3 Lessons from Raising our First Growth Round

Over the past six years I’ve led Zumper through four rounds of fundraising, from seed to Series C, raising a total of $90 million in capital along the way. It’s been quite the ride, and it still feels like we’re just getting going. Whereas no fundraise has ever been the same, I thought I was getting the hang of it. I was wrong.

Our Series C of $46 million was a totally different animal.

Now that Zumper was doing eight-figure revenue, it was our first ‘Growth’ round with very different types of investors at the table. Mid-process I had to throw out most of the playbook and start again.

Here’s what I learned.

Lesson 1: Move Beyond the Fairy Tale

When raising money in the early days, you’re selling the dream.

Raising a Seed round is all about being an expert storyteller. You’re painting the world as it should be in the future, with an ambitious but still somewhat amorphous plan of how you are going to get there.

You’re telling a fairy tale.

This is not to say you don’t believe in your vision, you absolutely do. But it’s highly unlikely that you know the exact path to get there so early on. In reality, you are relying on investors’ romance more than anything else.

Once you get to the Series A, you need to show product market fit in one or two of your segments or markets.

Zumper managed to show investors that our B2B landlord tool had significant traction with San Francisco and New York City landlords, even before we had built a consumer audience of any significance. That was it. Two markets, with barely any consumer users. But it was enough to show what we could do with more capital and we raised $6.5 million from Kleiner Perkins.

Cut to the Series B. Now you have to show your ability to scale the monetization model. It is no longer enough to point to product market fit, consumer traffic or NPS scores. You have to prove that you can monetize your users by showing early revenue and margin performance. But again at the B, this doesn’t have to be on a massive scale yet. It’s ok for the signals to be early, and potentially only delivered by a subset of your platform or markets.

But after this, things change.

Your first Growth round (for us this was the Series C, when north of $10M in net revenue) is very different.

Now you are building the case for a real business, one that can go public. It’s no longer about isolated tests or revenue examples. It’s about proving you can bring in significant revenue, with the ambitions of scaling that number to $100 million and then $1 billion in the coming months and years.

When we started raising our Series C, we went into meetings with the same shiny, image-based fairy tales that had worked for our Seed and Series A and B meetings. But we soon discovered that our pitches weren’t landing as well. This was a different breed of investor on the other side of the table. It took us a dozen or so initial pitch meetings to change tack. We realized that we had to give proof to institutional investors that the magical world we’d promised already existed – that we’d created it. And this meant hard numbers and excel files, not photos and images.

Lesson 2: CEOs – It’s No Longer Just About You

As I went out to raise our Series C, I knew from prior experience that there was a lot of work ahead for us. However, outside of a few meetings here and there, I thought I could shelter my senior execs from the round so they could continue to focus on execution. This is how the last rounds had worked.

I was wrong.

Growth investors care a lot about getting to know all the C and VP level. It’s definitely no longer just about you the CEO (which is awesome!).

This conflicted with the way I’ve tried to run Zumper to date.

So much of your job as CEO is to buffer your team from outside forces so they can focus. Your team have to be hitting their metrics during the fundraise, so striking the right balance of making your team available for meetings while also ensuring they don’t get caught up in the emotional rollercoaster of fundraising is critical.

I waited as long as possible before getting other team members involved. Despite pressure from prospective investors, I still took the vast majority of early meetings by myself in order to get a better sense for whether they were a solid prospect. By waiting until the conversations got serious before bringing my amazing exec team in, we were able to keep the business operating at full speed and morale high. By the time they came in, they were perfect closers.

Lesson 3: Recruit Senior Talent Before You Think You Need It

Zumper’s board had been advising me to hire a CFO for about a year before we did.

I was originally hesitant because hiring a CFO seemed like a luxury for a company at our then early stage. It seemed rich for a company doing single digit millions in revenue at the time to have a CFO. Weren’t CFOs the hire you made just before you went public?

And yet hiring a CFO well in advance of our raise turned out to be a great decision.

Our CFO, Khaled Alami, joined the company 9 months before we went out to raise our Series C, and before we had significantly scaled our revenue. At the time it seemed early, but with time he grew into the role and put critical components into place, by building and executing our financial plan and crafting the financial story we showed growth investors.

Double-teaming the round with Khaled was critical. I would go in and sell the vision. Khaled would then come in to run the second and third meetings and bring financial credibility behind my hand-wavey CEO presentations. Separating the person that paints the vision from the person that runs the cold financial model is a good move. And making sure that our CFO had been at the company for several months before the raise enabled him to speak to investors with authenticity and gravitas.

One Final Point: Resilience Over Everything

I’m an optimist who likes to see the positive in everything (which entrepreneur isn’t?), but there’s no denying that fundraising is incredibly stressful.

You’re going to get a bunch of No’s before you get your first Yes. The No’s naturally come first because they won’t spend as much time as the eventual Yes’s who will dig into your numbers.

Getting through all these No’s takes resilience and perseverance.

In a Growth round there are more meetings, more data, more diligence, more funds, and more demands on your time. Even with the best preparation, only around 10-20% of meetings with potential investors result in a term sheet.

Surround yourself with a team, both at work and at home, who can help you keep things in perspective. Looking after your mental health and balance along the way is everything.