The secret to investment funding in DC

While D.C. may seem like a hard place to find investment capital, the area actually holds great opportunities for people who know where to look. For more tips and strategies on securing angel and series A investments, we spoke with You Mon Tsang, CEO of ChurnZero.

ABERMAN: Well first of all, tell us a bit about ChurnZero. What does it do?

TSANG: So, we’re a software company that sells to B2B subscription businesses. We help them understand the customers, that their customers are healthy or not. Are they using your product or service? Are they engaged with you? All with the idea of keeping them longer. With subscription businesses, as you know, the longer you keep your customers, the more you make, the more healthy company that you have.

ABERMAN: People talk a lot about using technology to improve customer experiences. How exactly does your technology do that?

TSANG: You know at my previous company, one of the things that I found that was interesting: we knew a lot about our prospects, the people who were to be customers, and our salespeople knew so much about them. But once we got them as customers, we kind of lost track of them. And I felt that that was true for a lot of folks. That is, sales is sort of the Holy Grail for most companies. And once they became a customer, you kind of lose them. So we focus on knowing exactly what your customers are doing. Are they taking advantage of your product or service? Are they making use of the things that you’re providing them? And we get all that data, emails, conversations, and we actually let you know how your customers are doing, and then get them engaged even more.

ABERMAN: So this seems to me to be the kind of business that is really well suited for here, because the data science, the background the many of us have in the advertising industry. Do you think that it’s recognized nationally how strong this region actually is, for businesses like this?

TSANG: I think you make a great point. There is a lot of sales and marketing expertise. There’s a lot of talent in that space. You know, whether we in D.C. are recognized for that or not? I think probably not. But I think we’ll surprise a lot of folks.

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ABERMAN: Which brings me to the next topic. And you know, getting a Series A done, speaking as a veteran of this industry, is no mean feat, particularly in this town where money, I hear, is so hard to get. What did you find it to be like, when you went out to look for money, and how did you find your investors?

TSANG: I think D.C. is actually pretty good for angel and seed rounds. So, earlier rounds, 2 million and less. You know, I think there is good money for that. But A rounds, and B rounds, and C rounds, it’s, I think, worse than it used to be. And I’m pretty new to the D.C. area. But even since I’ve been here, it seems like it’s gotten worse. The way I was able to get it done was, I really did focus on local folks to helped me for my seed round and angel round. So, Midland Capital is on our board, Grotech is our lead investor. But when it came to A, I did have to look outside. I looked in Philly, and Chicago, and New York, and Boston, and San Francisco, and ultimately did a deal with Baird Capital in Chicago. I wish it were in D.C., but you can count on one hand the number of funds that will do an A.

ABERMAN: Well, the problem is that the way that the industry is moving nationally, it’s not just here, is that if your sweet spot is to raise three to five million dollars to scale a business, but not yet where you need to put 10, or 20, 30, million dollars on the balance sheet, there just aren’t that many hundred million dollar, 200 million dollar funds in this region, or nationally, that can make sense of an investment like that anymore.

TSANG: Yeah, I think that’s right. And now, everyone I’ve talked to, who are in Philly or New York, I say hey, come to D.C. Put two people here, you’re missing out on a lot of great companies. So, I do expect it to change. You know, it’s all cyclical, and we’re just in a down cycle. But I do expect it to come up.

ABERMAN: I think that the more that we have successful companies like yours, CVent, Vocus, EverFi, there’s so much talent here. I do think that V.C. will come back to this region, or come to this region, because one of funny things I can tell you from look at the pitch book data over the years: this is a great M&A market. It’s one of the best merging acquisition markets in the country for returns. It was surprising to me when I found that out years ago. For your perspective, what was the most surprising thing about going through the venture funding process?

TSANG: You know, I’ve done this many times, and sometimes it’s really hard, and sometimes it’s really easy. You know, for our series A, it was actually relatively easy, and so I was a little surprised. There’s actually a fair bit of money out there. So if you have a healthy company, with good metrics, and a good worry, you should be able to get funding. Because because dollars do cross borders very easily. You know, if you do have a good story, there’s a lot of money to be put to work. So, I was actually pleasantly surprised with the relative ease that I was able to raise the money.

ABERMAN: I’ve often had people in the industry tell me that they’ve never seen a good company not get funded. I think that’s right, which is a hard thing to hear if you’re not getting funded, I guess. But from your standpoint, as an experienced entrepreneur: if I’m starting out, I’m looking for money, or looking for VC funding, what are the three things that you’d recommend any entrepreneur really do?

TSANG: I’ll start with what you just said. If you have a great company, focus on your product, focus on your customers, focus on creating a sustainable business. You know, one that looks like it’s actually interesting to fund. That of course makes everything easy. So, if you’re distracted by raising money before you’ve done anything, before you’ve got a product that people want to buy, before you have your customers, I think you’re really putting the cart before the horse. Focus really on the company first. It sounds easy, it’s not.

But that’s number one, focus on the company. Number two, treat it like a sales process. It is going to take three to six to nine months, depending on who you are, and what you’ve done, and you will have to get your prospects and your leads, and some of them will be hot, and something will be cold, and you just have to work them. It will take many meetings to get a deal closed. So, my second point, just deliberately treat it like a great sales process. And number three, for entrepreneurs out there: when I first went out to raise money, this is maybe 15 years ago, I was getting a lot of ‘no.’

This was really bugging me, and I realized one day I was kind of asking them for money, saying, hey, would you please invest in my company? And one day I just said, forget that. What I’m really saying is, I have a great opportunity, I have a great investment that maybe you’re good enough to invest in. And so, before every meeting, you kind of look yourself in the mirror and say, are these guys good enough to invest in my company? And that gives you a real boost of confidence that actually kind of shows that you’re proud of your company. And I think that gives you a real leg up in raising money.

ABERMAN: You know what? As you describe it, the most similar behavior I can think of is dating. You never want to be too desperate, you always want to have a belief in yourself, and you always have to be ready to deal with whatever comes.

TSANG: You know, and if you’re a new entrepreneur, it’s scary. You’re going into a room that has great artwork, cushy chairs, a lot of wood, and these are folks who seemingly can’t do any wrong, and they have lots of money. And so, you’re going to feel a little intimidated. But the one thing you have to know is: what’s the scarce resource in the room? It’s not the money. The scarce resource in the room is a great company. So, just remember that.

ABERMAN: That’s great advice: remember that you’re the scarce resource. You Mon Tsang, thanks for joining us today.

TSANG: Happy to be here, Jonathan.

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