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
January 6th, 2006 at 10:32 am
Thanks Seth, I was meaning to email about how you guys went about raising capital. Did you build your own servers at home or lease space at a datacenter? Would appreciate your thought process as you went about it and the options you considered.
I highly appreciate your informative post.
Best!!
January 6th, 2006 at 11:12 am
[...] « milk money, part one [...]
January 6th, 2006 at 2:45 pm
please continue!
January 6th, 2006 at 7:31 pm
Seth, you are the man and thank you so much for posting this and in plain english for us regular folk.
I have a couple of questions, which I hope aren’t annoying or instrusive regarding the terms of the convertible bond
1) I assume that when they exercise it at the series A it translates into a higher equity equivalent than the original loan principle? Like they gave you $100K, when they exercised into equity it translated to $125K?
2) if you guys hadn’t gotten the series A how much of the company would it have converted into (assuming that your investors convertible could convert both, I’m just guessing!).
Thanks again Seth, and best wishes with everything in the future.
January 6th, 2006 at 10:04 pm
Very interesting stuff Seth, I don’t think there is enough info out there about the process of raising capital, and the pros and cons of each step along the way.
Go Meebo!
January 7th, 2006 at 4:11 am
Guys…thanks for this. It has saved me from going insane at work…sorry I dont know where else to post. My site is one of critism…but I have post a link to you guys on the front page..keep up the good work.
January 7th, 2006 at 4:44 pm
Very interesting. Please go on!
January 7th, 2006 at 6:19 pm
thanks to all
January 7th, 2006 at 6:20 pm
rthanka to alllllllllllll
January 7th, 2006 at 11:13 pm
Just make sure that the investors are aligned with your interests AND with each other’s. At some point I had two separate groups of investors that were not talking to each other: Series A and Series B. That is a BIG problem. For three months there was no funding for the company due to a stalemate… Also, be careful when closing a series. Close it fast and clean.
Good luck! Enjoy the ride! Please write more about your experiences.
January 8th, 2006 at 1:30 pm
omayma la boss du 06 é oui c la vie
January 8th, 2006 at 1:32 pm
please continue
January 9th, 2006 at 9:11 am
thanks for sharing Seth!
January 9th, 2006 at 12:52 pm
milk money, part one (repost) – Insight into meebo.com’s fund-raising
Seth of the meebo team has posted an entry on their blog concerning how they got their angel funding a and later a series a funding a couple weeks back. Interesting to read and once again – congratulations!
January 11th, 2006 at 10:09 am
hey venkat….we looked into building our own and coloing at a datacenter, or doing managed hosting where the data center bought the servers and leased them back to us. we ended up going with the latter as we thought that it didn’t make a lot of sense to take tons of time building and managing the servers ourselves. in the end, i think that was the right choice…we would have been killed on the time requirements given that there are only 3 of us if we’d gone the other way!! seth
January 11th, 2006 at 10:12 am
hey steve…good questions. there are a bunch of ways to structure the convertible debt. one way is to have it convert into the a valuation at a discount to the series a valuation. hence, 100 would have bought more like 125. another way to do it is to give “warrant kickers.” here you have the c-debt convert into the series a at the series a valuation but give the investors rights to purchase warrants, at the series a valuation, in the amount of x% of their original investment. so if we gave them 20% warrant kickers, for example, they would have the right to purchase 20k additional warrants, even though they only put in 100k. and yes, you’re right…if we hadn’t raised an a, there was a term in the c-debt that would have allowed for a conversion into equity. hope this helps! seth
January 28th, 2006 at 1:27 am
looking for further… its positive
April 8th, 2006 at 9:21 pm
soma carisoprodol
soma carisoprodol
April 17th, 2006 at 11:15 pm
That was really nice.
April 18th, 2006 at 8:42 am
[...] Meebo: funding part one, part two, part three [...]
April 18th, 2006 at 9:30 am
Seth,
You have given the flow in terms that sound really simple. Your teamwork can cause envy to many. Congratulations all.
April 2nd, 2007 at 8:41 pm
Hello,
I searched for such site. Thanks you
May 23rd, 2007 at 4:51 pm
Hello. Very interesting website. Keep up the outstanding work and thank you.
Good luck.
July 3rd, 2007 at 2:34 pm
[...] meeblog Blog Archive milk money, part oneA 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 [...]
December 18th, 2007 at 12:25 am
Wonderful to know. A role model way
December 18th, 2007 at 6:06 am
[...] process that meebo went through. I talked about it a long while ago in a series of three blog posts here, here and here. I thought it might be worthwhile to revisit one particular topic that I get asked [...]
December 18th, 2007 at 10:44 am
I must say you meebo.com rocks with so many great feature that i must tell to my friends and familly.
December 18th, 2007 at 11:52 pm
Merry Christmas & happy New year !!!
December 25th, 2007 at 10:13 pm
[...] process that meebo went through. I talked about it a long while ago in a series of three blog posts here, here and here. I thought it might be worthwhile to revisit one particular topic that I get asked [...]
January 7th, 2008 at 2:51 am
Meebo is cool. We have become so accustomed to it.
January 8th, 2008 at 4:34 pm
hello, my brother is always seeking new investors to invest in his film company ‘helix pictures’. Its a new company which basically hasn’t started yet.
We are english but he has an american partner who lives in colorado. They are still both waiting on a deal with an english group of angel investors of 30 for which the money is supposed to be transfered to a business account.
My brother ‘lee’ and partner ‘matt’ had a meeting over here in london about 9 months ago now for the initial meeting which went very well.
I really don’t know why its taking so long for everything to complete. Did you have to wait long to get your money from the investors? did you get insurance packages etc? was the money sent through bank accounts in different countries to dodge tax somehow?
If you can enlighten me, please email me about this or if you know any investors that would be interested in speaking with these guys please let me know. They basically need an initial push with money so they can make money, other then that everything else has been planned out.
January 8th, 2008 at 7:43 pm
Dear Seth and Meebo Folks !
very unusual you share such things behind the curtain with the public. That makes you very sympathic and let feel one as user of meebo.com to get confidence in the wild wild west of Internet.
Wish you all the best, keep on running this kind of “team spirit” of deep thinking never getting tired to disucss it and turn it around, and turn it around and turn it ….
Greetings from Europe… – Jayar.
January 8th, 2008 at 11:01 pm
want to placz now with friend i see that ro think onilne now
January 8th, 2008 at 11:05 pm
thank for see onilne i hope need you ervy time
January 9th, 2008 at 5:09 pm
[...] Milk Money, Part One: http://blog.meebo.com/?p=84 [...]
January 18th, 2008 at 6:25 am
Hi ! this is very great post. Me and my friends are in similar position. We are developing our website which is based on mobiles. But the site is struck with lack of funds. But if we come across posts like this it really encourages us to keep up th hard work.
Thanks again.
http://www.imshoppe.co.cc
February 15th, 2008 at 5:51 pm
[...] http://blog.meebo.com/?p=84 # [...]
February 23rd, 2008 at 1:02 am
top stock picks…
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February 24th, 2008 at 5:03 pm
cheap stock investments…
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May 5th, 2008 at 5:32 pm
yo people
May 6th, 2008 at 9:02 pm
waz up
May 7th, 2008 at 10:01 am
i so much like this site
May 7th, 2008 at 10:34 am
oiiiiiiiii td bem com vc gostei muito de conhecer meebo xalxa
May 13th, 2008 at 5:00 pm
[...] and DFJ. If you are interested in learning more about startups, Seth has written a few blogs (here & here) about the fund raising [...]
June 2nd, 2008 at 12:06 am
Hi !
I want to develop a website and whatever the revenue it will earn i want to use it for poor peoples or old age people, but lacking of fund. I am trying much for this . After reading this post i have build a positive attitude to go further.
Regards
July 5th, 2008 at 6:45 am
Great concept Seth,
I will enjoy using your tools.
Thanks
Michael Rotkin
http://www.seochampion.com
August 13th, 2008 at 10:02 am
Would’ve love to invest in this company earlier
missed the boat
July 9th, 2009 at 5:14 am
[...] massive market opportunities. True witnessed this dynamic first in our consumer investments like Meebo, Automattic, and Sphere, but, since 2005, we have also seen Moore’s law blast away cost in [...]