Originally posted on Powderkeg.co on 8/10/17 by Keith Kleinmaier
Anytime you have to ask others for money, it’s a serious process. It doesn’t matter if it’s for a youth sports organization, a local grass roots event or, in our case, a Commercial Real Estate Tech (CRE Tech) startup. Especially when the industry you are serving has been slow to phase out legacy software and adopt new technologies. Before we get into our specific case, a little background on Tenant Tracker.
Tenant Tracker is a cloud-based application for Commercial Real Estate developers, landlords, owners and eventually tenants. Our software is taking clients out of spreadsheets and into a robust, collaborative system, allowing team members to track all of the critical dates, timelines, contacts and process from Letter of Intent to Tenant opening for business. Historically, this has all been done in spreadsheets, email and notebooks.
When we took TT to market, we validated it first with a few clients. When we started our fundraising process, this ensured that we were not only validated in the marketplace, but we were generating REAL revenue. Unless you have a unicorn on your hands, this is imperative in raising funds, especially in an industry reluctant to change and slow to adopt new technology.
In order to ramp up our development and pay our team to secure new business, we set out on a seed round in the $500k range. We were poised to succeed in Indiana, approved for a Venture Capital Investor tax credit for in-state investors, and going to market with a convertible note round, which was easy for first-time investors to grab on to. Our focus initially was a small circle of friends, family, local tech players and local CRE industry folks. Our plan was set. I thought our round would be wrapped up in less than six months. But oh, was I wrong! Here’s what I learned throughout the process:
Roll Off the Rejections, Learn & Proceed
When I was a Freshman at Indiana University, I wanted to earn some ‘weekend money’ like everyone else. So I got a job as a telemarketer for the school, calling alumni and asking for money. Most people hated it, I loved it. I looked forward to speaking with alumni and learn about their adventures after they left school. I built a relationship with each call, except for the ones that hung up on me before hearing my pitch. This was a job that if you got 10-20% of your calls to donate, you were a leader. This means often times 90%+ of your efforts ended in: NO! Well, I was the weird one in the group and not only enjoyed it, but continued working in the office my entire undergrad career. I worked my way up into management and my first two jobs post-graduation were managing large university fundraising centers. In these roles, I dealt with and taught students how to handle rejection and raise money. It’s crazy the parallels I saw in raising money for a SaaS startup in CRE.
If you are raising money for your startup, don’t get discouraged by all of the rejection. Review each one post-op, and gain 1-2 nuggets from that experience. In my case, I learned more and more about what investors were looking for and dove deeper into why they were investing in the first place.
Take each objection as an opportunity. Build the ‘NO’ relationship as much as possible, because some day, that person who rejected you might need help from you. Or they might have a referral for you. Or better yet, they might be interested in your next round.
Educate First Time Investors
Early on, when our circle of potential investors was smaller, I kept getting rejected. I realized it might have been less about our company or our team and more about the fact that I was pitching to first time tech investors. Add on the layer of CRE industry, and I now realize that I was setting myself up for continued rejection. My approach was all about our team, technology and our solution. That is all important and is continually driven into founders from all angles. But I skipped a valuable step of helping educate the investors on the process and what they were getting into. This eventually helped us bring on multiple first time tech startup investors into the round.
Your Industry + Technology = Scary?
Our industry of Commercial Real Estate has traditionally been slow to adopt technology. However, there has recently been a flurry of CRE startups raising significant dollars, mostly on the coasts. While this has been great for CRE tech in general, it was still difficult to convince Midwest investors to put their arms around CRE tech. The feedback I received from seasoned investors and larger Funds hit hard: come back when you’ve developed a significantly larger revenue base of customers. Some of this feedback mirrored the master strategy of certain investors and funds. However, others felt for this industry, they didn’t want to invest until they were confident CRE companies would spend the money to upgrade their technology. This thinking is transferrable to other industries battling legacy software and slow-to-adopt philosophies, such as FinTech, Health Care and Construction. My advice is to work with a couple of strong clients early on to help dispel this myth. There are companies out there willing to change, and bringing them on board early will help your investors stay in the conversation.
Ripe For Disruption
Continue to hit home with potential investors on how your industry is ripe for disruption, if it applies. CRE has so many points in the process that still rely on spreadsheets and outdated software, it has been an industry ripe for some time. However, investors don’t want to put their money into the 10th company doing the same thing as the 9 before them. So our mission was to remain laser focused on the niche our software helped serve, and this helped our investors see how we could disrupt our segment of the CRE industry, rather than following many disrupters before us and crossing our fingers. This allowed our investors to understand our path to customers and revenue, and eventually jump on board our round.
In the end, I learned more than I could have imagined, and we ended up maxing out our seed round at $600,000! We are eternally grateful to our initial seed investors and their confidence in us has helped us build momentum as we continue through 2017.
Learn more about Keith and what his team is building at Tenant Tracker here.