Week two of Gain Compliance is almost in the books. As I mentioned in last week’s post, the real work started a while back, and the recent milestones are a function of several months of focused effort. So, no headline-type achievements to share, but we had a very solid week of progress — really good customer and internal meetings to both fill in the details about the ultimate product vision as well as devise the order of operations (i.e. what should we deliver to a customer first?)
In the startup world, one of the initial gates to launch is the funding round. This taxing process is not only a prerequisite to hiring and product development, but also a validation that a team and idea has legs. As much as I love discussing our product and plan, I am much less fond of asking people for money, and the process is time and energy consuming. So, I am very happy to be (almost completely, but not quite) done with it.
With just a little bit of distance and perspective, it’s interesting to reflect on what went well, what was challenging, and what was unique for our company.
In the current market, the prevailing wisdom is that companies should be able to design and roll out a minimal product or, at the very least, show value through a proof of concept before a seed funding round. Cloud technology has radically reduced the time and cost of bringing a product to market, and many investors are now unwilling to place a bet on a company that hasn’t validated its idea through customer use.
This marks a reactionary shift from fairly recent history when the decision framework was much less disciplined; the result was a combination of bad bets and unrealistic valuations (i.e. the unprecedented number of unicorns minted over the last few years). Enter a renewed focus on burn rates, the path to profitability, and using market data as a proxy for company potential; all good ideas, if not taken a little too far.
The last time I raised money for a tech startup was in the Bay Area during the post-bubble economy in the summer of 2000. Then, as now, investors had suddenly discovered religion and started applying more conventional valuation frameworks to “new” economy companies. Raising money in that environment wasn’t pleasant, and I certainly cursed our timing, but the funding round got completed. Not all companies, including some really promising ones, were so lucky.
Fast forward to 2016: the environment is eerily similar. Now, the “new” part which resulted in a temporary lapse of investment logic is the SaaS business model. And, just as in 2000, the mood has shifted and the investor community has overcorrected: there are really good, valuable ideas in highly technical markets where the research and understanding necessary to create a compelling offering is significant. In these situations, the effort to bring even a minimal product to market is not a part-time job or moonlighting activity, and these ideas and companies won’t make it out of the gate it if the litmus test for seed funding is validation through customer use.
The case that I wanted to make to both potential customers and investors is that Gain Compliance, despite being pre-product and lacking customer-use validation, had enough market insight and founder experience to be worthy of seed investment. In retrospect, the primary reason we were successful in telling our story boiled down to one thing: we are located in Iowa.
Why is Iowa the ideal place for a startup?
My former boss, Matt Rizai, wrote an article detailing how the success of Workiva was partly a function of his strategic decision to locate in nearby Ames. In particular, he focused on how the combination of the talent pool, emerging technology standards, and the livability of the Midwest made for a logical choice for a growing company.
For an early stage startup, I would add that the willingness of the community to help in a meaningful way is just as, if not more, important. After living here for the past fourteen years, I am continually amazed by the generosity and support that Iowans give one another.
From a business perspective, this is certainly aided (by no small coincidence) by the fact that Gain Compliance is focused on software for insurance, the core industry for Des Moines. But it extends beyond this as well. I can tell story after story of people from the local business community offering their time and expertise to critique and improve our business idea, introduce us to others whom we might find to be (and frequently were) helpful, and supported us in myriad ways (including funding).
It became almost cliche in every meeting: after telling the company story and gathering feedback, there would be a predictable moment in which the other person would ask: “So, how can I help?” And the offer was genuine.
People were incredibly generous. They gave us their time. They shared documents and processes and educated us on their business challenges. They introduced us to their networks — other people in similar and complementary roles both within and at other companies, thought leaders and industry experts, potential investors. They followed up afterwards to check in our progress.
As we close the fundraising effort, I believe that the success we have is a direct function of where we are located. The level of commitment by every person to whom we told our story was remarkable, and the offers of assistance and the follow through was game changing for our company. Go Iowa.