Why We Haven’t Raised Money (Yet)

Investors, prospective employees and friends often ask why we haven’t raised money.  The short answer is that there has not been a need.  We’ve been fortunate to become self-sustaining, i.e., revenue exceeds expenses and been able to fuel our growth by reinvesting any surplus back into the company and by having a team which punches far above its weight.  The surplus we have is going almost exclusively to hiring (here’s our job listings in case you’re interested).

But since the question about fundraising comes up frequently enough, we wanted to walk through our thought process. Our reasons for not taking money so far are:

• We haven’t needed it
• It’s a commitment
• We need to nail the sales model
• It has to be the right investors
• Alignment of goals

We haven’t needed it

We were founded in 2008 (a terrible time with the great recession just hitting) and initially, we did consulting and hedge fund advisory work just to survive and put away some money to build CB Insights (CBI).  We were successful in doing that and so built up a nice kitty to invest in the technology that underlies CBI.  This was further supplemented by a grant from the National Science Foundation (thank you NSF SBIR program).  (note: Yes, we’ve technically raised money but none of it dilutive would be more accurate)

And we built CBI focused on profitability from day one.  And so bringing in more than we spend every month is a central tenet of how we manage the company.  We also live modestly and are frugal.  There are no ball pits or jungle gyms.  But we do have a gong , provide a daily lunch stipend, have team happy hours, etc. and so as we can afford meaningful “perks”, we add them.

But with our focus on profitable growth, we’ve not required external financing to grow.

It’s a commitment

The idea of being entrusted by someone with money is not one we take lightly.  Yes – some might say, well 9 of 10 portfolio companies don’t do well in any case so VCs are accustomed to it, but being 9 of 10 isn’t really what gets us excited in the morning.  If you are going to invest in us, we will be the 1 of 10.

But it’s the commitment and the gravity of taking investment someone else’s money that we are not willing to take on right now.

We need to nail the sales model

Frankly speaking, if and when we raise money, we’d like to have some leverage.  And not needing the money to survive provides us with that.

More specifically, not needing the money means we have to nail our repeatable, scalable sales model, and while close, we haven’t done that.  As a company, our first focus was on having great data and building the best product in the market and fortunately or unfortunately, we have not necessarily been focused on the being the best-marketed product.  So in the early years, we literally had people sign up for the free trial and call us to say “this is great. How can we sign up?”.  Money was coming to us because the product and service were great – not because we were expert marketers or salespeople.

Having a product/engineering-centric culture is good and bad.  We obviously think it is more good as when we come up against our competitors, we tend to win.  In fact, the rate at which we’ve advanced the product has allowed us to raise our prices over time while still maintaining customers and adding new ones as customers know their feedback is integrated into the product and that we are adding new capabilities every week (every Wednesday).  But there are cons to this philosophy too but that is the subject of another post.

But now with the data moat we have and CBI’s analytical and visualization capabilities, we’d without hesitation say that we have the best product in the industry (sorry for being immodest).  And so now we’re focused on being the best marketed product.  And raising money after we’ve nailed this means raising expansion or growth capital – not money to figure out how to run our business.

Raising money before we’ve nailed the sales process would mean investors are giving us money to figure it out.  With that uncertainty looming, we’re a riskier bet for an investor and so they have every right to take more of the company and have more leverage.

(Note: Leverage does not mean trying to screw the other partner.)

It has to be the right investors

And since raising growth or expansion capital means that that we don’t require the funding, the money becomes only part of the equation.  Just as important, therefore, is who the investors are and the unique and very real value they can bring.  So to this end, we’ll be looking for:

• Deep info/data/analytics domain expertise – A history of proven success investing in companies like us
• Relationships – Can you help us open doors to customers and partners we otherwise couldn’t reach?
• Are you a believer? – We’re unique in the sense that some of our prospective investors could also be customers of our product.  So if you believed in us enough to buy CBI and use it at your firm (dogfooding is what they call it, right?), that is a vote of confidence in us that is important.  We are fans of Sam Adam’s customer friendly IPO process and aim to follow that philosophy when raising money.

Alignment of Goals

We are not focused on exiting right now and this means that alignment on expectations, timing and goals are critical.  We are playing the long-game and it’s early and so we don’t spend a lot of time right now thinking about or optimizing for the final score.  This is because we think there are massive opportunities in areas of private company and industry data and that means we want to build a big company in a thoughtful, methodical way.

So in a nutshell, those are the factors that are driving our decision.  If there are factors that we’re not considering which we should or if you have any other comments, please let us know.