Why we raised an insider-led round and you should too

Adam Berke
October 27, 2022
6
Minutes

During the 12+ year fundraising bull market that ended in Q1 2022, insider-led rounds were not something to talk about in polite company. They happened more than anyone cared to discuss, but they weren’t something a high growth startup would announce publicly.

Even in that flush funding environment, this faux pas struck me as odd. While there is certainly a point where bringing in new investors and new viewpoints is a critical step, there can also be a number of reasons why an entrepreneur might opt for an insider-led round:

  • Spending less time fundraising and more time building
  • Existing investors are enthusiastic and offer compelling terms
  • And most relevant to today’s climate… The company is performing well, but the market shifts, so there’s a win-win for investors to double down and for the company to stay the course

For all of those reasons, we just closed a new $4.2m round led by our previous lead investor Javelin Venture Partners, with super pro rata participation from other existing investors Founders Fund (who led our first round), Zoom, and Merus Capital.

While we were thankful for the support and happy with the terms, we didn’t want to miss out on the primary benefit of bringing on new investors, which is to expand our network and access a wider array of expertise.

So to have our cake and eat it too, we made room for a strong cadre of new follow-on investors including GTMfund, 10xFounders, Shorewind Capital, Moving Ventures, Leblon Ventures, Mana Ventures, and Gaingels.

A personal POV on insider-led rounds

My rosy view of insider-led rounds is somewhat shaped by my personal experience. At my last company, AdRoll (now called NextRoll), we closed a $4m series A in August of 2008, literally a few weeks before Lehman and Bear Stearns imploded, setting off the financial crisis. In the 2012-2022 era, that would have barely been called a Seed.

However, thanks to a culture that was already scrappy by nature (one of our core values at AdRoll was “do more with less”) and an insider-led round along the way (thanks Merus!), AdRoll was able to become a category leader and scale from 3 to 500+ employees and +$200m revenue despite not raising outside capital for 5 years. I always took this as a point of pride.

Today's fundraising environment is not what you would expect

Today, the world looks far more like 2008 than 2018 and the downturn I experienced 14 years ago provided many gifts that — with the generosity of hindsight — I can sense viscerally today:

  1. It gave us clarity in product development. Since we weren’t able to delude ourselves by winning discretionary budgets, we had to demonstrate clear value and if we didn’t, customers would churn quickly. This accelerated product decisions and helped us hone in on what really mattered.
  1. It helped us hire fantastic people who truly deserve the credit for the success we ultimately achieved. These weren’t just obvious choices from Google and Facebook (though we eventually hired some of those too). Initially it was identifying high-potential people from a variety of industries and backgrounds who were now open to new opportunities. We hired sales people from radio ad sales, liquor sales, and a Spanish language yellow pages company instead of Oracle and IBM, and our lead engineer (eventually our CTO) was from Italy instead of Stanford.
  1. It gave us an opportunity to differentiate and stand out. There weren’t new startups getting funded in our category, and while other competitors might’ve raised more money earlier, they struggled to adjust culturally (and fiscally) to leaner times. Eventually, our larger and similarly sized peers were gradually acquired and lost relevance, and others simply died. Meanwhile, we had the conviction to grit it out. As the saying goes, rule number 1 in startups is to stay alive.

Ultimately, building a company during this time ended up being a massive blessing in disguise for our culture, our customers, our company, our personal development, and ultimately our investors.

As we enter a similar moment in the timeline of WorkPatterns, we look forward to focusing on solving real problems for our customers, and putting execution ahead of ego.

If you’re an entrepreneur facing similar challenges in your fundraising journey and want a neutral sounding board to talk to, don’t be afraid to reach out. You can connect with me on Twitter or send me an email.

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