Announce Your Financing In Conjunction With Your Form D Filing

I’ve always had mixed feelings about the importance of a company announcing a financing in the absence of any other activity. “Dear World: We Just Raised $X From Investors A, B, and C.” Ok, but so what?

In my book, there is only one real reason for this – to attract new potential employees: “We’ve just raised $X and are hiring 20 people including types A through types Q – see our jobs page at jobs.companyname.com and apply now.”

Unfortunately, very few funding announcements are focused on this for two reasons. The first is the stupid one – many entrepreneurs get tangled up in the ego dynamics of a financing (“look ma – we raised money’) and lose sight of the notion that raising money is just one tiny step on the path to success. In my book, once you’ve completed a financing, take a deep breath, tell everyone in the company so they know how much money is in the bank, and then get back to work creating amazing things for your customers.

The second is less stupid, but is something I see over and over again, even with companies we are investors in (and we know better). When you do a financing, you file something called a Form D with the SEC. This process is fully automated which means it is easy for our friends like Dan Primack at Fortune to see any new filings that are made. Dan was one of the first people I knew who regularly published Form D info – it’s now spread widely across most of the VC-based publications, but I’ve give Dan credit for being the most diligent with this (and with many other things he reports on.)

Once you’ve filed your Form D, the data is available on Edgar with a simple search. There are other ways to get it as well since there are plenty of services that republish Edgar data with a better UI for searching. Regardless, the info on Form D is out there on the web.

Some VCs I know claim that you don’t have to file a Form D. Having researched this, I think it’s a dumb move. Most credible attorneys that work with corporate securities, especially those in the VC industry, will insist that you file a Form D if you have more than one investor, or if you have investors in more than one state. In our world, we just tell companies we invest in to file it and not worry about it.

This takes us back to the beginning of the post. For some reason, some companies want to keep their financings quiet. That’s fine – just file your Form D and say nothing about it. It’ll get picked up in the daily VC publications, like Term Sheet and VentureWire. Maybe it’ll end up on TechCrunch if you’ve got some famous investors that they like to write about. And, if your local paper is on the ball, it’ll show up there also. But it’s meaningless – “Joe’s Company Raised $X From Investors A, B, and C according to a filing with the SEC.” Next.

But if you are going to announce your financing, do it right – in conjunction with your Form D filing. Have your jobs page up. Make it clear that you are hiring. If you have substantive stuff to announce around the financing, say an acquisition, a major strategic partnership, or a new product release, announce it at the same time. Substance matters here – the more the better.

Make your noise for a day – and then get back to work creating amazing things for your customers.

  • http://reecepacheco.com reecepacheco

    i’ve heard of a trick to keep one’s financing quiet that went like this

    an NYC company wanted to keep their financing quiet, so they incorporated/filed their Form D (or maybe just filed) in CA and didn’t list the board members so as not to attract attention

    does this sound right/possible?

    • http://www.feld.com bfeld

      There are lots of different “tricks” people try. The challenge is that any material dollar amount will likely be picked up and if you under disclose AND you have multiple investors you run the risk of having a faulty disclosure. For many entrepreneurs they might decide to take the risk, but for any VC who has ever struggled through this issue in an acquisition or an IPO, it just isn’t worth it.

      • http://reecepacheco.com reecepacheco

        knowing what i know, that is really, really interesting

  • Anonymous

    One thing I’ve seen Brad do really well is go beyond the “now hiring,” announcement to actually sell. The YesWare and Occipital announcements both come to mind as times when the blog post read: (1) we funded these guys because they’re an awesome company, (2) now that I have your attention, here’s why their product is awesome for you, and (3) go buy the product now.

    Occipital did this w/ free 360 in the App Store, YesWare did it by coming out I stealth. If you have a public product to sell and your VC has a blog — announce to sell.

    • http://www.feld.com bfeld

      Totally agree that’s one of the rolls of VC blogs, rather than just “hey look at us, we are cool, we funded this company.”

  • http://www.charliecrystle.com Charlie Crystle

    There’s value in the PR hits, positioning vs competitors or industry direction, etc, and can be leveraged as a start of a PR push around the product offerings. And as Y says below–product sales. 

    Speaking of which, ordered two fitbits yesterday (one for me, one for mom). Disappointed there was no group/family/multi discount ;)

    • http://www.feld.com bfeld

      It depends on how and what you actually announce. If all you do is announce your financing and some generic statements about what you do (which is most of the announcements), then the PR hits are useless. You can also have negative dynamics around competitors – your financing often motivates competitors to say “hey – look – they got $X” which helps their financing prospects with VCs who are fast following a visible market entrant.

      In general, I think there are much more substantive ways to deal with product position, thought leadership, and sales for a company than the “funding announcement.” 

      Cool on the Fitbit’s – if you have any questions about them ever just email me. 

      • http://www.charliecrystle.com Charlie Crystle

        ok, I’ll concede on the strategic aspect of keeping it quiet. 

        Thanks on the FB…looking forward to it. Followed your story and it’s helped motivate me toward exercising more, eating less :)

        • http://www.feld.com bfeld

          Make sure you friend me on Fitbit (and your mom!) – the competition aspect is very motivating.

          • http://www.charliecrystle.com Charlie Crystle

            awesome–will do :)

  • Mark Montgomery

    I’ve been surprised at times how notification of financing impacts some customers to pull the trigger–for better or worse –usually not having sufficient information for it to impact their decision process, but the bias does exist in some decision makers–and absolutely exists with media. It shouldn’t influence–for example I am financing my current company on an as needed basis with much less risk than most initial VC rounds, but no one is aware of it since it’s only me. Many public and private company investments are similar that are in some cases larger than most VC investments. Curious impact–then when something of importance is shared it’s like pulling teeth to get it covered with some intelligence. Ignorance is bliss I suppose, until it isn’t.

    • James Mitchell

      An investment by a good VC firm provides validation. Anyone who is sophisticated knows how difficult it is to raise capital, and that good VC firms usually do a lot of due diligence before they invest. So a third party, presumably a very smart third party, has said, “These are good guys and it appears like they are knowing what they are doing.” That means something.

      “I am financing my current company on an as needed basis with much less risk than most initial VC rounds,”

      This depends on whose perspective you are talking about. From the entrepreneur’s point of view, taking VC money could increase HIS risk. He now has a liquidation preference, which means until his company is worth $X million, he makes nothing. The VCs might decide to fire him.

      But from the customer’s point of view, in almost all cases, an investment from a VC will decrease perceived risk. The customer does not care about your liquidation preference. If the investment does not work out, the chance are probably higher that the VCs will find a way to keep the product line going, because of reputational risk and by doing so they might be able to salvage some value. And this is an area where a VC is likely to be much better qualified than most entrepreneurs. VCs are likely to have contacts at the major Internet and media firms who might be willing to take over a situation on the right terms.

  • James Mitchell

    “In my book, there is only one real reason for this – to attract new potential employees: “We’ve just raised $X and are hiring 20 people including types A through types Q – see our jobs page at jobs.companyname.com and apply now.””

    I disagee. There are lot of people that might be interested in knowing this.

    First, customers and prospective customers. If you’ve just raised $5 million, then presumably the odds that you will stay in business are now higher, and thus the risk for a prospective customer choosing you are lower.

    Second, other prospective investors. Most investors (VC and angels) are sheep and are incapable of original thinking. If I sent out an accouncement that my company just raised $5 million from Accel, Andreessen Horowitz, Sequoa and Union Square Venture, some investors would call up and offer to send in a check without even knowing what business I am in.

    Third, there are many high priced lenders (venture financing firms, leasing firms) that will provide capital to you if and only if a good VC has invested in you. Basically, they don’t have the time or ability to do due diligence, they figure if a good firm has checked you out and written a check, that’s good enough for them.

    Fourth, strategic partnerships.

    Fifth, reporters (particularly Techcrunch) love this stuff. Which means a whole lot of people will know about you that did not know about your before. A whole lot cheaper than advertising.

    I am sure there a lot of other categories I have forgot to mention. Obviously one would not just announce $X would be raised. Instead, you would announce what you are going to do with the money, how it will make your product better, etc.

    • http://www.feld.com bfeld

      James – do you have any empirical or experiential evidence of any of these points?

      1. Customers / prospective customers: The PR isn’t needed for this.
      2. Uh huh – whatever. Has this happened to you?
      3. But the PR announcement is not needed for this.
      4. The only people who call are generally low level BD guys. This often is a huge waste of time, vs. targeted BD which usually happens from the company’s outreach.
      5. But generally worthless with one edge case – a consumer service that is trying to get it’s first initial batch of users. And the downsides of broadcasting what you are doing to other entrepreneurs and VCs is not necessary useful and in some cases very counterproductive.

      Your last point is confirming of what I said in the post!

      • James Mitchell

        1. Customers / prospective customers: The PR isn’t needed for this.
        Sure it is, at least for ME as a prospective customer. I see a billion announcements a day about two guys who have an interesting idea. For a few of them I say, “That might be of use to me. Um, I wonder if they will be in business a year from now.” Funding from a good VC firm would make ME feel more comfortable they will be around.

        In evaluating suppliers, one of my criteria is financial viability/how long will they be around. And this is not just for startups. I have steered many friends away from Palm and recently Blackberry not just their products suck, but because I don’t know if they will be around three years from now. Many years ago, I steered friends away from Gateway.

        2. Uh huh – whatever. Has this happened to you?
        Well, I have never sent such an announcement, so I cannot say. But let’s test this. Foundry Group should send me $15 million today, based on a $30 million pre-money valuation. I will send out an announcement as soon as you do and we can see who pops up. Either way, I get to keep the $15 million.

        3. But the PR announcement is not needed for this.
        If I already know the venture leasing company, then an announcement is not necessary, I can just call them and tell them the good news. But I probably don’t know most of the venture leasing companies and some of them might decide to approach me after reading about the recent raise.

        4. The only people who call are generally low level BD guys. This often is a huge waste of time, vs. targeted BD which usually happens from the company’s outreach.
        Strategic partnerships are not my bailiwick, so I will defer to your experience on this.

        5. But generally worthless with one edge case – a consumer service that is trying to get it’s first initial batch of users. And the downsides of broadcasting what you are doing to other entrepreneurs and VCs is not necessary useful and in some cases very counterproductive.

        This is a subset of the “how many people should know what you are doing.” To me, every customer is a win, whether they are in the first batch or tenth batch. As CEO, I think everyone in the world knows about my company but the fact is that 99 percent of them do not. Compete.com says Techcrunch has about a million monthly uniques. That is a lot of eyeballs. If 1/10 of 1 percent try my product out and become customers, that 1,000 new customers. In addition, a whole lot of other media will read Techcrunch and then write about my company.

        A lot of the value of PR is indirect. It’s not that the PR by itself does the job. Rather, a PR post means that when you call someone up, he says, “Oh, I have heard of you guys.” And it makes your sales job easier.

  • James Mitchell

    For those readers who are unfamilar with Form D, here is what Wikipedia says:

    Form D is an SEC Filing form to be used to file a notice of an exempt offering of securities under Regulation D. Commission rules require the notice to be filed by companies and funds that have sold securities without registration under the Securities Act of 1933 in an offering based on a claim of exemption under Rule 504, 505 or 506 of Regulation D or Section 4(6) of that statute. Commission rules further require the notice to be filed within 15 days after the first sale of securities in the offering. For this purpose, the date of first sale is the date on which the first investor is irrevocably contractually committed to invest. If the due date falls on a Saturday, Sunday or holiday, it is moved to the next business day.

    Privately-held companies that raise capital are required to file a Form D with the SEC to declare exempt offering of securities. Many of these filings show investments in small, growing companies through venture capital and angel investors, as well as certain pooled investment funds.

    If you want more information, at the SEC website see:

    http://www.sec.gov/info/smallbus/secg/formdguide.htm

    For a website that allows you to search for a specific Form D filing, see:

    http://www.investorscopes.com/ViewAllFormDFilings.aspx

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