Our portfolio company Foursquare closed a second round of financing yesterday. This was a much covered financing process and also much criticized. I think it makes an excellent case to talk about some conventional notions and why they might not be right.
Back in the early spring Foursquare decided that it needed to raise more money to support its growth, both service growth/scaling and team growth. Foursquare identified about a half dozen venture firms that it thought would be ideal investors and opened discussions with them. A few backed out of the process because they had investments in competing businesses. But all of the other firms were eager to make an investment. The Company could have closed a financing at a very attractive valuation in two or three weeks if they had chosen to.
But as they kicked off the financing process, a fair bit of acquisition interest in the company materialized. So the founders made the decision to dig into what those transactions might look like. They spent the better part of the spring doing that and eventually determined that staying independent was the best thing for the service, the user base, the team, and the shareholders (pretty much in that order).
All of this was conducted in the glare of the public eye as the tech blogs and tech focused media was quite interested in how this story would play out. Kara Swisher called it "a very long and decidedly strange funding journey" in a blog post yesterday. She also said "the wrapping-up of what has been a very convoluted funding process comes after a series of missteps and switchbacks over what’s next for Foursquare."
I have great respect for Kara, who is one of the best journalists working in the tech sector, but I think she and many others who have voiced these sorts of criticisms are wrong.
The Company started this process when they had sufficient funds in the bank to operate the business for six months. They were not in a hurry and there was no need for any kind of interim bridge financing as Kara's post suggests. So closing the financing quickly, which is often advised as the best approach, was not necessary and in hindsight, the founders were wise to take their time.
The conversations with potential acquirers were very beneficial to the founders and the company in many ways. It helped them to understand what the risks of going it alone were versus the risks of selling. And both have risks if you are thinking about the service, the users, the team, and the shareholders (in that order). And it allowed the founders to develop close working relationships with some of the most important Internet companies who can not only be acquirers but also distribution partners and monetization partners.
I am a big believer in making quick decisions on most things. But on some things a bit of deliberation is important. In this case, the founders walked away from what Ben Horowitz from Andreessen Horowitz calls "generations of your people being set financially." Ben is also quoted in that same TechCrunch post saying "It is a really cathartic and emotional decision to make." Those kinds of decisions are best left unforced by the founders and the people around them.
In the end, the Company got a great financing with a great group of investors, including our firm, and now has the resources to invest in scaling the service, the team, and building out the feature set to make checking in an even better experience than it is today.
So the moral of this story, if you will, is don't let conventional wisdom force you into making decisions you don't need to make and you aren't ready to make, particularly about very big decisions that you will be living with the rest of your life.