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How SafeGraph Raised Its Unconventional Series A Financing

May 17, 2017
by
Auren Hoffman

Since we published the news of SafeGraph’s $16 Million Series A Round last month, we have received a ton of questions from people about our (admittedly) unconventional raise. As a service to current and future entrepreneurs, we organized the inbound questions and answers in one place.

We hope this acts as a resource and proves helpful to you.

What was the thesis behind getting so many (over 100) individual investors in the round?

Our belief is that even if someone invests a small amount (our smallest investor put in $10,000), that person has skin-in-the-game and is much more willing to help and promote the company. So we wanted to bring in as many people as possible.

Of course, we only approached people that we thought could help SafeGraph and have positive value to the company.

Because SafeGraph is selling into so many diverse industries, no one person has all the experience we need. We wanted a group of backers with broad experience (including government experience) to provide us with long-term help, insights and advice.

Note: raising from lots of people is a fairly large time effort and not for everyone. There is a lot of chasing people down for signatures and wires … and a ton of email back-and-forth. I’d only recommend doing something like this if you are the type of entrepreneur that considers herself organized and on-top of email.

SafeGraph has over 100 individual investors — that’s insane. What tools did you use manage all those people?

The main reason companies do not bring in lots of investors is the preconception it is hard to manage and clutters the cap table.

We used a few different tools to help us make the fundraise easier.

First is that we used e-signatures for everything. Besides being a startup CEO, I’m also an active angel investor, and I’m always surprised on the number of PDFs I get rather than e-signature documents. (I even get a lot of hard-copy stock certificates in the mail). E-signatures make the process much easier. I’m not sure it matters what e-signature tool you use — there are probably at least 5 good ones.

We also used DocSend to send out the deck to VCs. It was really helpful to see which VCs opened it and who else in their firm reviewed it.Second, we’re really big fans of eShares. eShares makes managing a cap table much easier. Investors and stakeholders can accept certs, request documents, etc. In my opinion, eShares is worth using for any venture-backed company with more than 3 shareholders.

Most importantly, we set up a no-carry SPV (special purpose vehicle) to collect money from our individual investors. The SPV has the same terms as our venture investors but only takes up one entry on the cap table because it is one LLC. We actually were not smart enough to do this at the beginning of the process (we wish we were) and only moved to the SPV mid-way through the process.

To make sure our SPV investors were treated the same way as our venture investor, SafeGraph covered the SPV fees (about $10,000). The process was fairly easy but had some kinks … mainly because this is still a new thing to do. It will be easier over time as these SPVs become more common (as I expect they will over the next few years as they simplify everything).

I heard SafeGraph got multiple term sheets, why did you choose IDG Ventures?

We went with Alexander Rosen at IDG Ventures for four reasons:

  1. They really understood our business. SafeGraph is a data company. And while data companies look a lot like SaaS companies, there are some very important differences that most VCs do not understand.
  2. We have a long relationship with Alex (I have been friends with him for 15 years) and have always found him a very thoughtful and helpful person.
  3. They were patient with us. Some of the VCs made high-pressure plays to try to get us to decide on a term sheet quickly. IDG allowed us to take the time to make sure we were making the best long-term decision.
  4. They were willing to allow us to bring in a bunch of individual investors. Many other VCs had more onerous ownership requirements which would not have allowed us to bring in so many individuals.

Why involve a venture firm at all? Why not just raise it all from individuals?

We wanted to have an active board member whose job it is to spend a significant time helping SafeGraph. All the individual investors in SafeGraph have day jobs and do not have the time to proactively help the companies they invest in (but they are awesome at reactively helping). The day job of a venture capitalist is to help their portfolio companies.

How long did it take you to raise the financing?

It took us a total of 2.5 months from start to close. That included reaching out to all the individuals, setting up the SPV docs, preparing for the venture raise, meeting with the venture firms, selecting a term sheet, and closing the final docs.

I heard you invested your own money in the round, is that true?

Yes. I invested $2 million of the $16 million we raised. I thought it was important to put my money where my mouth (and energies) is. I’m also not taking a salary from SafeGraph.

Taking no salary or investing a lot of money in one’s company is not a path that most venture-backed founders can or should take. But it can be a good idea if you were fortunate to have a big exit in the past and now you want to swing for the fences. Even if you did not have a huge exit in the past, my advice to founders is to take the minimum salary you can get by on so you can telegraph to your shareholders that your financial goal is to make the shares very valuable.

How many of the 100 individuals did you know personally before you approached them for an investment?

Either myself or Brent Perez (SafeGraph’s cofounder) knew almost every investor beforehand. Some of the investors we have known for over 10 years. We optimized the list to people we knew and trusted. We did bring in a few extraordinary people that we did not know beforehand but all of those came recommended by people we trust.

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Auren Hoffman
Auren Hoffman
CEO of Safegraph
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SafeGraph is just a data company

That's it – that's all we do. We want to understand the physical world and power innovation through open access to geospatial data. We believe data should be an open platform, not a trade secret. Information should not be hoarded so that only a few can innovate.