Joseph Woodbury of Neighbor.com shares three pieces of advice on how to raise capital — from integrating yourself into the local ecosystem to being able to change your plans on a moment’s notice.
Joseph Woodbury isn’t afraid of risks. It’s quite the contrary, in fact.
Taking well-thought-out chances is exactly how he and his two co-founders — Preston Alder and Colton Gardner — launched and raised money for their startup, Neighbor, an online marketplace people can use to store their items.
Before college graduation, all three had secured full-time jobs. But, plot twist: They ended up turning down their offers, choosing to dive full force into making Neighbor into something big.
The idea for Neighbor came from Preston, who became frustrated when his only storage option was 30 minutes away, in a sketchy industrial park, and way out of his budget. Instead, he chose to keep his stuff in a friend’s garage. This option gave him peace of mind and saved him a ton of money, and he wondered why others weren’t doing it.
Since Neighbor entered the world in 2017, they’ve raised several thousand dollars from business competitions, $2.7 million in a seed round, and $10 million in a Series A.
And they certainly didn’t get to that point without more risk-taking. What if their competition pitch turned off possible investors? What if focusing on product over marketing yielded little to no user acquisition? But each decision they made was very strategic. They didn’t let uncertainty hold them back.
In an episode of How I Raised It, Joseph shares how each of their risks paid off and helped them raise almost $13 million.
1. Start small and stay local
At the beginning, Joseph and his co-founders entered Neighbor into a bunch of business competitions in their area. They lost some but won others, bringing in $10,000 here and there. All in all, they compiled around $35,000. This experience galvanized them. But, of course, money goes quickly, especially when you’re trying to scale a business.
“You can only do door knocking and growth hacking tactics for so long,” Joseph says.
These competitions ended up being the catalyst for Neighbor’s seed round. Because, as it turns out, a lot of local VC investors were in attendance. Several reached out to Neighbor afterward — they were impressed by both the idea and the team’s execution of it.
Eventually, these conversations led to Neighbor securing $2.7 million for their seed round, which was led by Utah’s largest VC firm, Pelion Ventures, and biggest seed fund, Album VC.
“It was great to bring on two different partners that could guide us,” Joseph says. “We were all very young founders, and they were very, very helpful in the early days.”
Leverage local business competitions. They’ll provide you with great pitching experience, and you could gain invaluable exposure to investors.
2. Prove your product, then invest in marketing
Neighbor spent their seed funding carefully, choosing to build a robust engineering organization rather than pay for various marketing campaigns. For the first several years of the business, they had a one-person marketing team and relied on organic growth.
“We focused on the product and we iterated, iterated, iterated,” Joseph says. “We listened to customer feedback and made sure we’d solved all these nuanced problems and created a best-in-class product.”
Putting all your money into marketing doesn’t make sense if your product sucks.
When Neighbor started getting net promoter scores over 70, the co-founders knew they had a very solid product. So, they built the foundation for strong marketing and growth teams and started expanding into different markets through both organic and paid channels.
Once they had a good playbook for establishing themselves in a new market, they decided it was time to pursue a Series A to help skyrocket their growth.
Figure out how to use your capital efficiently before you start asking for more. At the end of the day, investors want to feel confident you’ll use their money wisely.
3. Identify your quintessential investors — and be willing to bend over backward to get them on board
While raising their Series A, Joseph flew out to the Bay Area two to three times a week for investor meetings. He received multiple rejections but also some yeses, which were “always key to get the momentum moving,” he says.
Then, mammoth firm Andreessen Horowitz got involved after one of Neighbor’s seed round partners spearheaded an introduction. Joseph flew to their offices and met with two investors, one being Jeff Jordan, who used to run eBay, PayPal, and OpenTable and had invested early in marketplaces like Airbnb and Instacart. Essentially, Jeff was Neighbor’s pie-in-the-sky partner.
“He’s arguably the best marketplace investor in the world,” Joseph says. And that’s exactly what they were looking for — someone who had scaled marketplaces several times before. This is a great reminder to resist taking money from just anyone. Clearly define your ideal partner profile and go after that.
As Joseph was boarding his flight back to Utah, his phone pinged. It was a message from Andreessen. They wanted to move forward, but they couldn’t unless three of their partners agreed. Remember: Joseph’s meeting was only with two. Andreessen also wanted to move fast because Neighbor already had a term sheet from another firm.
When you’re raising funds, you need to be able to make decisions quickly, especially if your dream investors are on the line.
So, Joseph left the airport and went back to the office to meet with Marc Andreessen, Jeff Jordan, and Andrew Chen. A few agonizing hours later, they told Joseph the good news: Neighbor had gotten the three yeses they needed.
Neighbor closed their Series A at $10 million, which was the top end of their goal.
WATCH a variation of this story with Jeff Jordan and Joseph Woodbury at Silicon Slopes:
Nathan Beckord is the CEO of Foundersuite.com which makes software for raising capital. Foundersuite has helped entrepreneurs raise over $2 billion in seed and venture capital since 2016. This article is based on an episode of Foundersuite’s How I Raised It podcast, a behind-the-scenes look at how startup founders raise money.