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 you’re seeing 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.
