CEO, Sieo & RateMyInvestor.com
Like many founders, Austin Stofer was promised investment by a venture capitalist, only to be left with no check in sight. Stofer, the CEO of Sieo and RateMyInvestor, was led on for months, reworking financials and jumping through countless hoops. “After sidelining other opportunities to focus on this one investor, he got five minutes to pitch. The investor’s eyes were on his phone the whole time. Three months later, our emails were unreturned and no decision was made,” Stofer explains. “We got burned, and we aren’t alone.” After speaking to other founders, Stofer heard similar stories about the same investor. Thus, RateMyInvestor was born.
I got into the entrepreneurial and investment industry by working with numerous startups to build their companies at an early stage. While running the early stage business builder and accelerator Sieo, my team and I experienced first hand the complexities of raising capital. Founders face a significant lack of transparency into the funding process and rarely have enough information to know whether the investors they are speaking to would be good business partners. Trust is everything, and just because someone wants to put money into your company doesn’t mean it is a good idea to take it.
The amount of money going into Venture Capital investments was $130B in 2018, a 33% increase from 2017. This means that more and more money is flowing into early-stage companies. Not only that, but since 2016 the share of founders who expect to raise Venture Capital has grown from 42% to 54%. That combined with the massive increase of importance in online reputation creates the perfect storm for RateMyInvestor. The models of Yelp and Glassdoor have shown us that people care deeply about online reputations.
More and more stories of investor discrimination and dishonesty have arisen over the past year and we believe enough is enough. Founders deserve to know who they are dealing with and our platform gives them first-hand, vetted information from other founders who have worked with the investor in question before.
I have noticed two large challenges facing the idea of a more transparent and diverse venture capital ecosystem. First, due to the current balance of power, many founders feel unsure about coming out with a negative story about a powerful investor. Second, since the deals that might be affected by reviews on an investor have the potential to be extremely lucrative, the information needs to be strong enough to play a role in a founders business decision making.
That said, there are also a few large opportunities that make this industry ripe for disruption. First, with such a massive influx of cash into the space and investors being put under the microscope more than ever before, a shift in the way founders choose their investor seems very likely. Second, many powerful organizations such as Diversity VC and Pledge LA are taking huge strides towards making a change, which provides market proof and partnership potential for other companies.
The idea for RateMyInvestor was born from a bad fundraising process with our parent company Sieo. We were working with an investment firm that dragged us along for months, promising a term sheet if we jumped through a number of hoops with no end in sight. After locking down partners, paying accountants for in-depth financial projections, and countless calls with the group, we were told the term sheet would be in our inbox in a week. We never heard from this group again. They ghosted us with not so much as an explanation why. Not only that but after conversations with a few other teams in our incubator, we realized they had done this to multiple teams in the same building. That spurred the question of why we had no way of learning more about investors we were speaking to and why we couldn’t do much to warn the next team that would fall prey to their time, cash and energy exhaustive process.
Our vision for the business is to create a balanced and transparent startup ecosystem.
In mid-February, our team will be releasing our first annual Diversity in US Startups report in collaboration with Diversity VC, Silicon Valley Bank, and Sieo. This report was generated through 5 years of data gathered from nearly 10,000 founders and 132 of the most active VC firms in the country. The information is truly shocking and we are using it to highlight the need for a change in the startup ecosystem when it comes to funding.
As for our product, in the next 6 months, we will be releasing a reputation management system for investors to better manage their online reputation on and off the platform.
Our greatest outcomes in this business have come from partnership and collaboration with other players in this space. Towards the end of 2018, we acquired a competitor, KnowYourVC, and joined forces with their team to work towards our shared vision together. We have also been lucky enough to partner with Diversity VC and bring on a team of talented team of serial founders to help us build towards this vision. In a space like Venture Capital, people and relationships are the largest drivers for growth.
We have dealt with a number of difficult moments in this company including having to scrap $20,000 of development work and build a team of 8 talented individuals on only sweat equity.
That said, the most difficult moment we have faced as a company was negotiating the acquisition of KnowYourVC. At the time we were negotiating the acquisition we had strong firepower on the business development side of things but had yet to release our beta platform or collect a single review. We knew that the network KnowYourVC had built, their leadership team and hundreds of reviews would get the ball rolling on our platform and save valuable early cycles on RateMyInvestor.
The greatest thing we learned from the successful negotiation and acquisition was that what people respond best to are not always numbers and spreadsheets. People want to work with others who are passionate about what they do. Vision is everything and even though KnowYourVC was looking at other offers for more cash, the decision to go with RateMyInvestor’s offer came from the relationship and vision we shared with their founder. Never underestimate the necessity to create win-win situations that are based just as much on the emotional aspects of starting a business as the dollars and cents.
The fundraising process is complicated and time intensive for both founders and investors. Typically the vetting and diligence processes are lengthy and many times do not end in a deal. An ideal experience for our customers would be access to valuable information which saves founders time they might waste on investors that aren’t a good fit or could even be destructive to their business. On the flip side, we aim to cut down the time investors spend in the early stages of screening deals while allowing them to effectively manage their entire online reputation in one centralized location.
One of my favorite quotes is,
“If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.”
– Antoine de Saint-Exupery.
This is very similar to the approach I take when motivating a team. My strategy for motivation and leadership has three layers. First, craft and message the big vision that may take years or decades to build. Second, lay out how you plan on getting there TOGETHER. Third, break it down on a weekly and daily basis to track progress and keep a strong pace.
Overall, the greatest importance falls on making sure people feel ownership over what they are building and being sure that each person has an intense passion around their role.
The space of startups and early-stage companies takes insane levels of grit, risk tolerance, and passion. The “right” decision in early-stage companies is typically subjective and as a founder, or investor, at some point, you can’t get stuck in indecision. From my experience, creating successes comes from diving in before you are “ready,” then course correcting along the way. There are too many unknowns to try to reason or predict your way into success. I think it is key to develop a futurist mindset, identify high potential opportunities, apply your learnings as you go and open as many doors as you can.