Bootstrapping From Arizona To 36 Million Dollar Series A Valuation And Silicon Valley Venture Capital: Infusionsoft CEO Clate Mask (Part 5)

Sramana: Let’s explore your friends and family round a bit more. Whom did you choose to approach, what kind of denominations did you take, and what were the pros and cons of your management of that round?

Clate Mask: We could not get any banks to lend us any more money because we did not fit their profile. If you want to grow fast, it requires cash, and we could not get access to cash through traditional debt providers. We had a handful of people come to us and ask if they could invest with us. A couple of them were employees, some were family members, and some were friends.

I went ahead and put together a private placement memorandum to make sure that we did not get in trouble with the SEC. We elected to use equity rather than debt. We raised capital from a dozen investors, who put in anywhere from $10,000 to $20,000. The biggest investor put in $35,000. We had a handful of accredited investors who did not mind putting up some funds.

Sramana: What percentage of the company of the company did you sell for that $250,000?

Clate Mask: I believe it added up to 9%.

Sramana: Let’s move on to Silicon Valley Bank. What was that process?

Clate Mask: We received a $1 million financing line from Silicon Valley Bank in 2006. When I was putting together the private placement memo, I reached out to a friend who connected me with a guy who was an outsourced CFO in Atlanta. We spoke once a month, and he reviewed our finances once a quarter and also provided high-level strategy advice. He had a connection with the people at Silicon Valley Bank, and he made that connection for us in the summer of 2006. In late 2006, we closed a 50% line of credit and a 50% term loan.

The line of credit was based on our monthly recurring revenue. We were able to borrow two months’ worth of our monthly recurring revenue, up to $500,000. It was really nice to receive that capital because we were able to grow the business at a time when we felt we could not get banks to pay attention. We were not ready to go to venture capital yet, so it was a nice in-between round. We also did not have to sell equity to do it.

Sramana: What was your revenue when you received that financing?

Clate Mask: In 2006, we did $3.7 million in revenue. We did $7 million the following year.

Sramana: Did you take additional financing to reach the 2007 revenue?

Clate Mask: We took on a bit of angel investment in the summer of 2007, and we did Series A financing at the end of 2007 with Mohr Davidow.

Sramana: What was happening in the business during that time?

Clate Mask: Demand for our CRM software was growing. We were investing a lot of capital into lead generation. We were investing in lead generation, and we were refining the product. We were investing in service personnel to help the customers be successful with the software. The biggest thing that happened was that at the beginning of 2007, we came to a clear realization that our product was more than just a niche product for direct response marketers. Our target customers until that point had been savvy entrepreneurs who used the Internet to drive traffic for their website and collected customer info via Web forms to e-mail market them.

More and more entrepreneurs began adopting that practice. We had regular businesses that were using these methods. In 2007, we raised our price because we recognized the market opportunity and we knew we needed funds to chase that opportunity. Prior to that date, it was not a VC-fundable company. In 2007, we became a traditional business when more businesses started adopting CRMs, and we knew we had a VC-fundable company.

This segment is part 5 in the series : Bootstrapping From Arizona To 36 Million Dollar Series A Valuation And Silicon Valley Venture Capital: Infusionsoft CEO Clate Mask
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