Bootstrapping From Arizona To 36 Million Dollar Series A Valuation And Silicon Valley Venture Capital: Infusionsoft CEO Clate Mask (Part 6)

Sramana: What was raising your first venture round like?

Clate Mask: First, we developed our long-term strategy. We decided to build an integrated marketing and sales system that small businesses could use to grow their businesses quickly. We raised a small angel investment [round] in 2007, where we took on $500,000 as debt that we could convert to equity if and when we raised venture funds. Our angels were local individuals, some partners, and some of our customers. In late 2007, we raised $9 million from Mohr Davidow.

Sramana: What were the terms of the debt financing from the angels?

Clate Mask: We had no interest for the first year and 10% interest after that. It converted to equity in the event of venture financing. They converted during our Series A and received a few additional warrants for getting in early.

Sramana: What was the process of raising venture capital in Arizona?

Clate Mask: We talked to a handful of VC firms in Arizona, but there was not a lot of interest. We had a relationship with Silicon Valley Bank and by then had had a lot of inquiries from VCs as well. We began receiving those inquiries at the beginning of 2007, but I held off, hoping to have a full year of revenue to show. Turns out they look at the past year’s fiscal results no matter where you are, so that really did not make a difference.

By the time we got serious, we had $5 million in trailing 12-month revenue. By August, things began to heat up. Typically when you raise venture capital, you go up and down Sand Hill Road and make your pitches. We did not take that route. We spoke with people on the phone and told them if they were interested, they should come and visit us. That helped us know if they really were interested. It also gave them the opportunity to see our operation.

Sramana: How many venture capitalists did you approach in the phone screening process, and how many decided to visit you?

Clate Mask: I did not call any VC firms cold. I had 25 VC firms call me in the first half of 2007. Some found us from Alexa rankings, and others found us through articles I had written. We had done a lot of publicity work that was attracting attention. I just held onto everyone’s contact information and told them I would contact them when it was time for us to raise money.

In May 2007, Silicon Valley Bank invited me to pitch at a VC event they were holding. It was a lightning round where you have eight minutes to make your pitch to 50 VCs. There were about 20 entrepreneurs in the room. I did that event, and that brought up another five firms. I also had a board member who made five or so VC firm introductions. I had a long list of firms that had contacted me or had been introduced to me. I had great second phone calls with 12 of them, and seven of them came and visited us.

The last firm to visit was Mohr Davidow. I had three calls with them prior to their visit and had spoken with multiple partners. After that third call, they were very interested and visited. After their half-day visit, they asked me to present to a partner group on a Monday morning. Once they wanted me to visit, I knew the game was on. I was OK with our growth and revenue, so I told the people who had visited us and the other firms that I would be in San Jose during that time.

We presented to three partner groups on Monday and a couple of other groups on Tuesday. By Wednesday night we had a term sheet. We spent the entire week there and did several pitches. Suddenly, new VCs became interested as well. We received three term sheets in three days, and we jumped on the deal we felt was the best. It was not the best of all the term sheets, but it was the firm we were the most comfortable with. We thought of them as partners.

This segment is part 6 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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