be announcing a slew of new features, as well as a super improved widget – so be on the look out. What we’ve done so far merely a twinkle of what’s ahead!

More than that, we want to say thank you — so, for the next 48 hours, please be our guest and take 60% off your choice of Bronze, Silver or Gold for the next year.

Simply use the coupon code: oneyearolder

That’s it – again thank you. Have a great weekend!

P.S. — Looks like BusinessWeek took notice of us too – see BEDROOM STARTUPS