This is the third in a series of posts on how to form your own startup from scratch. Like the last one, this post can be found here and also over on TechCrunch.

The number one question you all asked after reading my last blog post about starting a business from scratch was “how do I find my co-founders?”

Great question – let’s start with a bit of self reflection:

Close your eyes and visualize your group of closest friends.

Now, think specifically about how tall (or short) they all are.

Great, now ask yourself “are all of them roughly the same height?” I’ll bet most of them are – you included.

And therein lies the problem in finding co-founders for that startup you’re dying to launch. It’s most comfortable to hang out with people like ourselves, but those are exactly the folks you probably don’t want to co-found a startup with. Seems a bit unintuitive, right? I’ll explain.

The best founding team for a startup is a group of two or three people who have synergistic – not overlapping – skills. Note that it’s also important your goals and passions be similar. If one of you wants to sell fast and the other wants to build a billion dollar business, that’ll make for pretty serious friction down the road. So too would a team where one person’s more interested in enterprise startups while the other person’s passion lies in consumer experiences. With that out of the way, however, it’s critical that you look for people with complementary skills to your own. In consumer internet, that usually means one front-end user-facing developer, one back-end server-side developer, and ultimately a business person (details will come in a later post).

The reality though, is that we tend to hang out with people who are just like us. Remember that story I told about the three business school students telling me about their tech startup, leaving me to wonder who’d actually build the product? I see that all too frequently – from business folks and techies alike. It’s just easier to hang out with people in your same classes at school, or your same group at work.

If you happen to be in school now, you’re in the most fertile place possible to meet your co-founders. Take advantage of it! How’d I meet Elaine and Sandy? Mutual friends from school. How about some other teams? Larry and Sergey from Google met at Stanford. So did Jerry and David from Yahoo!. The Plaxo founders also met in school, which is also where Mark from Facebook met his co-founders. Having trouble meeting folks you think would be good co-founders? Here are a couple ideas:

1. Join student groups relevant to your interests. If you’re a business major – go check out the Engineering Society’s monthly meeting. If you’re in the CS department, I’ll bet the business school students would kill to meet you at the next Entrepreneurship Club meeting.

2. If your school doesn’t already have a student group designed to foster collaboration between groups of students with the skills necessary to get a startup rolling, start one! BASES at Stanford is a great model to follow. It brings together students from both the undergraduate and graduate levels, across disciplines such as design, computer science and business.

Ok, so most folks reading this are probably out of school. Fortunately, there are a number of examples of successful founding teams that met outside of school. Chad and Steve from YouTube met while working at PayPal. Sean and Shawn from Napster met in an IRC channel. Cisco was a husband and wife team. It helps to be in school, but it’s not an absolute requirement. A few practical ideas applicable to everyone, in school or not:

1. Get out there and find activities that attract diverse groups of people. In Silicon Valley, rock climbing’s a current hot spot for startup folks. So is ultimate frisbee. There’s at least one weekly ultimate frisbee game I’m aware of that’s chock-full of people from the startup industry, on both the business and tech sides.

2. Ask your friends for intros to people in an area you’re trying to learn about. Chances are someone in your group of techies knows someone business oriented. The first folks you meet may not be a fit, but keep asking for referrals and you’ll get there.

3. Join / attend local organizations designed to foster introductions between folks interested in startups. SVASE or Founder Dating in Silicon Valley, First Tuesday in London and Hackers and Founders in New York all come to mind.

4. Team with co-workers at your current job or that internship you did last summer. Just make sure to not violate any non-competes, etc, in the process! Generally speaking, as long as you’re not working on a project your employer would reasonably want to own, you’re probably ok. Of course, do not use any of your employer’s resources. A great friend of mine is scheming, right now, with a co-worker on their next great startup. One’s a PM and the other’s an engineer.

I’m sure some of you are thinking “that’s all great – but I live in the middle of nowhere and none of those resources are available to me.” To be blunt, find a way to move to Silicon Valley. Other cities like New York, Boston, Seattle, LA and Austin TX also have pretty strong startup communities. However, nowhere has as many real estate agents, lawyers, accountants, landlords, employees, co-founders, mentors, and VCs all steeped in startup culture as does Silicon Valley. The ecosystem is just hard to beat. The result is that you’ll be exposed to many more people who can help you get started. In my case, I grew up in Connecticut and spent a fair amount of time in New York – all the while trying to start companies, relatively unsuccessfully. Friends in Silicon Valley kept telling me to move out there for all the reasons I mentioned above. I finally found my ticket in the form of admission to business school in the valley. Find your ticket.

The hardest part of starting from scratch is finding the right co-founders. Ideas, comparatively, are easy. You may spend three years finding your co-founders while you’ll come up with a solid idea every 3 months or so. Luckily, once you settle into a great founding team you’ll be able to execute much faster on that killer idea you all come up with – beating those ten other folks who came up with the same idea at the same time.

Remember, the ultimate goal is to create a founding team that can, within its own skill set, get a working prototype out the door. This means you need to find folks with skills that compensate for your weaknesses. Co-founding a startup is like getting into a marriage – picking the right people is critical. In later posts I’ll get more specific on how to figure out if the folks you’re meeting are the right people to work with, and also how to deal with issues like splitting equity and paying yourselves before raising funding. Feel free to follow me on Twitter to get notifications of later posts on this topic.

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I’m a bit late, but as promised, here’s the first post in a series I’m planning on writing on how to go from just an idea to having a thriving startup. This first post also appeared on TechCrunch, the subsequent ones will appear here on the Meebo Blog, which I’ll link to from my Twitter account too. Hope you all enjoy!

Here’s the post, edited slightly for the Meebo Blog:

I was one of those kids who just couldn’t stop trying to start a company. I think I just really feared working for the Man. Problem was, I seemed to suck at the whole startup thing. Multiple attempts followed by multiple failures. At some point I just said, “screw it, I’ll get a high paying job.” Problem was, I couldn’t stop thinking of the next great thing that got me ridiculously excited. Turns out, it wasn’t so much that I was the problem. Rather, I didn’t have anyone around me familiar enough with startups to tell me that I was doing it all wrong.

This is the first post in what’s going to be a series of blogs on how to go from nothing – no connections, no team, no money and no knowledge of how the startup industry really works – to operating a growing business. I mentioned to Mike (the Editor of TechCrunch) that I was going to kick this series off here on the Meebo Blog, but he suggested I kick it off on TechCrunch. Gladly!

So for this first post, here’s the best advice I can give you: join an awesome founding team and get your product out the door ASAP. Then, forget everything else, VCs included, and just build.

One of the things I do as a founder of a later stage startup is to meet with early stage entrepreneurs to help them get their companies going. Nine times out of ten, the meeting ends with them asking me for introductions to VCs. Little do they know that, even if they could raise VC, it’d start them down the wrong path. So, this is what I tell them:

At the exact moment you had your idea, ten other people had the exact same idea. There was just something in the environment that made it the right time for folks to think that one up. The race has already begun! Who’s going to execute first? Who’s going to execute best? If you want to waste nine months trying to raise VC money for that idea, great. But six months in, you’re gonna cry when you see someone else put out that same product you’re pitching me right now. Like I said, forget everything else and just get your product out the door. Now.

Inevitably, the excuses begin: I need to hire people to build the product. I don’t know any developers. I need money for the servers. I want to get that last promotion at my current company first!

Here’s the rub: in consumer internet (and often enterprise), if your founding team doesn’t have the chops to get a prototype of your product out and in the hands of a blogger to test and write about, you might as well save yourself a lot of pain – you’re not going anywhere. Need proof? Just look at some of the most successful tech companies in the last decade: eBay, YouTube, Sun, Oracle, Apple, Cisco, Facebook, Yahoo!, and Google. All of them share a couple common traits: they launched before taking outside investment, and they were able to do it because they had a set of founders with the skills to build the initial version of the product themselves. Only eBay was founded by a single individual – the rest were team efforts.

With that background, let’s get to the three most important things you can do to go from nothing to a kicking startup.

First and foremost, find a great founding team. One person is almost never enough. You just can’t do it all. Rather, team up with one or two other people who have skills synergistic – not overlapping – with your own, but with similar goals and passions. I can’t tell you how frequently teams of three business school students tell me they’re going to start the next great consumer Internet company. When I point out that they’re all business people, and wonder who’s going to build the product, they almost always fall back on “we’ll get a couple of undergrads to do it,” or, “we’ll outsource it.” If I hear either one of those, I know the startup’s already dead. Sorry, folks. Harsh, but probably true.

The best composition is probably one engineer whose passion lies in the pixels on the screen and another engineer whose passion is making bits fly really fast through servers. In Meebo’s case, for example, I was lucky enough to partner up with Elaine and Sandy. Elaine is a JavaScript wizard who has a great visual eye and makes sure every pixel is in its place. Sandy is a straight C nerd and is all about efficiency. Together, they built the first versions of Meebo from scratch. Now, if you have a business guy along for the ride, that works too. But let me tell you, the sum total of my contribution to Meebo prior to our launch was getting us incorporated (read: easy) and suggesting that “the button might look better over there” (read: not much). Post launch, if you gain traction, is where the business person will help take the load off of the technical folks. The business person can take all the meetings while the technical folks work on making the product better.

Second, like I said, forget everything else and just get your product out the door. No office. No phone system. No hiring. No press. No legal muck. No raising money. No looking for partnerships (who’s going to partner with you anyway?). The success or failure of the adoption of your product is what will create 99% of the initial value of your company. If no one ever uses your product, you have no value. Oh, and for the record, raising VC does not help get traction – in another blog post, I’ll argue that if anything, it hurts. So just forget everything else and focus on what matters – getting an alpha of your product out the door and into the hands of your friends and family. Use some URL like www.mygreatstartup.com/shhh.html. Then, once you’ve fixed the initial bugs and incorporated a feature or two that everyone requested, go live. Remember: keep it simple. The initial product you build is for you – you don’t know what features everyone else wants. Launch fast and light, and listen to your users for feedback. In the product, always have a way to ask for user feedback. Remember, once TechCrunch or GigaOm writes about you, you’ll most likely get crushed with a single surge of traffic (we fondly call it the “blog spike”), only to watch almost all of it flitter away. Take advantage of that surge to learn and iterate.

Finally, get good mentors. If someone had been there and just told me “join a great founding team, focus on the product, and forget everything else,” I would have saved a lot of time and heartache. A good mentor is someone who has been part of the startup community themselves – someone who has a realistic understanding of some of the basic dos and don’ts of starting up. You don’t need many – one or two to begin. In Meebo’s case, two of our friends, Todd and Cam, gave us a ton of pre-launch advice. Every time we started straying down a wrong path, like flirting with just talking to that one VC or even thinking about approaching a company about a partnership, they’d always come out with something like, “is that going to get the product out faster?” Trust me, once you’ve launched and achieved traction, you’ll have your pick of mentors, VCs, partners and all the legal expenses you need.

I hope that some of this hit home for those of you who’ve been working on your own startups. In later posts I’m going to get into more detail on specific topics like hiring, raising money, what types of ideas have the potential to get big, finding your founders, and the like. You can follow them here on the Meebo Blog. Alternatively, follow me on Twitter (@sethjs) where I’ll mention when I put up a new post.

Thanks for reading, and feel free to ping me with suggestions on future posts.

Seth

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There’s this idea that’s been kicking around in my head for awhile now, and I figured, what better set of folks to talk to about it than all of you? You see, for awhile now its been bugging me that it’s really hard to get straight answers on how to start your own startup.

For those of you who don’t know, Elaine, Sandy and I are the three folks who started Meebo. Of course, Meebo has grown way beyond what we had dreamed it could become. If you had asked us whether Meebo would ever reach 50 million users a month, we would have probably said “that’d be a miracle.” If you’d told us there’d be more than 50 people in the company, with offices in both Silicon Valley and New York City, and people in LA and Chicago too, we’d have figured you were talking crazy.

A big big part of Meebo’s success has been the team of people that joined us after we raised our first round of funding. However, there’s this whole process of actually getting to that point – when you actually have the funding to begin hiring people – that’s pretty hard to decipher. Things like finding an idea, building a founding team, building the product, raising money. Frankly, I wish I’d gotten advice on these topics back when I was in college – it would have saved me a lot of time!

So, starting with this post, I’m going to begin a roughly weekly series of posts here on the Meebo blog about how to start your own company. If you remember, I’ve actually done one or two in the past! When I post on this topic, I’ll also put it out over my Twitter account.

A couple disclosures:

1. Recognize that I’m naturally biased to the way Sandy, Elaine and I started Meebo.
2. I only really have experience in starting a consumer internet company. While some of the stuff I’ll talk about will likely apply to starting a coffee shop or semiconductor company, you’ll have to sift through my thoughts and make your own calls.

With that, look for my next post coming in a week or so. The topic will likely be asymmetric information

Seth

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milk money, part three (the beginning)

This is it…the last post in the three-part series on meebo’s first round of fund raising.

As I mentioned in my last post, I’d met with a number of VCs who were interested to learn about what we were up to with meebo. Once we realized we needed to bring more people on the team, and hence needed to raise a round of funding, we chose 6 firms to formally “pitch.” We decided on these firms based on a mix of our perception in their level of interest in meebo, how much relevant experience they had in the consumer internet and communications space, and most importantly, personality fit with the people that I had met in the initial meetings.

Elaine, Sandy and I put together a PowerPoint presentation that covered things like industry trends, our growth, the results of our early meebo user survey (another one to come shortly…hope you’ll all help us out there!), and where we wanted to take meebo. A couple of junior partners had offered to give us feedback on our presentation prior to us pitching the entire partnership and we took them up on this offer!

Most VC firms have the famous (or infamous) Monday morning partner’s meeting. We didn’t (and still don’t) know much about what gets discussed in these meetings (wouldn’t it be nice to be a fly on the wall), but we learned that these are the meetings when companies are brought in to present to the whole partnership of the firm. These can be rather intimidating meetings (for us at least) as you’re presenting to 12+ people! They definitely don’t let you get through your presentation uninterrupted…rather, they shoot questions at you all throughout the presentation, with more to follow once you’ve gotten through your slides.

We were hearing from friends of ours in or near the VC industry (lawyers, bankers, etc.) that the VCs we had been talking to were calling around, basically background checking us. We were asked for formal references by only one firm…the rest seemed to take the back-door approach! We took it as a good sign that the firms had enough interest to check our backgrounds.

One question most of the firms asked was “where are you in other firm’s processes.” My sense is that VC firms like to take as much time as they can in reaching a decision on a particular investment, background checking it as much as possible. However, we also picked up that they would respond to competition. They wanted to make sure other firms didn’t execute faster.

After these partner meetings, some of the firms we’d met with gave us “term sheets,” while others had issues they wanted us to work through before handing us a term sheet. For those of you unfamiliar with the mechanics of VC funding (I sure was before going through this process), term sheets are typically 4-6 page documents that VCs give to companies that they’ve largely decided they’d like to invest in. The term sheet is non-binding and spells out the high-level terms under which the VC is willing to make the investment. It indicates how much money the VC wants to invest, at what valuation, and under what legal terms and conditions. The general process from this point forward is to negotiate and agree upon the terms in the term sheet, and then to have the lawyers draft the full set of legal documents based on the terms you’ve agreed upon.

Once we received term sheets from the VCs we had to decide which VC to move forward with. This was an excruciatingly difficult process for us. During our discussions with the VCs, we’d told them how much money we wanted to raise, and had indicated the valuation and legal terms that we felt were reasonable. We started with a reasonable set of terms…not a set we expected the VCs to negotiate down…as we thought it was important to keep our valuation reasonable in order to align our interests along with our investor’s. We also didn’t want to play the negotiation game…rather we wanted to come right out the chute with a reasonable offer and a great partner.

Most of the VCs came back matching the terms we’d asked for. Some exceeded them, others fell short. We decided to rank the VCs on four criteria:

1. Was there a strong personality fit between the people at the VC firm and our team?
2. Did they meet or exceed the terms we’d asked for?
3. Did we agree on where meebo should go in the future?
4. Did we agree on how meebo should get there?

You’ll notice that three of the four criteria are about people and personalities. We felt it was super important that we really loved the people we would be working with, and that we agreed on the direction meebo should go. If either of these principles didn’t hold, working with the VC over the next number of years (I think the average investment life cycle is 5-7 years) would be rather painful!!

After many hours of internal debate in which we each took the sides of various VCs, both supporting them and arguing against them, we decided to move forward with Sequoia Capital. The reasons were simple…we all really liked Roelof Botha, the partner at Sequoia who led the investment in meebo. We also had friends who’d worked with Sequoia in the past and these friends gave Sequoia a big thumbs up. We quickly came to an agreement with Sequoia on the term sheet and signed.

This was, at the time, rather scary. First, we had to tell the other firms we’d been speaking with that we were proceeding with another firm. I dreaded those conversations because we’d be disappointing people we really liked. Second, this was it. We were committing to Sequoia that our aim was to build meebo into a great success. No longer was it just us…now we had other people investing their money in us. That’s a lot of pressure!

Sequoia was fantastic between signing the term sheet and closing on the overall deal. Our goal was to be done with fund raising by the end of the year so that we could get back to fully focusing on building meebo. Sequoia did have a few due diligence questions that came up between sign and close (due diligence is when the VC firm does a bunch of research on your company, and overall industry, to make certain that they are comfortable with the investment). However, all of their questions were answered and we closed on the funding by the end of the year.

Sorry for the very long post! I hope that all of this was interesting or gives you all some sort of a guide to starting a venture of your own some day! If you have any questions, leave a comment and if there are a bunch of questions on a particular area, I’ll dive into that particular area in my next post.

Take care!
Seth

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milk money, part two (a wee bit more)

Last week (before the fire hit!), I talked about how we went about raising investment money for meebo through our “angel” round of financing. Given the comments, people are definitely interested to hear the story through to the close of series A. In writing this up, I again discovered the story’s too long! As such, here’s the next part, with the conclusion to come in part 3. Here we go…

By the time we’d closed our angel round, meebo had been public for a little over a month (I think a month and four days to be exact). By this time, a number of venture capitalists (VCs) had become aware of meebo either through their professional networks, or through blogs. A number of these folks contacted us, either by directly emailing, or by finding someone we both knew in common.

We had just closed our angel round at this point, and weren’t sure that we’d want to raise any more investment money. As I mentioned in my previous posting, the guide we set for ourselves was that we’d only raise money if we actually needed it. We were also concerned that meeting with VCs would take considerable time! On the other hand, it was possible that we’d later want to raise a series A, and most people were telling us that the entire process would take months. If we were to decide to raise series A, we wanted to be able to raise it quickly. Our solution was that I would meet with the VCs while Elaine and Sandy continued to dedicate close to 100% of their time to coding new features.

It turns out that each VC firm can be quite different from the next! The questions were often the same: “How fast are you growing?” “Where are you going to take meebo?” “Why are you defensible?” “How are you going to make money?” “Who are your first hires?” However, the approach each VC took was very different. Some VCs would have us meet with a single, junior member of the team, while others with 2-3 people, usually of mixed seniority. Some would try to convince us that we should raise series A immediately and others just accepted that we didn’t want to raise series A. After these initial meetings, some VCs helped us get connected to other people they thought would be valuable for us to know, others asked us to meet with more of their teammates, and still others just waited for us to make contact again.

In late November, a bit over two months since meebo had launched, Elaine, Sandy and I were in Sandy’s apartment on a Sunday afternoon for a quick status update. Sandy said she was spending more time managing our ever-growing server farm than coding; Elaine was coding, but felt like she couldn’t turn features out fast enough, and I was running around from VC meeting to potential partner meeting like a chicken with its head cut off! This was when we realized that meebo would benefit by us expanding the team, and this was the trigger for us deciding to raise a series A round of financing.

In my next post I’ll get us through the conclusion…I promise!!

Seth

Note: I posted this blog a few days ago, but it was pushed back because of the fire over the weekend. Some people seemed interested, so we thought we’d repost for those of you who missed it.

A number of folks have asked how we went about raising investment money for meebo since we announced our our series A funding. After starting to write this, I discovered it’s actually a pretty long story! Here it is up through raising our angel round, and in the next post I’ll take it through to the series A.

When we launched meebo we were paying out of our own pockets. We were pretty sure meebo would be useful for lots of people (it sure was solving a pain-point for us!), but we couldn’t necessarily prove it to investors! So, instead of spending time pitching investors we decided that we’d go straight into building meebo. The goal was just to get it out there, get feedback from anyone who offered it up, and continue to improve the product.

For those of you who have been following meebo for a while, you know that we weren’t quite ready for the traffic that we got up front! This drove many things, one of which was the need to buy more servers! As our expenses started to mount, it became pretty clear that it was time to get some help and take an initial investment. We had many a group discussion on the topic, and the key questions we had were: how much to raise, from whom, and under what terms?

How much to raise?

It turns out that Sandy, Elaine, and I are all pretty cheap people! Sandy’s still using her same computer from college. Elaine’s computer is a disassembled / reassembled shell of its former self (I think the fan is the oldest component at this point). From the beginning, we decided that we’d only raise money that we were certain we needed to keep improving meebo! We didn’t plan on hiring, so offices and salaries weren’t an issue. We were using our own computers, so again, no cost there. As such, we settled on $100,000 as a reasonable amount that would cover our server/bandwidth costs for up to one year.

From Whom?

We’ve been incredibly lucky since the launch of meebo. We discovered that a lot of investors keep pretty good track of blogs to keep abreast of the latest technology trends. Since meebo was relatively well covered in the Blogosphere, a number of people approached us seeking to learn more. I also knew a few investors from my previous employers, and so also called them. Finally, a few friends of ours knew a couple investors and introduced us.

We met with a wide range of folks. Some were “angels” – individuals, often with past entrepreneurial experience, who invest small sums in very early-stage startups – and others “institutional” investors – typically venture firms with partners who are professional investors.

We had VERY long chats amongst ourselves on who to work with. We set a rule for ourselves that all of us had to totally support any individual investor before potentially moving forward with them. We got constant advice that taking investment was a multi-year relationship, and to choose your partners carefully. In the end, Jon Callaghan, Philip Black, and Scott Epstein invested (thanks guys!). We knew Scott and Jon very well from past work experiences, and Philip came highly recommended from close friends.

Under what terms?

When we started in on this process, we had very little idea of what contractual terms one typically raised an angel round under. We got advice across the board! Some people pushed us to raise the money as equity. Others strongly advised that we raise it as convertible debt. For those unfamiliar with these two options, raising the money as equity would mean that we would sell the investor a percentage ownership of meebo. To do this, we would have to set a valuation for the company and then the amount they invested divided by the value of the company would be their percentage ownership. With the convertible debt option, we would be raising debt from investors that, under certain circumstances, could convert into equity. Two common circumstances are a) at the time a series A is raised and b) if the debt comes due prior to raising a series A.

After talking to literally well over a dozen folks on which structure to use, the majority was definitely favoring convertible debt. The strongest argument I heard was that it would make accomplishing the series A round easier, and having now gone through the series A process as well, I think that the earlier advice we got was very good.

Sorry for the long long post! Assuming folks are interested, I’ll talk about the series A process in my next post.

Seth

A number of folks have asked how we went about raising investment money for meebo since we announced our our series A funding. After starting to write this, I discovered it’s actually a pretty long story! Here it is up through raising our angel round, and in the next post I’ll take it through to the series A.

When we launched meebo we were paying out of our own pockets. We were pretty sure meebo would be useful for lots of people (it sure was solving a pain-point for us!), but we couldn’t necessarily prove it to investors! So, instead of spending time pitching investors we decided that we’d go straight into building meebo. The goal was just to get it out there, get feedback from anyone who offered it up, and continue to improve the product.

For those of you who have been following meebo for a while, you know that we weren’t quite ready for the traffic that we got up front! This drove many things, one of which was the need to buy more servers! As our expenses started to mount, it became pretty clear that it was time to get some help and take an initial investment. We had many a group discussion on the topic, and the key questions we had were: how much to raise, from whom, and under what terms?

How much to raise?

It turns out that Sandy, Elaine, and I are all pretty cheap people! Sandy’s still using her same computer from college. Elaine’s computer is a disassembled / reassembled shell of its former self (I think the fan is the oldest component at this point). From the beginning, we decided that we’d only raise money that we were certain we needed to keep improving meebo! We didn’t plan on hiring, so offices and salaries weren’t an issue. We were using our own computers, so again, no cost there. As such, we settled on $100,000 as a reasonable amount that would cover our server/bandwidth costs for up to one year.

From Whom?

We’ve been incredibly lucky since the launch of meebo. We discovered that a lot of investors keep pretty good track of blogs to keep abreast of the latest technology trends. Since meebo was relatively well covered in the Blogosphere, a number of people approached us seeking to learn more. I also knew a few investors from my previous employers, and so also called them. Finally, a few friends of ours knew a couple investors and introduced us.

We met with a wide range of folks. Some were “angels” – individuals, often with past entrepreneurial experience, who invest small sums in very early-stage startups – and others “institutional” investors – typically venture firms with partners who are professional investors.

We had VERY long chats amongst ourselves on who to work with. We set a rule for ourselves that all of us had to totally support any individual investor before potentially moving forward with them. We got constant advice that taking investment was a multi-year relationship, and to choose your partners carefully. In the end, Jon Callaghan, Philip Black, and Scott Epstein invested (thanks guys!). We knew Scott and Jon very well from past work experiences, and Philip came highly recommended from close friends.

Under what terms?

When we started in on this process, we had very little idea of what contractual terms one typically raised an angel round under. We got advice across the board! Some people pushed us to raise the money as equity. Others strongly advised that we raise it as convertible debt. For those unfamiliar with these two options, raising the money as equity would mean that we would sell the investor a percentage ownership of meebo. To do this, we would have to set a valuation for the company and then the amount they invested divided by the value of the company would be their percentage ownership. With the convertible debt option, we would be raising debt from investors that, under certain circumstances, could convert into equity. Two common circumstances are a) at the time a series A is raised and b) if the debt comes due prior to raising a series A.

After talking to literally well over a dozen folks on which structure to use, the majority was definitely favoring convertible debt. The strongest argument I heard was that it would make accomplishing the series A round easier, and having now gone through the series A process as well, I think that the earlier advice we got was very good.

Sorry for the long long post! Assuming folks are interested, I’ll talk about the series A process in my next post.

Seth