A Textbook Case Study of Capital Efficient Entrepreneurship: Bhavin Parikh, CEO of Magoosh (Part 3)

Sramana Mitra: At what point did you actually start getting more deliberate and intentional about the customer acquisition?

Bhavin Parikh: To fill in the timeline, that was fall of 2009 when we launched the product. We were still in school. During that time, we actually tried hard to figure out customer acquisition but we really just couldn’t figure it out. There was a bit of a struggle. Then, one of those GMAT forums really liked what we were doing. They reached out to us and said, “We want to partner with you. We are interested in co-branding your product and selling it to our user base.”

They had a fairly sizeable user base. It was a thousand times more than what we had. We thought that was a great opportunity and we all got stars in our eyes. We had this incredible user base. We thought that if we create this co-branded product, we’ll just sell it to their user base and then get 1% per purchase. Because as a naïve entrepreneur, you just assume that and you don’t think about the drop-off in the funnel.

I’ll say it wasn’t our silver bullet. We were able to co-brand this product by the time we graduated in May 2010. We were able to get to a point where we were making $10,000 a month in revenue but we were thinking it was going to be a $100,000 a month. It was just a stepping stone. We didn’t really figure out our customer acquisition until early 2011, another nine months later.

Sramana Mitra: Did you keep that deal with the forum?

Bhavin Parikh: We ended up pulling the plug after a year. It didn’t hit the scale that either of us needed in order for it to make sense. We realized that we wanted to create our own brand and they had another business that they had to focus on. I will say that getting that early traction helped us raise our seed funding. We were able to show investors that although we haven’t completely figured out our customer acquisition, we do have a product that people are using and paying for.

Sramana Mitra: Whom did you raise seed money from?

Bhavin Parikh: We raised from a handful of angel investors but the round was led by Mitch Kapor.

Sramana Mitra: How did you get connected with Mitch?

Bhavin Parikh: Every investor we met would say, “You need to get connected to Mitch.” That is how we found out about him. Then, because we had gone to Haas, we tapped into their entrepreneurial network and we said, “Do any of you know Mitch?” Somebody said yes. That’s how we got connected to Mitch. Within two meetings, he had committed.

There’s also an element of luck here. I think other companies who are doing something similar had pitched him, but they had no paying customers and less of a product. He saw us with a pretty full-featured product and paying customers. The other investor was Michael Berolzheimer who runs a micro-VC called Bee Partners. We got connected to him because he was a Haas MBA alumnus from 2007. He supports entrepreneurs at Haas. We had known him since 2009. We’ve been talking with him on a regular basis. He got to see us progress from nothing all the way to this company that’s now generating $10,000 in revenue. He saw that trajectory.

That’s always what I want to recommend to entrepreneurs. Build investor relationships early on, well before you need them because being able to demonstrate that you are the kind of person who learns from your past mistakes is as important as having a product with traction.

This segment is part 3 in the series : A Textbook Case Study of Capital Efficient Entrepreneurship: Bhavin Parikh, CEO of Magoosh
1 2 3 4 5 6 7