Post-Investment Interview with GroSocial

By Chris Russell

Assuming you haven’t been hiding under a rock, you should know the big news that GroSocial was acquired by Infusionsoft.  Wait, that wasn’t on the front page of your newspaper?  Well, it was pretty big news for us, and for the great team over at GroSocial.  You can read all about it on TechCrunch.  Once the high fives subsided, we got some feedback from CEO Zach Magnum about his experience with Revenue-Based Financing (RBF). Having gone through the whole investment process from start to finish he has some great advice for other entrepreneurs. Below are his responses.

GroSocial is a social media marketing software company based out of Orem, Utah that helps small and medium-sized businesses find new customers through popular social networking sites such as Facebook and Twitter.

What did you like most about using RBF to finance your business?

Without question, avoiding unnecessary dilution–especially early on–was what I liked most. RBF sounds scary the first time you hear about it. People will tell you “it’s like a payday loan” and “the interest rate is astronomical”. The funny thing is that most entrepreneurs and advisors to entrepreneurs seem to forget the fact that equity financing is hard to come by. Further, debt financing isn’t even an option–especially for early stage startups. For GroSocial, RBF was an awesome fit. It allowed us to defer the valuation discussion with future equity investors to a later date when we had a little bit more traction.

How did the flexibility of RBF benefit GroSocial?

Down months meant we paid less, good months meant we paid more. The variable nature of the monthly payments was hugely beneficial in helping us manage cash.

Other than the financial investment, what value-add did GSD Capital bring GroSocial?

Chris has been awesome. Aside from capital, Chris served as an invaluable board member. He knows his stuff and brings a unique point of view to the table as a former entrepreneur that has been through the startup game before. Chris is hands-on and adds value without being a burden to his portfolio companies. We were able to land sizable partnerships that I’m confident we wouldn’t have landed thanks to introductions from Chris.

Was the promised cost of capital savings (compared to equity) realized?

Absolutely. Looking back, had I been able to predict the timing of our exit, I would have taken more of our total financing in RBF to avoid additional dilution. Taking a decent chunk of our total financing via RBF resulted in each shareholder realizing a greater return.

What advice related to fundraising would you offer other Utah entrepreneurs?

You’ve heard 1,000 times that traction is important so I don’t need to repeat that; however, it is worth mentioning that traction plus metrics/relevant data obtained through your traction sells. As you pitch investors, remember that investors put their pants on one leg at a time. Be extremely confident and don’t allow yourself to be intimidated. Most of them know far less than they’d like you to think they know. Personal wealth or prior business success does not denote omniscience.

What is one aspect of running a successful startup you underappreciated at first but later realized was critical to your success?

Being clear on why you’re doing what you’re doing matters immensely. Entrepreneurs that are clear and passionate about their purpose behind creating and managing a startup have more staying power. It doesn’t take too long before you’ll run into several challenging bumps in the road that will lead you into wanting to give up or chase bogus opportunities. If your purpose is clear–and isn’t lame like “getting rich” or “achieving personal independence” or something like that–you’ll be able to weather virtually any storm that comes. Start a company to create change. Change the way people do things and take pride in the way you make that happen.