I am excited to have our Monday guest post come from an old friend of mine, Mark Newman. Mark is the CEO and co-founder of HireVue. Since taking over as CEO in mid 2007, the company has raised multiple rounds of venture capital, grown its customer base and provided services in over 100 countries to organizations ranging from executive recruiters to Fortune 50 firms. He has been quoted in USA Today, the New York Post, Workforce Management, and many other human capital publications. Mark’s company, HireVue, provides video interviewing solutions for the hiring process. They are a SaaS provider and work with organizations like Walmart, Dow Jones, TJX, Red Bull, Nike, Starbucks, RIM, Google and recently won “HR Product of the Year” from HR Executive Magazine. HireVue is backed by Granite Ventures, Silicon Valley Bank, and Peterson Venture. Mark also happens to be a personal friend of mine and a really great person.
HireVue is rocking. They have great momentum, a great team and a lot of runway – but it wasn’t always that way. Mark tells the story of HireVue and shares the gory details of raising his Series A round. As the title states, it isn’t always what TechCrunch makes it out to be.
Although the market has recovered, getting your first significant capital inside a business can seem like a hopeless task. I’m not talking $50,000 incubator like funds (although they play an extremely important part in the ecosystem). I’m talking about $500,000-$1.0M+ to really start growing. For HireVue, it was our $1.0M Series A round in 2008/2009.
There are phenomenal resources available about how to perfect your pitch, get connected with investors, term sheet rules and so forth (Mark Suster of GRP Partners, Bryce Roberts of OATV and VentureHacks share some of the best advice out there), but on the personal side, raising money is just hard. I’m talking the emotionally draining, passion zapping but can still be exhilarating type of hard. I hope some of my experiences, learnings and recommendations can help you get through your journey.
HireVue has had a storied history. My co-founder, Ryan Money, was part of the first Junto class in 2004. We signed off for each other’s internships to graduate from College as we were both “interning” for HireVue (sorry Westminster). In 2005, we had $1,300 in revenue at HireVue – we sold two interviews for $150.00 each and won $1,000 in the Utah Entrepreneur Challenge. At that point…..we felt we were on our way.
In July of 2007 we (meaning just me at that point – but in startup land it’s always “we”) started over. For me, the job interview interaction is just incredibly amazing. There is something about building a Company that drives innovation in a process that hasn’t changed since the dawn of business. It imbibes me with some sort unexplainable passion, drive and obsession. As I see it, when your company becomes part of your being, “pivots” (and the aura of coolness around them) are bullshit, you can’t “pivot” on a dream.
In 2008, I was in “survive” mode where we were working towards building a scalable, predictable (i.e. revenues not going from $0 to $50,000 per month and then back down to $0 then next) and thriving business. As I looked at everything around us back in 2008, it came down to four things that I felt we needed:
1) A product that people wanted (even if just in a small niche)
2) A business model that we could prove worked
3) Passion, energy and chutzpah day in and day out
4) Money to grow
We had a product that worked (most of the time), we had a cash generating business model, and energy to keep moving forward. We needed money though. So for some reason, I felt that there was no better time to try to raise money than in the depths of the worst economic cycle since the Great Depression.
Raising HireVue’s Series A round was one of the hardest experiences of my professional life. Before closing, HireVue became part of the dreaded 100 No’s Club meaning we easily were told no 100+ times before we closed our round. Ultimately, in November of 2008 we closed with Peterson Ventures, our lead investor in a $1.0M Series A round (other investors came in throughout Q1/Q2 of 2009).
As mentioned earlier, there are plenty of resources about going through the process, but here are a few things I learned that will help you cope with your own fundraising process:
Grow A Thick Skin: My first investor pitch was a complete, unmitigated disaster that I will never forget. In mid 2007, I met with a well-known Utah Angel group and literally had one person fall asleep, 10 people not paying attention, one person get up and look out the window with his hands wedged in his pants (not kidding), a few people tell me we should probably rethink everything about what we are doing and then a polite “we’ll get back to you if we are interested” at the end. At the time, I felt destroyed. Looking back though, it was a true inflection point for me, for HireVue, and for my entire journey. I wish I could say it was the only time I got thrashed but it is an experience that will be forever imprinted on me.
Not everyone will be passionate about your idea. Accept it and move on.
If you can’t take rejection, don’t raise money.
Listen to feedback (there may be some nuggets of good stuff) and get motivated by it.
Investors are people too and there are a number of investors who turned us down that I consider personal friends now and have actually grown the friendship since then. Whether it’s capacity, capability, not passionate about your idea/space, liquidity, not the right time, not the right investment thesis, whatever – there are a lot of reasons why someone may not invest at a certain time. Don’t take it personally.
Remember that a company takes 5-10 years to build (I’m talking bell curve, not long tail results). If you are in your early 20s like me, you’ll have 5-10 more companies in your career. There’s always another time/chance/place to do business together. Build a relationship, maintain a relationship is something I always try to do and remember. Don’t be an asshole because they didn’t invest.
So I’m knee-deep in fundraising mode. A well-known, Utah seed venture fund (I’ll call them Investor K) actually agreed to a set of terms with us through multiple conversations (after 100 times of hearing “No” – we started getting to “Yes”). They called and wanted an exclusive period to close the deal. Although this is a standard request, my gut told me something wasn’t right.
I told them to provide me the term sheet in writing and I’d review the agreement after a few meetings I had that afternoon. The partner was very uncomfortable and pushed with a “well I want this agreed to now” and really put the squeeze on me with “we are the only fund here who would lead your round..your deal isn’t that good and you need our help, etc.”
For a first time fund-raiser, I didn’t know what to think because desperation was taking hold. I finally got off the phone without the exclusivity commitment. Even without knowing how it would work out with other potential investors and or even if I could find another lead (or make payroll) I just knew I couldn’t work with Investor K, so I pushed forward to my next meeting.
The meeting I was going to actually was with another investor (I’ll call them Investor P) that had already passed but was meeting with for feedback. It turned out that Investor P met with Investor K earlier that morning where Investor K talked about liking the deal, wanting to lead the deal, would cram down the terms and as a “favor” get Investor P in the deal. Investor P said that they had already passed but was meeting with me later that day to give some feedback on what we were working on.
After my meeting with Investor P (more on that meeting below) I got home to open my email. I received a term sheet back from Investor K with a completely different valuation (40% less than agreed), different terms (control provisions), vesting provisions (i.e. I re-vest all my stock that was paid for), and milestone funding payments without set milestones (still not sure how that works). The email was “here’s our best and final – we look forward to doing business together”. I was pissed.
How they treat you in negotiation is how they will work with you – just because someone says person XYZ is a “good guy”, doesn’t mean they are a good guy to do or be in business with. Keep a close eye on this. The same applies to you – don’t play games, don’t change terms, be straight down the fairway. Although you work hard to get to a Yes and can sometimes feel like you don’t have any other choices – if it does not smell right, do not do the deal. The power of saying “No” to the wrong deal can be incredible.
MOST IMPORTANTLY, no is not a no forever. Brandon Cope and Dan Peterson of Peterson Ventures (now Peterson Partners) and I joke that all it took was two “Nos” to get to “Yes”. Dan and Brandon were at another group presentation (Olympus Angels in Utah) where they passed after my presentation. Dan came to another event and although he gave great feedback, passed again.
I was very impressed by them and their approach (compared to other firms around) so I sent Dan a follow-up email just asking for a meeting where he and his partners could give me some feedback on what I was doing. I didn’t know it at the time, but there’s an old VC adage – “When you ask for money, you’ll tend to get advice. When you ask for advice, you’ll tend to get money.” So I was asking for advice.
I met with him and his partners a couple of days later, spent about 90 minutes with them walking through the business, how HireVue worked, and some of our customers. They asked nicely “who else are you talking with” and other questions around the deal.
Since I figured these guys had already passed, I told him “well, I met with Investor K and think they want to do the deal but I’m not sure about it”. Brandon asked “what do you mean? Like that they may not be interested?” Since I figured I had nothing to lose and since I was pretty beat up about the whole thing I said “I’m actually not sure how I feel about it – there’s something about them and the way they do business that I don’t think I want to be part of. I’ve worked really hard up to this point to survive; I don’t want to screw things up with the wrong investors”.
Next thing you know Dan said “So what are you looking for?” and I told him straight down the fairway terms, complete transparency, people I wanted to work with, amount to raise, valuation etc. He sat back, looked at me and said “we’re in, we will be your lead”.
On a personal level, having Dan, Brandon and Larry all looking at me and saying this was one of the most earth-shaking moments in my life. It still gives me chills and even when we butt heads (you always will) I have an intense loyalty to those three guys and always will. When I got home that day, I didn’t just have one term sheet in my email from Investor K but I had one from Investor P (as in Peterson) as well! Awesome.
It turns out that Peterson Ventures had made a decision earlier that day that they would never, ever do a deal with Investor K because of their behavior, attitudes, and philosophy. I’m just glad my meeting with Peterson was in the PM and not the AM ☺
I am reminded again and again of some important takeaways as I recount this even now:
Trust your gut and never, never, ever, ever, never, never, ever, ever give up.
The road is always bumpy. The trip takes 2-3 times as long as you think it’s going to. In 2005 we said to people “you are going to be taking a job interview through a webcam” and people asked “What’s a webcam?” However, if there is one thing that I’m entirely convinced of is that you can’t pivot on a dream.
Now here in 2011, we work with the biggest companies in the World to revolutionize the way they screen, interview, and share talent within an organization. We are close to Mach 2 on the growth % scale. Our Magic Number is >1.0, CAC Ratio close to 2.0, and we are having a great time. Has everything been smooth sailing after our Series A? The answer is a resounding NO but that’s for another post….
Some of your darkest times in your Company building journey can be when people say no. My advice to you once again: never ever give up. Keep on pushing!