First name / Friend, Happy Wednesday on a holiday week!
When I started Streamlytics in 2018 it was just an idea. Even though I had previous experience and success in business I didn’t have the easiest time raising funding for Streamlytics early on. Granted it was a big vision that many couldn’t see but even still I thought my previous successes would translate to funding but it didn't. I had to build the company from the ground up just like any other founder. Looking back, here are some things that I did that I think we're smart, savvy, and allowed the company to garner a high valuation.
- Creating a separate class of shares.
When incorporating Streamlytics one of the things I did early on is a strategy some of the most successful people in Silicon Valley use: Setting up a dual class structure. Essentially I had Class A shares that were my founder shares and also retained the voting rights. When I secured investment from funds and individuals I was actually selling Class B shares (common stock). This strategy allows a founder to stay in control and strategically sell shares based on value that is added. It allowed me to control the board, have super voting rights (7:1), and capitalize on demand that we had garnered from investors as a company later on in our lifecycle without selling control of the company. This allowed me more freedom as a founder to operate the company and allow investors to show value before offering board seats and voting rights. Many companies like Facebook and others have used this strategy and it’s how people like Mark Zuckerberg have been able to maintain control while raising so much money from investors. - Investing in myself first.
Because I had such a slow start to fundraising with Streamlytics I was forced to use some of the proceeds from selling NewME as an investment in Streamlytics. This was hard for me simply because I know the game well and know that other (white) founders who have had an exit had a much easier time raising capital after an exit. Nonetheless I believed in what I was building and had no problem investing in Streamlytics. I researched strategies that some of the most successful founders used and discovered that often they would invest cash from a separate entity as an investor. This means that not only did they have their founder shares in the new company but they also had common shares just like any other investor. This strategy allowed me to benefit from the growth of Streamlytics as an investor not just a founder, leaving much of my net worth attached to Streamlytics untouched. - Understanding timing.
This is the most crucial step. Having the fundamentals setup in points one and two were helpful but understanding timing is something that often goes overlooked. Paying attention to timing and investment cycles allows you to position the company based on where the demand is for investment. I did this successfully time and time again when running NewME and was able to apply it to Streamlytics and our fundraising strategy as well. Plainly, what this means is that if people are investing in A.I. right now then finding a way to incorporate that into your core offering, and build traction strategically over time. This means: Do. Not. Blitz scale. It’s not helpful and you set yourself up for failure trying to keep up momentum of a product that perhaps you were able to make go viral. Contrary to popular belief investors are not excited about deploying capital. Often, they are looking for the safest bet and creating steady growth will translate as a safer bet than hyper growth in most circumstances.
Our first valuation of $5MM pre-money at Streamlytics was low given where the market was at the time but following the strategy above I was able to grow the valuation to $40MM, retain control, and minimize my personal dilution in the company which is what ultimately ended up impacting my personal net worth. Always remember that as a founder who decides to raise money that you are not simply selling your product or services, you’re also selling the value that you create by selling pieces of your company to investors. You’re literally two things at the same time.
I hope these tips are helpful and give you food for thought as you build your business.