FloQast: From More Than 100 No’s To Funding Triumph

After a stint as an auditor in the entertainment industry, Mike Whitmire took a job at Cornerstone OnDemand as a senior accountant. The tech firm was pre-IPO at the time and posting rapid growth.

But he noticed that it was extremely difficult to close the books at the end of the month. The process was highly manual, involving poor coordination that resulted in plenty of accounting challenges. It was a mess. It was also something that was very common across Corporate America.

Whitmire thought: “Isn’t there a better way to do this?”

There definitely was. Whitmire would launch FloQast at the end of 2012.

Although, he did not realize how tough the funding process would be.

During a six month process, Whitmire was able to get a check for $50,000 from Amplify, a tech accelerator based in the LA area. He actually closed this seed round after he was able to find a co-founder and get an initial customer.

Of course, Whitmire would need much more money to make his venture viable. “Securing $1.3 million was brutal,” he said. “This was an 8-month process. Pitching to angel investors was not easy and we were too early for real VCs. Because of this, I received more than 80 no’s and five yes’s before being introduced to Toba Capital.”

At the time, Whitmire had $300,000 committed for a $500,000 round. But Toba’s Rob Meinhardt and Vinny Smith saw the huge potential for FloQast. “They were ready to take a risk and gave us $1 million,” said Whitmire.

After this, the company did get momentum with its product. But it was still not enough to make the next round any easier!

“Securing the Series A was the worst round by far,” said Whitmire. “It took nine months of constantly traveling to San Francisco to hear no’s from Seed and Series A stage funds. There were probably about 40 no’s before I was about to close one deal.”

It did not help that the overall market for SaaS companies was crumbling (this was at the end of 2015). So yes, several term sheets were pulled.

“Then I went on to receive another 20 no’s from various funds,” said Whitmire. “But it was Polaris Partners and Gary Swart who were the ones to ultimately take the risk.”

In the end, the deep persistence paid off in a big way. The Series B round was easy, bringing in $25 million. And the company has gone on to be a major player in the SaaS world for accounting. Last year, FloQast doubled its revenues and added 250 new customers (bringing the total to 750), including Lyft, Zoom Video, Twilio and the Golden State Warriors.

Lessons Learned

In light of all this, what are the takeaways for Whitmire? Well, he mentioned the following:

#1: “I learned this world isn’t like Shark Tank. You don’t pitch and beg for money. You are forming a partnership that will last many years. Thinking about it like that makes it wildly important who you take money from.”

#2: “My best advice is to meet venture capitalists before you need money. And don’t be a snob about only talking to partners. Associates are a great way to get your foot in the door at a firm and get on the partner’s radar. Once you’ve met them, tell them about yourself, your business, and what you are going to do before the next round. Then, do it. When you follow up with them, remind them about the prior conversation and discuss how you executed. Rinse and repeat until funding time. By then, you’ll have built trust in your ability to execute and they will believe you during your fundraising story.”

How To Raise Your First Series A Round

The Series A is the first round of startup funding from institutional investors, such as venture capitalists. This is certainly a huge milestone. But getting this funding is not easy. “Series A investors will be looking at your prototype, traction, and management team,” said Sid Sijbrandij, who is the CEO of GitLab.

And even if you get funding, there are lots of risks. “When negotiating, remember that you’re not just setting terms for the Series A but you’re signaling what is acceptable for all future rounds,” said Adam Wilson, who is the CEO of Trifacta.

So then, what are some strategies and approaches to consider? Well, I reached out to entrepreneurs who have been through the process. Here’s what they had to say:

Kraig Swensrud, who is the CEO and Founder of Qualified.com:

You need to check off the Three T’s. (1) Team – We had built the core team, the first 10 employees, that could lead and grow the business to $10M in revenue. (2) Timing – We had built a product, and our first 50 customers tell us that our product presents a real and meaningful opportunity for change in their business right NOW. Therefore, we can see a path to product-market fit within months. (3) TAM – If our grand vision is more or less accurate, and our product delivers on that vision, the Total Addressable Market is huge.

Tim Eades, who is the CEO of vArmour:

I have led three companies through fundraising rounds and the most important lesson I have learned, as basic as it sounds, is to create a fully fleshed out fundraising strategy. You would think that is easy to do, but you’d be surprised how many people don’t have a well-thought-out plan. Start with building out a timeline of around five to six months and identify the key metrics you want to achieve each month. Then you need to identify your top targets. I usually go with around five VCs, but make sure you do your homework! It’s not enough for a VC to have a big name—they need to understand your market, aren’t currently investing in a competitor of yours, and have a proven track record of helping companies grow and scale to market. Finally, don’t be afraid to own the process. VCs want to see you take initiative, so be proactive and meet with them every six weeks to show your progress as well as talk through what your next steps are.

Chris Nicholson, who is the founder and CEO of Skymind:

VCs are looking for traction in the form of users or revenue, and the best way to help them understand all that—the problem, the product, the team—is in the form of a story, which you tell in a slide deck. The best slide deck I saw was from Front founder Mathilde Collin. I structured ours like hers.

Tomer Tagrin, who is the CEO and Cofounder of Yotpo:

Tactically, it’s good practice to bring someone with you to meetings to take notes. Then do a debrief on what worked and what didn’t to improve for the next meeting. You might also discover something new to incorporate into your pitch.

Jake Stein, who is the SVP of Stitch, Talend:

For Series A, for example, you’re partially selling investors on the dream of what could come in the future and partially providing evidence that you’ve made tangible progress with your product, service, and users to back you up. For any company, it’s useful to be rigorous about where you are now, where you need to go, and when you will switch phases.

Martin Hitch, who is the Chief Business Officer and co-founder at Bossa Nova:

The most important advice for raising a Series A is to make sure it’s the number one project for the funding lead (usually the CEO). While CEOs often juggle a number of responsibilities, they need to carve out dedicated time to prioritize fundraising.

Ross Schibler, who is the CEO and co-founder of Opsani:

I have founded three companies over the past 25 years in Silicon Valley—two with successful exits, and my current company, Opsani has just closed a $10M round from Redpoint, Zetta, and Bain. One piece of advice I would pass on to fellow entrepreneurs is to consider the quality of the partner making the investment because that will greatly affect the quality of the outcome. I would go so far as to say that a dollar from one investor might be worth 2x the same dollar from a higher quality investor. Folks tend to get hung up on valuations and percentages when what they should be focused on is the question: “Do I want to work with this partner and will they help me build a great company?”

Bipul Sinha, who is the Co-Founder & CEO at Rubrik and a Venture Partner at Lightspeed Venture Partners:

When I was in VC, I had a strong thesis about risk capital that when someone gives you VC funding, the purpose is for you to take risks and create high growth, especially in the early days of a company. Entrepreneurs often get bad advice around risk and become more conservative than what the situation demands—a startup taking capital should by nature be taking risks, so if the idea works, you can create a massive company.

Adam Karp, who is the CEO of Livley:

When pitching an investor, the most important thing is to know what impact your business is going to make in the lives of your customers. Yes, the fundamentals of your business must be solid. Your product needs to work. But until you can truly put yourself in the shoes of your customer, and understand what they lose by not having your solution, you’re not finished. For Lively, we share stories of our earliest customers. A man who, after he became a customer, sat on his porch and heard the birds sing for the first time in years. A mom who had given up on phone calls, and was finally able to hear her kids again once she tried our bluetooth-enabled device. These stories help explain why Lively’s hearing aids are more than just another gadget, and they help investors see why our customers are so wildly passionate about the service that they get from us. Don’t enter a pitch without knowing why exactly your customers love you.

Pitching A VC: How To Size The Market Opportunity

When it comes to obtaining venture capital, you must have a solid understanding of the market opportunity. The main reason is that a VC firm needs a few deals to generate substantial returns, so as to offset the inevitable losers.

This focus on a large market opportunity has become even more important in recent years, as the the funds have gotten much larger.

“The size of the market is essential for your pitch,” said Kara Sweeney Egan, who is a principal at Emergence. The firm is a leading investor in early stage enterprise companies. Some of its breakout deals include Salesforce.com and Veeva Systems.

To estimate the market size, Kara recommends that you start with a “top-down” approach. Consider that there are numerous research firms, such as IDC, Forrester and Gartner, that publish analysis on markets. From these sources, you can easily come up with the TAM (Total Addressable Market). For example, a quick Google search shows that the CRM category comes to nearly $40 billion (the estimate is from Gartner).

But of course, you should go deeper then this — that is, you need to use a “bottoms-up” approach as will. At the heart of this is calculating the Total Obtainable Market (TOM), which is the total number of target customers multiplied by the average each will pay for your product.

Let’s take an example:  Suppose you are targeting accountants in the US. By looking up Labor Department data, you’ll see there are 660,000 CPAs. If your product sells for $1,000 per year, then your TOM would be $660 million.

“Your TOM should range from $500 million to $1 billion,” said Kara. “If it is smaller, then you’ll need a clear plan to expand that market.”

Now there is often lots of tweaking of the numbers. And it will continue over time, as you learn more about your market.

This was the case with NGINX, which offers a suite of technologies for developing and delivering modern applications. “We had the ability to start with a very broad footprint of open source users,” said Gus Robertson, who is the CEO. “When we founded the company, we had about 35 million websites already running the software. We applied assumptions around how many companies those sites represented, and applied some assumptions around the percentage that would buy a commercial offering. As NGINX matured, it became clear exactly what products and solutions our customers valued. We built specific offerings with features that were above and beyond the open source features — a proven open core business model. Some use cases remain adequate for our open source project; other use cases favor moving to our commercial product.”

But what if there is not much data available? This is actually common. But there are creative approaches to deal with this.

Just look at NuORDER, which operates a B2B wholesale ecommerce platform.

“To size the market opportunity,” said Heath Wells, who is the co-founder and co-CEO of the company, “we needed to get a sense of how many brands there are that sell products to retailers. But this is data that isn’t available through 3rd party research or government stats. Instead we used two other data sources to help us size the market.”

First, Health visited the websites of the major retailers in each of the categories his company wanted to target. “From this, we were able to determine the number of brands who wholesale,” he said. “Next, we honed in on the fact that brands have used tradeshows as a major means of finding and engaging lots of retail buyers. Thus, by looking at the number of brands sponsoring and attending major conferences – conferences such as MAGIC, Outdoor Retailer, The Running Event and others – we were able to gather another key data point in sizing the market.”

It definitely worked out. Since 2012, NuORDER has raised about $40 million.

The Big Picture

Just because there is a big market opportunity does not mean VCs will necessarily be interested. They also want to see that there are emerging megatrends, which should allow for the adoption of new technologies.

John Vrionis, a venture capitalist at Unusual Ventures, points out one pitch that did this extremely well.  “The co-founder of AppDynamics, Jyoti Bansal, had a simple picture that showed there’s a huge market for making sure apps run right,” he said. “It clearly showed that a tidal wave was approaching. With the growth in virtualization, the traditional approaches of monitoring would simply not work. Jyoti said he knew this because he was the lead architect of one of the top companies in the space. His compelling argument was that there would need to be a re-write of everything.”

It was definitely spot-on. In early 2017, AppDynamics would sell to Cisco for $3.7 billion.

For the most part, VCs want to get a sense of your thinking about the market dynamics, not just the numbers. “A well though-out view of the the market can help build excitement about your company, demonstrate your industry expertise, and highlight your key insights into your customers,” said Kara.