A startup with Latvian roots, Funderful deploys AI driven virtual assistants trained to have authentic conversations with students and donors, engaging them at key stages in their journey to enrolling or giving. In January 2019 the Latvian-made conversational AI platform for campus-wide communications was acquired by US higher education market leader Ruffalo Noel Levitz (RNL).
- The startup was established in 2014 and employs 5 people
- Funderful has worked with such prestigious institutions as Oxford and Cambridge College, London Business School, U.S. Military Academy at West Point, Georgetown, UC Berkeley and many more
- Alumni have donated more than $4 million through the Funderful platform over the past four years
- More than $1 million has been invested in developing the platform – investors include 500 Startups, Silicon Valley Funds, AIFP Imprimatur Capital Fund Management venture capital fund, the StartupHighway accelerator and business angels from San Francisco, China, Estonia, Latvia and Lithuania
- In 2017 Funderful entered the 500 Startups accelerator programme in Silicon Valley
My expectations about how it is to build a startup were way different than the reality. It’s a constant rollercoaster, a highly demanding and stressful job, but I wouldn’t trade this experience for anything else! And I want to share with others some advice, which I would have greatly appreciated receiving myself before I went on this journey.
Find the Right Mentors
When I decided to create my first startup I wasn’t familiar with the startup ecosystem in Latvia and the region. I was looking for advisors but wasn’t sure what to ask, or what kind of mentors I needed. So, in the beginning, I listened to the opinions of a few highly-regarded angel investors. But it took me some time before I understood that their opinions didn’t apply to my business and that I just wasted my time and energy. It’s only now, looking back, that I realize, I should have talked with other founders who have gone through the process themselves.
You Can Make it Without a Business Partner
Initially, I thought I definitely need a business partner with whom to bounce ideas, discuss development plans, compliment each other’s skill sets. Initially, I found a potential co-founder but then ended up with what is called a founder fallout. With time I came to two conclusions. First, you have to really know the person and have the mutual trust and chemistry to be able to move forward even when extremely challenging situations take control, cause they will definitely come.
Second, don’t immediately give the founders and team company shares. Instead, agree on a vesting period of three to four years – something that I only later found out is standard practice in the startup world. This will serve as a safety mechanism for the company in case a team member isn’t contributing to progress and development, or you part ways for any other reason.
First Register Locally, Then Flip Registration to Delaware
Starting with a locally registered entity is easier, but top accelerators and global tech investors will require you to be registered as a C-Corp in Delaware, or at least it will help remove some of the friction, barriers to raising your next round of investments. When the time comes you can flip your legal structure accordingly. But be aware – lawyers can often charge around €50,000 for this service, but you can do it elsewhere cheaper for as little as €4,000. In case you are considering setting up a tech company in the US and opening a US bank account, I recommend the Stripe Atlas programme.
Accelerators and Networking Events are Important
Entering a world-class accelerator means entering an environment full of innovations, contacts, advice (which at times can be too excessive and counterproductive to keep focus), and provides a variety of opportunities for meeting investors. We certainly benefited from joining 500 Startups accelerator batch in San Francisco. We got in there because we had a chance to pitch on stage at the 2017 Digital Freedom Festival Startup Pitch Competition. Because of that, we won the opportunity to be interviewed and afterward got accepted in 500 Startups accelerator in Silicon Valley.
Don’t Force Growth Too Early
When I lived in Silicon Valley I was surprised to see that even Series A companies (traditionally attracting between $3-6 million in investments) still are in search of product market fit. And everyone, even investors are fine with it. With our initial product – gamified interactive landing pages for alumni fundraising – we got to break even early, we got well respected and recognized universities as paying customers, and thought we had enough market validation to step up our growth. A year later we learned the hard way that we did not yet have product-market fit. Lesson learned – plan time to interview your customer, research your product and test how your product works for different segments – a successful start doesn’t mean you found your niche. Make a prototype, test it, then upgrade it and test again.
Run Fundraising as a Process
I got the first €150,000 without any fundraising process. Looking back this was way more risky and stressful than when I was raised again with a structured approach where I was in control of the process. From what I learned, I suggest the following 5 principles:
First, don’t give up too many shares too soon. Easier said than done, but totally doable if you follow principle the second principle. You got to keep in mind that your company will probably have 3 investment rounds, and in each, you will have to give investors 15 – 20% of shares. You need to make sure that by those time founders and the team has enough of equity left to motivate them coming to work every day. Second, make investment acquiring a process that you have control off. This starts with creating a list of at least 100 investors to contact at once, and book those meetings together with follow up meetings a month or two in advance. Stack the lower priority angel investors first, and higher profile, higher priority angels last – your pitch in week one angel meetings will probably be horrible, so use that as training to prepare for your meetings the following weeks. Third, during pre-seed and seed investment rounds don’t ask investors to offer terms – those need to come from the founders. Fourth, use SAFE or KISS contracts to simplify the legal side. Fifth, under no circumstances, give investors any advisory or board member rights during the first two investment rounds.
Learn to Say “No”
In the first stage, of course, there will be chaos – too many things happening at once, and they’re all important. You’re simultaneously rushing to build a product, find clients and put out fires. When a product breaks you’re looking for product-market-fit, while still attracting investments and fighting for your vision. In the first stage, you have to resign to the fact that there won’t be order.
To enter the next stage of development you have to examine and focus on not only what works in the product, but also have to organize the slowly building chaos. So what to do when a client comes to you offering to pay a good amount of money that will fix the approaching cash burn in short term but in long term will distract you for a couple of months from the initial development plan? Such dilemmas happen often and my advice is to try to resist the temptation to take too many steps in too many different directions simultaneously.
Don’t Let Your Stress Affect the Team
The founders are setting the example for the team – that has a tremendous impact on the team dynamics, culture, vibe. Being a single founder I have from time to time felt stressed and lonely in the decision-making process – there are a few things that can only be discussed among founders. At times this very visibly influenced my mood and that’s contagious. It affects the team spirit immediately. But you want to have a productive work environment especially when work gets tough.
With time I learned to deal with stress and inspire my team in the crucial moments. What helped me was taking a step back, getting a better understanding of the stages each startup goes through, putting less pressure on myself and talking to other startup founders. It makes you feel better to learn that someone else has gone through the same struggles or even worse.
I hope that my experience will encourage others to achieve their startup dreams and ambitions, but also make them aware that there is a good chance it might not work out for the first time around.
So before throwing yourself into this adventure, I only suggest to not do it just because of money. There are much safer and less stressful ways how to earn a good living. That said nothing compares to the thrilling and fulfilling experience of building your own startup.
[Editor’s Note] This is a guest post from Funderful’s founder Raimonds Kulbergs. Kulbergs wanted to share practical tips and his experience through the hustle to help other startups who are looking quality and hands-on advice.