“Raising Capital for Startups” on Udemy

Udemy recently closed a $1 million financing from a syndicate of angel investors. I couldn’t be prouder of the Udemy team. We’re thrilled to have the support of angels who invested in (or started) companies like YouTube, Yelp, LinkedIn, Twitter, Playdom and Zynga.

For those of you unfamiliar with us, Udemy is a website that enables anyone to build their own online course. You can create a course about anything – photoshop, Ruby on Rails, texas hold ’em poker or english language learning. It’s fast, easy, and free.

Some background – One year ago, when I first joined Udemy, we were nothing. My two co-founders were new to the US. I spent the previous 6 months in Washington, DC working in the government – far away from startup land. We then went out to pitch our startup and got rejected by 30 of the best investors you ever heard of. It was brutal, but we were fortunate enough to bounce back.

This is the story of how it happened and what we learned from our experience.

Update: StartupDigest has now launched a new course on Udemy about raising capital that provides significantly more detail on how to fundraise. It also comes from people with much more authority, including Naval Ravikant, Adeo Ressi and Dave McClure.

The Short(er) Version

Udemy went out to raise money in February-March 2010. We received more than 30 no’s largely because investors weren’t confident enough in the business to pull the trigger.

Udemy focused hard on traction and launched the product in May 2010. By July, we had some promising numbers and decided to pitch again. We leveraged Adeo Ressi of the Founder Institute heavily before and during the fundraising.

I connected with a lot of friends and great CEO’s before fundraising to get intros. One of the most helpful was Darian Shirazi (CEO of Fwix), who intro’ed us to 3 of our investors. Afterwards, we made him advisor to thank him and because we wanted to keep an ongoing relationship with him.

Keith Rabois, one of the first people we re-met with, agreed to lead the round. In this meeting, we told Keith we wanted to raise $300K-$500K.

We leveraged AngelList to get additional momentum and investors for the round. It was critical to our success.

Within 2 weeks, we had more than $500K committed.

One more week later, we had more than $1M committed. We closed the round at $1M.

The Full Version

Raising a round is a combination of luck, momentum/timing, and wise decision-making. Keep that in mind as you read this and raise your own round 🙂

Our round was split into a few key phases: The First Pass, The Marathon, The Lead, The Sprint, The Close.

Part I: The First Attempt

We first went out to raise money in February 2010. We were on Open Angel Forum, pitched at the Founder Showcase, and had more than two dozen meetings with VC’s and angel investors. We even had a term sheet from an international investor (which was eventually pulled). Here are the lessons from that experience and why we didn’t raise money:

Part II: The Marathon

I like to call this next phase “tee-ing up the fundraising.” When we went out in February, we were virtually unknown. I decided to fix that.

We focused hard on being as public as possible. I went to every conference I could and literally killed myself while there. I attended tons of networking events and met as many entrepreneurs and investors as I could. While at events/conferences, I rarely ate dinner because I was too busy schmoozing and grabbing business cards. During the weekdays, I’d spend hours e-mailing potential instructors to start using Udemy and during the weekends.

Though nobody could tell, this was one of the hardest times in my life. We had just failed at raising money and I had barely 6 months until I’d be out of cash. Nobody in the tech community knew who we were and we were getting little traction with users. I never went out; rarely saw my friends or family and sat in front of a computer all day and night. It was tough.

A few highlights about the marathon part of our fundraising:

The marathon stage was critical in Udemy going from a risky investment to a lower risk investment. Aspects like traction and social proof are a great way to make investors feel more comfortable. Furthermore, the more they get to know you and your team, the better.

Part III: The Lead

Finally, one day in July, we decided it was time to raise money. I was pretty much out of cash – and we had good-enough traction to share with investors. So we went about finding a lead investor to set the terms for the deal and act as a reference point for anyone else interested in investing.

In an AngelList world, I would focus pretty hard on finding a lead who is already on the list. Angel.co is a full directory of angels that you can sort and parse. Furthermore, it is much easier to be successful when you go out on AngelList if you have an AngelList investor in the deal.

Here’s some thoughts on finding and convincing the lead:

One last comment: fight the urge to tell your friends/family/fellow-entrepreneurs and anyone else you meet that you are “fundraising” or “far along in negotiations” or any other vague update. Be patient and wait until things are signed, sealed and delivered. Being shy about sharing your own progress until you have real progress is a great way of keeping yourself honest.

Part IV: The Sprint

Once we had papered documents with terms we were happy with, it was time to start raising the rest of the round.

When we pitched Keith, we said we were raising $300K-$500K. We were fortunate enough to be over-committed for $500K and then again at $1M. There were a couple of major factors that lead to this:

Ultimately, investors start falling like domino’s if you keep the momentum going and act fast. Just focus hard on both of those things and you’ll be solid!

Also, if you found this helpful, please let me know in the comments. I would really appreciate it.

*** Learn more about how to raise money for your startup on Udemy. ***

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