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Misadventures in VC Funding: The $24 Million Moz Almost Raised

randfishkin.com

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Re: Misadventures in VC Funding: The $24 Million Moz Almost Raised

#21

Post by nikcub »

This happens all too often. A firm would rush to a term sheet knowing that they haven't done all the work required and knowing that there is a chance they will pull out of the deal, only so that they can kill off the interest from the competition.

I think it is very likely that they hadn't done any real DD (on you, or the market) until after you signed, and during that DD found that the business/market was not as hot as they thought it would be.

I have been through a similar process twice. The first VC gave us a term sheet 3 days after the first meeting, only for them to drag through the DD.

and all VC's say that they have an interest in the market you are in. The only way to substantiate it is to see if they have made investments in similar industries. ie. has this firm previously invested in an enterprise SaaS company related to marketing or aimed at marketing departments? If this firm or partner had only invested in server software, or consumer, etc. then it should have been warning.

You should also look at how many deals that partner has done and what their decision making process is. There is no mention of this in the post, but it could be that he took the deal to his partners and they decided to turn it down. There is no mention of the other partners at the firm nor how they make decisions.

The solution is to go through DD with 4-5 firms at the same time before signing anything or before finalizing terms. Tell them straight up that you want to do DD with all these firms between date x and date y, and that by date z you want final committals, from where you can go over terms with those who are still interested.

Things were done in the wrong order in this case, and you said you didn't want to shop the deal -- the VC took advantage of that.

Re: Misadventures in VC Funding: The $24 Million Moz Almost Raised

#22

Post by joshuacc »

tomjen3 wrote: post #20
patio11 wrote: post #7

Only tangentially related to the post: you know that bit about firms ridiculously underinvesting on SEO? This has been true over and over and over again in my experience. If you somehow manage to avoid that pathology, you will eat your competitors' lunches.

Say the SEO consultant. But seriously it would be better if you spend the time optimizing for humans, rather than playing with Googles algorithms.

In cases where the two are different, perhaps. But optimizing for humans is actually a core part of SEO.

Step 1. Find what people are searching for.

Step 2. Provide content that meets their search criteria.

Result: You have optimized for humans.

Obviously there are other ways of optimizing for humans. Some of those ways might even bring greater returns. But you don't necessarily have to choose between SEO and those other ways. The optimum strategy is usually to pursue both when possible.

Re: Misadventures in VC Funding: The $24 Million Moz Almost Raised

#23

Post by suking »

nikcub wrote: post #21

This happens all too often. A firm would rush to a term sheet knowing that they haven't done all the work required and knowing that there is a chance they will pull out of the deal, only so that they can kill off the interest from the competition. I think it is very likely that they hadn't done any real DD (on you, or the market) until after you signed, and during that DD found that the business/market was not as hot…

I think this is it as well. They probably felt the market for SEO SaaS is relatively small and wouldn't get to $100m+ within the next 5-7 years.

Re: Misadventures in VC Funding: The $24 Million Moz Almost Raised

#24

Post by davidw »

patio11 wrote: post #7

Only tangentially related to the post: you know that bit about firms ridiculously underinvesting on SEO? This has been true over and over and over again in my experience. If you somehow manage to avoid that pathology, you will eat your competitors' lunches.

> you know that bit about firms ridiculously underinvesting on SEO

Thinking about it, it sounds vaguely like the "Market for Lemons" (information asymmetry) problem: http://en.wikipedia.org/wiki/The_Market_for_Lemons

In that there are some people doing good things there, some people selling snake oil, and a lot of doubts in between, it would certainly cause firms to invest less due to doubts that they'd be getting anything worthwhile.

Perhaps. It's just off the top of my head.

Re: Misadventures in VC Funding: The $24 Million Moz Almost Raised

#25

Post by _delirium »

nl wrote: post #19
robfitz wrote: post #17

Earlier quoted context omitted.

I think you are depressed by what you think you read, not what you actually read. He explains their motivations quite thoroughly (talent is currently available, so for now, cash is their major bottleneck, not scouting). They've also been in business for 30 years (founded 1981). Somehow I don't think they are ignorant of how to run a business. There isn't a moral "right" answer for VC. Taking it isn't a weakness, and…

They've also been in business for 30 years (founded 1981) SEOMoz has been in business since 1981? Wow.. what did they optimize for back then - library catalogs?

It's a bit of a stretch. Their website (http://www.seomoz.org/about) lists a co-founder's traditional marketing company, founded in 1981, as an SEOmoz precursor. But Rand Fishkin, who largely drove the SEO direction that's become successful, didn't join until 1999, and SEOmoz itself was founded in 2004. So it'd make more sense imo to say it's been in business for around 10 years, though one of the co-founders had previously had 20 years' experience running a different (non-SEO) marketing company.

Re: Misadventures in VC Funding: The $24 Million Moz Almost Raised

#26

Post by patio11 »

tomjen3 wrote: post #20
patio11 wrote: post #7

Only tangentially related to the post: you know that bit about firms ridiculously underinvesting on SEO? This has been true over and over and over again in my experience. If you somehow manage to avoid that pathology, you will eat your competitors' lunches.

Say the SEO consultant. But seriously it would be better if you spend the time optimizing for humans, rather than playing with Googles algorithms.

Optimizing for humans via playing with Google's algorithms is a false dichotomy. It is hilarious in the context this usually comes up in, which is "We spend $Y00k on AdWords optimizing for humans but can't scrape together $X0k to do that fiddly SEO stuff playing with Google's algorithms."

Re: Misadventures in VC Funding: The $24 Million Moz Almost Raised

#29

Post by vaksel »

frankly I'm surprised they even had to raise funding with their current revenue levels and profit margins.

And an investor might think that the company has peaked already. Everyone knows who they are. And SEO is something that doesn't have a lot of growth for company adoption. It's been around so long, that most people already know about it. So your hope for customer acquisition is to find that one marketing professional that doesn't know about SEO.

Re: Misadventures in VC Funding: The $24 Million Moz Almost Raised

#30

Post by webwright »

suking wrote: post #23
nikcub wrote: post #21

This happens all too often. A firm would rush to a term sheet knowing that they haven't done all the work required and knowing that there is a chance they will pull out of the deal, only so that they can kill off the interest from the competition. I think it is very likely that they hadn't done any real DD (on you, or the market) until after you signed, and during that DD found that the business/market was not as hot…

I think this is it as well. They probably felt the market for SEO SaaS is relatively small and wouldn't get to $100m+ within the next 5-7 years.

$100m in value? With $12m in revenue (double from the previous year!), they are pretty close to being a $100m company NOW.
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