Photo: Vertical Measures
Rand Fishkin is the CEO of SEOmoz, an SEO software company. He has tried, and failed, to raise venture capital twice.His latest attempt was a $24 million failure.
Here’s what happened:
Initially, Fishkin didn’t want to raise money. SEOmoz is profitable, and it’s projecting $11.5 million in revenue this year.
But a number of VCs began inquiring about a Series B round, including GRP Partners, Bessemer Venture Partners, Accel Partners, and General Catalyst.
Before long, Fishkin warmed to the idea of outside funding. He decided it’d help him grow his engineering team, scale data, expand facilities, release new products, spend more on marketing, and give founders liquidity.
Fishkin zeroed in on one investor, and the two began talking terms. He also talked seriously with three other investors.
The first investors offered a $25 million investment at a $50 million pre-money valuation. Fishkin thought the valuation was too low; he negotiated it up to $65 million.
When he pushed for a $100 million valuation, he began to lose investors. One of the four dropped out. Fishkin moved forward with the first investor who offered him $25 million.
The agreed upon terms were a $24 million investment, $19 million from the investor and $5 million from another, at an $89 million post-money valuation.
The deal was nearly done when things took a turn for the worst. Fishkin sent the lead investor his July numbers, and they were $70,000 off the mark.
“We didn’t worry much about these numbers – for the past 4 years running SEOmoz, we’ve often see months that beat our targets and some that don’t,” he writes. “Unfortunately, our new would-be-investors didn’t see things that way.”
After weeks of back and forth and a slew of meetings, the investor called Fishkin to tell him no deal would be happening.
Fishkin blames four things for the deal falling apart:
- Unsettling July numbers.
- VentureBeat wrote a pre-mature story about SEOMoz’s funding. Fishkin thinks a reader may have advised the investor not to do the deal.
- The market is drying up
- The investor found something unsettling when he did due diligence on Fishkin’s company.
Fishkin wrote about the let down on his blog. Head over there for more details on his $24 million mishap >>