Bootstrapping to Exit, Then Raise Money and Exit Again: Wendy CEO Lance Neuhauser (Part 5)

Sramana Mitra: So then in this story, at what point did you raise the venture capital? Is this 2010?

Lance Newhauser: Yes, 2010.

Sramana Mitra: What did you do before going out to raise money? Did you do some amount of customer development, validation work? Whom were you selling to? What was the positioning?

Lance Newhauser: The validation came from the last 18 months in my previous role, where I noticed that money was increasingly moving in this direction, Facebook was just emerging at that time, and much of the management of social advertising dollars was being done manually.

The real insight from my last role was, if we could have technology to help people managing social advertising dollars gain better insights into how interests, brands, and people were connected to one another, we can make more effective and meaningful communications for potential customer. This would help manage the entire workflow in a cyclical manner, so that the insights would help generate ads that would in turn generate more insights and so on.

If we could build a technology platform that was robust, we’d have a viable business. This would enable the people managing these advertising efforts to either manage more accounts by themselves or manage their time more efficiently, allowing them to focus on the most critical tasks.

Our first customers were agencies. I had the opportunity to develop the technology and then return to the industry I came from, offering them a solution we knew they needed.

Sramana Mitra: Fantastic. So you had a lot of domain knowledge. You had a lot of relationships within that domain. You could build something and start selling directly into that network.

So what level of venture capital did you raise? What was the story? What was the trajectory of this company?

Lance Newhauser: Sure. So this is an emotional story for me. I don’t know if I’m gonna get emotional here, but it was emotional at the time.

I initially went out to raise friends and family. I had never raised venture capital at that point in time. I wasn’t aware of what I did not know. I remember the first time someone said to me, what are you expecting on a pre-money versus a post-money? I had no idea about the difference between pre-money and post-money? How does that actually work mathematically? I really did not have venture experience.

Sramana Mitra: First time fundraising is a tremendous learning.

Lance Newhauser: It’s a tremendous learning curve. Nowadays, I do a lot of talking to folks who are doing their first venture raise in order to help them not make some of those same mistakes I made. The good news is, there’s much more information available now than there was then. Folks like Y Combinator give out the terms that everyone should abide by, that end up being very helpful in a lot of instances.

So here, I’m raising from friends and family. I was lucky enough to bring in an institution through the help of a very close friend and advisor, Randy Ecker. I was able to bring in a company called GSB, which was started by Mike Mo and they were great partners. We raised $1.5 million to get going.

We thought we were going to bring together all of this advertising information to really start to forge not just ad dollars going into the system, but how to actually drive social commerce.

I had a client that we were talking to and was interested in the technology. We’re in the room. I was introducing two different people from the organization together that needed to come together in order for this technology to be adopted. That’s when I knew we were in trouble.

Sramana Mitra: The sales cycle is so complicated.

Lance Newhauser: Too complicated. But then, I got a little lucky. On a random upgrade on a flight, I ended up meeting Dr. Alok Choudhury, the former Head of Computer Science and Engineering at Northwestern University. He had seen some of the same patterns and trends that I had seen. We both recognized that social data would forever change marketing communications. You don’t need to get down to some creepy level of understanding an individual; you can use affinity map in order to gain key insights.

The seat I got upgraded to was 4C, where the name of the company comes from. It was not some big merger. My company was four people that came over in this merger. His company was nine people. Thirteen of us came together. When we came together, we took on the next round of financing from a company here in Chicago called Jump Capital. I cannot say enough good things about them. They were a wonderful partner. We secured a $5 million round.

This segment is part 5 in the series : Bootstrapping to Exit, Then Raise Money and Exit Again: Wendy CEO Lance Neuhauser
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