Building a Mobile Security Company in Silicon Valley: Domingo Guerra, Co-Founder and President of Appthority (Part 4)

Sramana Mitra: Talk to us a little bit about your fundraising process? What proof points did you go to raise money with and whom did you raise money from? What was the rational for raising money and what were the circumstances in which you raised money?

Domingo Guerra: We were pretty naive about fundraising. We thought it was going to be very easy. My co-founders and I were all first-time entrepreneurs. In general, you only hear the good stories but no one knows how difficult it actually is. We started fundraising almost by accident. When we didn’t win the grant, we decided to bootstrap on our own savings.

We weren’t paying ourselves. We were just paying for everything with our credit cards and then just living off of our savings. Then in late 2011, we got a call from a VC that wanted to meet with us because they heard about what we were working on from one of the prospects we were talking to. Due to the fact that the VC called us and that we were in mobile and security, we thought it was a foregone conclusion that we were going to get funding.

We quickly learned that it wasn’t that easy. Investors love to take meetings to learn about the space but not necessarily to give you a yes or no answer. It was a lot of driving back and forth without moving forward. Every time you’re driving or pitching, you’re not building or selling. It was definitely a big distraction. We learned that it’s more of a process. It’s also more of a game where you have to create some sort of scarcity. You have to have a date of when you’re going to raise funds. You have to know what the money is going to be for.

There’s also not an exact science since you could have the same presentation for different VCs and get three different types of feedbacks. A lot of it is what has worked for the investors in the past and whether that might align with what your vision is. A lot of that also depends on the personalities and type of partners they’re going to be. It is a long-term partnership and there has to be a good fit there.

We fundraised from September 2011 through February 2012 with little success. No one said no. That’s because mobile was really hot and people wanted to learn about the mobile security space. There wasn’t really a catalyst to force them to invest. That’s where the game is in the investor’s favour. The longer they wait, the more you run out of money and the more you are likely to take any terms down the line.

Sramana Mitra: Yes, shitty terms.

Domingo Guerra: We eventually got a term sheet in February 2012. We were, and still are, working with Anderson Detmer. They were doing deferred payments so they would give us postponed payments on our legal service until we had funding. They helped us review the term sheet and they said, “It’s not bad but it’s not great.”

We decided to decline that original term sheet. We had entered a big contest at RSA, which is the largest information security conference in the world. The conference was here in San Francisco. We were one of the top 10 finalists and we were to compete in the Innovation Sandbox which would determine the most innovative company of the conference. We decided to decline the term sheet and see how we’d do at the event.

We ended up winning the event, which was amazing for us. It helped put us on the map because it gives you credibility with the investors that a panel of experts in the security space voted for you. Just one month later, we now had multiple interests from larger VCs. The appetite was very different. At the event, I met the CEO of CloudFlare. He was able to introduce me to their investors. He introduced me to Ray Rothrock at Venrock.

A week after the event, we met with Ray. He really liked Appthority. He has worked on a lot of investments with Steve Kraus. He made an introduction to Steve. We met with Steve that same week. By the end of the week, Steve and Ray had a term sheet for us from Venrock and USVP. They were much better investors and offered much better terms than the term sheet we rejected. There was interest from other VCs as well. There was this momentum that really helped us find the right investors. Ray and Steve are very well-known in the Valley. Specifically in the security space, they have a lot of home runs together.

This segment is part 4 in the series : Building a Mobile Security Company in Silicon Valley: Domingo Guerra, Co-Founder and President of Appthority
1 2 3 4 5 6