Sramana: Would it be fair to say that VCs in your neck of the woods don’t see a lot of fundable deals?
Sinclair Schuller: Deal flow in upstate New York is very shallow. The typical flow for VCs was from New York City. Most of their deals were consumer oriented.
Sramana: In a way, that may have helped you. There was money looking for deals, and you had less competition.
Sinclair Schuller: There was definitely under-leveraged capital sitting on the balance sheet, and they had to do something with it. I think it increases the propensity to invest.
Sramana: What happened between your seed round and your Series A?
Sinclair Schuller: Our next step was to put the prototype in a potential customer’s hand and have a beta take place. We decided to invest the seed money into turning our prototype into a beta product, with the intention of using the beta version to raise capital. We knew we needed to involve a real customer to do this, and we had to figure out who the first customer should be.
We felt that the enterprise was our long-term vision, but we needed to have a different user base to get things started. We decided to target independent software vendors. They face a lot of the same challenges as enterprise developers. We felt that our technology would also help them transition into the SaaS model. That became our beachhead.
We went off and talked to a few small developers and asked them if they would sign up for the beta. We started to accumulating data from them regarding their challenges and then put our technology in their hands. Once we had that program in place, we went out and started pitching for a Series A round. That was a challenge because we were based in upstate New York, and our problem was compounded because we were asking for $5 million.
I did not have a dense Rolodex, so I broke the rules and started cold calling. I built a list of every VC fund I could find, and I prioritized them based on their investment portfolios. I would then target the partner at the fund whom I felt I had to be best opportunity to connect with. I then started sending emails and calling them. Surprisingly, I received a lot of responses and one of them was from NEA.
Sramana: You closed a $5 million round from NEA and managed to stay in upstate New York. What were those conversations like?
Sinclair Schuller: Each VC we pitched to expressed concern about our location. We told them we were willing to move but we just wanted to get the deal done. As we started building the company, we never had friction here based on our initial hiring, and inertia has kept us in place. We did not find a reason to move. A lot of our customers are clustered in the Northeast. I would rather be close to my customers. The location has turned into a positive.