Jesse Lipson, the serial entrepreneur behind Raleigh-based Levitate, knew the company needed more cash to get it to the exit stage.
But with institutional capital drying up, Lipson (whose last startup, Sharefile, sold to Citrix), took a different approach to fundraising. A “friends and family round.”
Instead of just pitching to traditional VCs, he targeted friends and former colleagues. And it worked, as Levitate announced Thursday morning that it had closed $13.8 million.
The round provides enough capital to become cash-flow positive and “control our own destiny,” he said. And while he’s careful to say that it’s still “many years from now,” it’s enough money for the firm to one day get to an initial public offering.
It’s also enough cash for the 150-person firm to keep growing. The plan right now is to add “at least” 30 people in the next year, primarily in sales, customer success and engineering.
In an interview, Lipson talks through how he did it, and what other entrepreneurs seeking out capital in the tough funding environment can learn from the effort.
The email
Last fall, when Lipson and team started to explore the idea of a $10 million raise, growth equity appeared closed for business. So Lipson said the team got creative.
“We decided to start our round with friends and family, with our network,” Lipson said. “We thought that was going to be a part of the round, maybe a small part of the round and then we were going to fill it out with some more early stage VCs.”
Some VC investors did sign on, such as Durham’s Bull City Venture Partners (which led the round), Tippet Partners, Protagonist and the Tweener Fund. But the involvement from individuals within his network surpassed expectations.
“We literally sent an email out to folks and in less than a week we had already hit our $10 million goal,” Lipson said.
Levitate cut the round off at just under $14 million, after the contribution of more than 60 individual investors, many of them successful entrepreneurs in their own right. Those investors also included entrepreneurs with local exits, such as Joe Colopy and Chaz Felix, who co-founded Bronto Software, and Aaron Houghton, who co-founded iContact.
Colopy, in an email, called the investment a “no-brainer.”
“Jes is a great founder who has done a masterful job scaling revenue at Levitate and articulating an even more compelling vision for its future," he said.
Another serial entrepreneur, Jud Bowman, said when he got the email, he and his wife were in agreement that it was an investment they wanted to make.
“Jes is one of the smartest people I know,” he said of his friend. “He almost always beats me in chess. He is also a very ambitious entrepreneur… their revenue is growing faster than Sharefile’s did at the same point in the company’s history, and Sharefile turned out to be a fantastic success.”
Investors also included Mark Templeton, former CEO of Citrix.
“Raising a round with a lot of small checks from your network can be a great approach, because people in your network have a much better inside knowledge of your capabilities as an entrepreneur – also, they’ve probably been following your company for longer,” Lipson said.
Under pressure
But before other entrepreneurs start typing up their own emails – they should know that soliciting friends and family means “more pressure.” While he’ll be a “hero” if it works out, “if things go bad with the company, not only have I lost of a lot of money for our investors… but then all these people in the network, they’re my friends, and I will have lost their money.”
Lipson, who is also personally an investor in the company, said it raises the stakes on both sides, which is why he didn’t pursue a friends and family round earlier.
“We never did that at the idea stage… I was too afraid to lose my friends’ money at that point,” he said. “I just put my own money in at the idea phase.”
Lipson said the fact that he was willing to take that step shows the faith he has in Levitate “and how much momentum we have and how great our metrics are.”
“If we go out there and 10x their investment, it feels good to have that money go to people in the Triangle and other fellow entrepreneurs rather than a large investment firm somewhere else,” he said.
For those considering similar moves, he suggests making sure your firm is a bit more established.
For their part, investors TBJ talked to said they were more than willing to take the bet.
“Jes is, first and foremost, a close friend no matter how this investment turns out,” Bowman said.
To date, Levitate has raised nearly $40 million. Lipson founded the company in 2017 as an alternative to automated outreach such as email blasts. The goal of the platform was to help companies keep in touch with clients, prospects and referral services personally and authentically – but at scale.
