Why our small, inside Series B round is exactly what we need

As announced last week, we just raised our Series B round of $1MM. We wrote a long post about our Series A round, so I wanted to provide my perspective on this round especially since it’s uncommon to raise a small, inside B round and be happy about it (which we are). Every company is different but unfortunately most funding events are decidedly homogeneous. In our case we’ve happily rejected the status quo. Hopefully by giving you the background on why we did so will help you choose whatever path is right for your business.

Why raise funding now?

Earlier this year we did two key things that (positively) changed the slope of some of our key metrics: we launched our new Helpdesk product and we converted to a per-seat pricing model. Those two changes improved trial conversion, paid conversion and increased the number of upgrades. The percentage of people answering our customer survey question of “How disappointed would you be if UserVoice was no longer available?” with “Very Disappointed” surged past the 40% mark (considered important by folks that think a lot about measuring product/market fit). But most importantly, it changed our monthly retention rate.

Our initial round of funding was over two years ago. We had been growing organically and putting profits back into hiring and building the team, but still ran a pretty lean ship. We reached 70K+ signups without dedicated sales or marketing staff. The change in our metrics was a signal that it was time for us to raise money so we could fund – ahead of our revenue curve – a step function in team growth, one that would take us beyond a team that’s great at building products to one that’s equally great at bringing those products to market.

So why raise only $1MM 2yrs after raising roughly the same amount?

piles of coinsThis is where I take issue with the talk about the impending A Round crisis. For a lot of SaaS businesses, the A Round and even the B Round are outmoded concepts. With scaling revenues you can raise multiple seed-size rounds and keep dilution low while you build out the business. Once you’ve reached economic scale you can skip to a growth round. The abundance of angel investors and smaller funds isn’t going away and I predict you’ll see a lot more of the seed-seed-growth pattern from SaaS startups going forward.

Our expansion plan is, with scaling revenues, only expected to cost $500K so it hardly seemed worth going through all of the effort required for a VC round. We also investigated non-equity options (various debt instruments) but felt that given the friendly market climate and the stage of the business, now wasn’t the time to get too aggressive about dilution and run the risk of under-capitalizing an important expansion.

Time away from the business matters. Going out and raising a VC round would also have required a lot more time away from the business at a very critical point in the company lifecycle. We were a 13-person company at the time of this funding and both myself and my co-founder, Scott Rutherford, are actively involved in day-to-day.

How did we go about raising money this time?

When we last raised money a lot of time was spent spidering the network to find potential investors. Wow, what a difference a few years makes! For this round we used AngelList, where lot of that legwork has been done for you.

angelistOne thing about AngelList is that it seems to be pretty feast or famine (a microcosm of where our world is moving in general). When we posted our profile, we ended up at the top of the “Hot” page and rang up ~40 introductions in the first few days. Granted, we were a bit of an odd duck on AngelList; in a sea of early stage startups we had proven traction and brand equity. From talking to other people, it seems that AngelList may actually make it harder for very early-stage companies to build that important social proof since there’s less asymmetry of information.

Having said that, I would definitely recommend AngelList for filling out a round like we did. We met a lot of highly-relevant contacts that I otherwise would not have known about in a small space of time. If you do it right it allows you to really compress the process down quite a bit.

Doesn’t an inside round mean things aren’t going well?


Traditional thinking is that you never get a good valuation from existing investors and so they’re considered your funding source of last resort.

There were 3 reasons for our inside round: expediency, comfort, and control. I already mentioned time away from the business, but in addition, bringing in a new lead investor would have greatly dragged out the process by tacking on an extra 2-4 weeks for due diligence. It also would likely have meant adding another person to our board, which currently includes Scott, myself, and Steve Anderson (Baseline Ventures).


In the end, you could say that Steve Anderson was the single reason we did this as an inside round. When we were raising our first round in 2009, during very different market conditions, we made a concerted effort to optimize for great people over valuation. I think that strategy has borne fruit here for us and I’d advise anyone raising seed stage funding, especially if it’s your first venture, to strongly consider picking quality investors…not necessarily the people willing to stomach the highest valuation. Not only were we are already comfortable with Steve, but it also helped that he has the means to lead follow-on investments.

That the offer was on valuation 7X over our previous round made it all together a no-brainer for us. Because we had the same lead as our previous round we were able to re-use (roughly) the same docs and get this done in a matter of days rather than weeks (kudos here to our awesome counsel: Andre G of Silicon Legal Strategy).

Ours was a rolling close which is *so much easier* when dealing with a number of angel investors where you’ll always, despite best intentions, have someone who’s out of the country and can’t wire the money when you want. This probably saved me a good 5 points on my blood pressure. :)

So what’s next for UserVoice?

This funding enables us keep innovating and start to really amplify our message. UserVoice makes customer communication simple, humane and, dare we say it, fun. In the coming year, we plan to add many new features that will delve even deeper, re-defining the way businesses understand their customers, are able to to improve customer retention and ultimately, drive critical business results.

THANK YOU to our investors, our team, and our customers for helping us get here. It’s truly been a team effort.

Richard WhiteRichard White is a Co-founder and the CEO of UserVoice, where he focuses on making sexy products for un-sexy markets like customer service. Prior to UserVoice, Richard was the lead designer on Kiko.com, a Y-Combinator-funded Calendaring product that drew praise for its clean design, which was sold on eBay for $258K. After Kiko, Richard founded SlimTimer, simple time tracking for freelancers, where he experimented with name-your-own-price Freemium models.
Coin photo courtesy of JD Mack.
Inside photo courtesy of eskimoblood.