We Raised $6 Million for Our Open Source Startup

#startup #opensource #career #news

There are few things harder than making open source development sustainable as a full-time career option. As developers we hope that our skills will be enough to carry us from one opportunity to the next. If you're looking for a 9 to 5, then your skills can help you stand out. Unfortunately for those interested in being their own boss, it isn't enough.

To be your own boss means you take on the "soft" skills of marketing and networking to make yourself known. Even if you're well known in the field, you still need to get funding. JZ is the COO at Charm whose superpower is navigating the business world (that we devs usually want no part in). Her work capacity with business and finance is frankly incredible and she recently shared her learnings on how we got funding for charm.

I know there are developers out there who want to find success in their own startups.

This one's for you.

JZ's Blog Post

Recently, we announced our $6 million seed round led by Google’s AI fund, Gradient. The top question I get asked: “How did you do it?”, followed by “In this environment??”.

Here’s the tea.

It wasn’t easy.

In the initial months of 2023, it was noticeable that the funding market was shifting to one lacking liquidity. While mass public company layoffs made headlines, grapevine told us startups were shutting down. It was hard to believe, as some predecessors in our industry raised 10 - 20 million a year ago with similar or less traction, all pre-revenue. Now the goal post moved from growth to profitability. We had more than a few convos ending in a vague “let’s keep in touch”. Whilst tempting to kick and scream “it’s not fair!” all day long (really tempting), realistically, we had to revamp the pipeline to find suitable investors.

Keep building, shipping products, and evolve the pitch.

Fundraising can be a full time job. A strong team that continues to build and release products during this time is imperative. So that’s what we did. When OpenAI released their API, we built mods, bringing AI to the command line. Our open source traction, from even the oldest products, was still increasing and the community engagement better than ever.

We evolved the pitch by packaging the new data, traction, and articulating concisely our go-to-market strategy. Note: a good fundraising pitch is always more of an art than a science.

Finding the right people.

This is arguably one of the hardest parts of fundraising and in leading a startup. In fact, many compare fundraising to dating, or kissing a lot of frogs. While open source and developer tooling is a huge market, there’s really a short list of investors who believe in open source monetizing. We had to be nifty and try to maximize the pipeline.

Shortly after I joined Charm, I brought on a network of entrepreneurs in open source/developer tooling to be advisors for us. They included founders/CEOs of prolific companies in our space, including: Supabase, Honeycomb, Fleetsmith, Deepnote, Socket, Betterstack…I asked each of them individually if they knew of trusted investors we could speak with. One of those angels, Walter, ended up introducing me to the Gradient partner.

When you know you’ve found the right partner.

This is now the fourth time I’ve fundraised for a startup. I wish I knew earlier that it takes two to mingle. You’re searching for partnership, so you should go in with the confidence that you bring a lot to the table. You’ll learn a lot after the first call, and watch for their actions post call.

Signs of an engaged investor: they’ve done the research, are familiar with your products/space, follow up promptly for a next call or questions, give you appropriate timelines for next steps. As a former VC, I’ve seen a lot of the “wait, let’s see if they become a hot deal” ideology, and the slow ghost. Now back in an operating role, knowing the signs just avoids wasted time.

Negotiation & Deal Closing.

I firmly believe a good VC partner wants to make a fair deal, meaning it’s a “win win” situation. In today’s environment, that’s a luxury. In fact, it's increasingly common to hear about flat rounds (same valuation as prior round) or down rounds (lower valuation).

Pro tip here is to have good advisors who can tell you what market figures are. For a round of your size/stage, what’s the appropriate valuation, how many board seats should be taken, % of founder vesting, employee pool, legal expenses, etc.

I discussed with the co-founders and we stack ranked items that mattered most to us. Contrary to some experiences, a negotiation can be done quickly. The Gradient partner and I hopped on a 30 minute call to chat specifics. The next day, we got the term sheet.

As for deal closing, never forget: it’s not done till the money is in your account.

If you found this valuable, share it with your friends. We're eager to hear what the development community thinks about financing in open source. Let's chat!