David Wilson is an associate at Vienna, Va.-based Blu Ventures, which invests in early-stage tech companies in the Mid-Atlantic region. Its current portfolio includes Cybrary, ConvergentAI, ID.me, Urgent.ly, Ostendio and RackTop Systems. In this Q&A series, Wilson speaks with investors and founders in Blu's portfolio about what it takes to get funded as a D.C.-area technology company. This interview has been edited for length.
It is not lost on investors – raising money for your company is very challenging. Even deciding whether or not to raise money can be a tremendous task, especially for early-stage companies. We sat down with Eric Bednash, CEO and founder of D.C.-based RackTop Systems, to ask him what advice he would give to entrepreneurs, founders and executives who are thinking about doing their first big raise.
When did you realize that it was time to raise institutional investments, since for a while you were totally bootstrapped?
EB: We knew it was time when we reached the capacity with what were were able to do with the team. We were growing too quickly for the current resources that we had. That’s typically what has driven all fundraising decisions. We ask ourselves, “Can we no longer support the product and develop features with the team we have? Do we need sales and marketing teams to generate more leads and opportunities?” These two indicators, product support/development and sales/marketing, were always driving our decisions on whether or not to seek outside investments.
You were a business that was generating solid revenues. Why not just go ahead and use your profits and revenues to fund this expansion and then, not have to raise any money?
EB: In my opinion, it’s a combination of three things: business/financials, overall market conditions and connectivity. For the business component, I’m thinking, 'How much money can I get this quickly with the team I have? What does the market that I’m operating in look like now?' Then there is the overall market conditions – you have a feeling about what is going on in the market and even global economics... Third, do I have the right connections to be successful in this raise? This is the biggest thing that played into our raise. You have to make sure that your business philosophy aligns with the investors in your network.
What should entrepreneurs look for in an investor, especially in the earlier rounds?
EB: Entrepreneurs should look for investors who are willing to help. Not by just offering advice, but by connecting the entrepreneur to the resources, which will help get the company to the next milestone... I suggest that early-stage companies partner with at least one operator/investor who has the time and willingness to help. And it’s important that the investor is a cultural fit. Bad money can become an exponential drain on an early-stage company.
As a cybersecurity company, how important was it to be in D.C.?
EB: Today, as a high-performance storage and security company, we are a cyber-data company. This means that we are in a space that is being created. Those types of companies exist here in D.C... D.C. will continue to mean more than ever for cybersecurity companies because the people here are the best at what they do, and more and more people will see that this is the right community for cybersecurity companies to thrive. Any company that wants to glean experiences from the people and government security agencies that are rooted in D.C., will really thrive here in the future.
What was the hardest part about raising money?
EB: For me, the hardest part is conveying the message clearly – conveying the opportunity clearly. You have to be able to answer questions. The most difficult thing is that as an entrepreneur/CEO, you will feel your product is special and you will have an emotional attachment. That is great! You just have to make sure you maintain the passion when someone tells you that your product sucks. That is the true test.
In reality, those people across the table may or may not get your vision or what you are doing the moment you tell them. They might come at you in a friendly way or non-friendly way. Different VCs have different personalities, just like people do. I think being able to maintain enthusiasm and being able to answer questions concisely and in an intelligent way helps... You just have to stay positive because it is easy to get upset when somebody doesn’t like what you love.
What advice would you give to someone who is planning to raise money right now?
EB: Talk to a lot of people. Ask a lot of questions. Make your own decisions based on your experiences with others. That is the most value that I have learned that my experience is different than somebody else’s and you have to figure out what is best for you. For some people fundraising is easy, for some it is hard. It is better to be prepared throughout the process for anything. The only way to prepare for this, outside of the normal company preparation, is to ask people what their fundraising experience was like and to understand a lot of diverse experiences.
