For the first five or six months that we were working on outside.in,
the assumption had always been that we would not seek out venture
capital funding for the company -- at least in its first year of life.
We were lucky enough to find ourselves in a hot space at a time when
investing in Web startups had once again become fashionable, and we
didn't have any capital-intensive needs in terms of staffing or other
resources. (Most of outside.in was put together by three of us, and
even now we only have eight full-time employees.) After we launched the
beta version of the site in October, we had no shortage of interest
from angel investors in the company. Why bother going through the due
diligence and onerous terms of VCs when you can do it all with
individual investors? And besides, we assumed the whole venture model
was based on investing much larger sums than we were interested in.
So why are we -- very happily -- announcing a new round of financing
today, with THREE venture funds participating? It begins with my friend
Ed Goodman, who is one of the partners of a fund called Milestone
Venture Partners. Ed had asked me to be on their advisory board last
year, in part to help in introducing them to interesting Web. 2.0
startups and entrepreneurs. When I started work on outside.in, Ed asked
me to come in to talk about it with his partners. They had some great
feedback on the concept, and Ed encouraged me to meet with Fred Wilson
and Brad Burnham over at Union Square Ventures.
I had admired Fred and Brad's work from afar for some time, and of
course del.icio.us had been an inspiration for us from the beginning
(our URL was a bit of an homage, actually.) But I'd never met either of
them before. When we sat down for the first time, I was really just
blown away by how well they understood the problems we were wrestling
with -- from the macro level of where we saw the site's revenue model a
year from now, to the micro issues of our tagging architecture. And --
amazingly -- they didn't talk like
VCs. They never once mentioned leveraging the incremental end-to-end
value chain, or whatever. (Perhaps they did this for my benefit, and
resumed picking the low-hanging fruit once I left the room -- either
way, it was a good show.) They said they could act much more like
angels -- investing smaller amounts than usual, with less restrictive
terms -- and as we began negotiating in earnest, they kept good to
their word.
And then in the closing days of the deal, my old partner from the
FEED/Plastic days, Bo Peabody -- one of the people I most admire in the
Web investment world -- asked if his fund Village Ventures could
participate as well, so I couldn't say no to that.
We've still got a great list of angels involved as well. Marc
Andreessen just wrote in out of the blue to say that he really liked
the site, and to ask if he could help out with the financing. Esther
Dyson, John Borthwick, George Crowley, and Richard Smith -- it's a
fantastic list of people to have behind you. (Along with our other
founding investors, John Seely Brown, Mark Bailey, and Andy Karsch.)
The new site that's available today is already showing the positive
impact of these minds on outside.in (Fred and Brad starting emailing us
feature suggestions before we even had a term-sheet.) But I'm most
excited about what we can do from here on out. Stay tuned.