Tech entrepreneur Darren Cox has been laboring for over a year to bring his startup CaSTT to life. His journey began last fall with negotiations to license the core IP from the U of M’s OTC, a process that was finalized by February. Fast forward to this October 2011 and CaSTT would go on to successfully close a $600k round of financing.
TECHdotMN: on a scale of 1 – 10, how would you rate the challenge associated with closing this first round of funding and why?
I don’t think there is anyone going out, hat-in-hand to raise money, who would say the process is anything but agonizing. I would rate the challenge as a 5 for us — but we had some advantages that would be difficult to replicate. It would probably have been lower (easier) than that, but a couple of potential early investors who were not as honest and helpful as the appeared to be the first time I met them. I wish I had said, “If I take these steps, will you invest?”
TECHdotMN: Looking back, what was the biggest surprise or unexpected aspect?
By far the biggest surprise has been how much money is available in this market if you just can figure out how to tap into the investor network. For instance, there was a two day period last spring during which we raised $125K from people (I still haven’t met), because they are all close friends of an early investor, Tom Kieffer. They trusted Tom, so they invested in our company based solely on his recommendation. I was pleasantly surprised to learn that’s how it works sometimes.
TECHdotMN: Would you do anything differently next time given your circumstances?
I would have not wasted my time trying to find a co-founder just because a bunch of Bloggers in Silicon Valley say you should have one if you want to raise money. I did a very stupid thing; I asked a friend to be my co-founder (even though he didn’t bring much to the business) because I was scared of failing and of not being taken seriously since I knew that I had some holes in areas that I thought investors were looking for.
I tried to rationalize his involvement because he had worked for a startup before and had been there when they raised money and exited. However, if I am honest with myself, the real reason I wanted him there was because it is incredibly isolating trying to start a company by yourself. I was just lonely and scared and didn’t have good mentors or colleagues at the time. I was hanging out with a bunch of people who were struggling to raise money just like me. When I shifted my focus away from a “misery-loves-company” approach and started spending more time with folks who had been successful in all the ways that I am aspiring to be successful, I immediately started learning the things that I needed to learn to make it to the next milestone.
TECHdotMN: What general advice do you have for local entrepreneurs seeking to raise early stage/first round funding in Minnesota?
- Stop whining! Stop pointing fingers! Nobody cares. (Something I learned the hard way).
- Don’t mistake a good idea for a good business. The truth is, most good businesses will get the funding they need. The problem is, we suck at telling our business story because we are so focused on our product story.
- Do something every day that has some sort of tangible, measurable result which moves you closer to building a viable product, customers and revenue – IN THAT ORDER.
- Don’t ask for money the minute you meet someone. Get to know the folks you are targeting. You will meet some people in Minnesota who say they will give you what you want, but that is just a tease to serve their own interests before yours, the entrepreneur. There are talkers and there are do-ers. Find the doers and get to know them.
- Know that when an investor says ‘you have ten things to work on before we will consider your deal’, they are not blowing you off. Investors don’t have time to mess around like that. If they take the time to provide feedback and tell you what to do, your thought should be, “OK, now I know what I have to do to raise money. Many investors have expressed frustrations that, when they meet an entrepreneur and give them constructive feedback, it is wasted because often the entrepreneur is offended by the criticism and they (the investor) never sees them again. When an investor gives you feedback, that is a roadmap to their heart, which is usually right next to where they keep their checkbook.
- Help Other Entrepreneurs. The Minnesota the community is small enough that we can absolutely help each other in some fundamental ways, that don’t cost us anything. When I have a question about something that our company hasn’t done before, I call one of a half-dozen other local entrepreneurs first, to see how they handle things… and they call me in turn. This happens frequently when you are raising money. We all talk about, valuations, individual investors and the terms of our deals with those investors because we want to make sure that we are leveling the field as much as possible.