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By Guest Author Stella Fayman.

Funding. Startups that get it leave others wondering… “How did they do it?” No wonder: the stats are against most entrepreneurs. Only about 1 in 40 will get angel funding, and about 1 in 400 receive venture capital.  Don’t get worried though, I’ll be reporting on the secrets from entrepreneurs who have successfully raised money. The point is to elucidate the funding process and point out any misgivings or stereotypes that are stopping entrepreneurs from getting the capital they need. Without further ado, here’s the first success story (and one of my favorite Chicago startups): GiveForward.

Stella: I was lucky to meet Ethan Austin and Desiree Vargas Wrigley last summer as  both GiveForward and FeeFighters were part of Excelerate. Today, I’m chatting with Ethan Austin, who is co-founder of GiveForward.   If you know anyone who needs to raise money for out of pocket medical expenses, GiveForward is the tool they need to use. Basically, the service makes raising money super easy by taking advantage of social media. Families make pages on GiveForward, and then can direct any potential contributors to the site where they can make donations in a secure and easy fashion.

First of all, a big congratulations is in order since you guys just closed on an A round of $500,000. That’s huge! I think the first question that comes to mind is how long did it take to raise the round?

Ethan: From beginning to end it took about five months.  Within a week of the Excelerate demo day we were meeting with a VC firm and were actually naive enough to think we'd be able to close the round by the end of September. Suffice it to say, that deal ended up falling through after we couldn't come to an agreement on the terms.  At that point, we were feeling a little bit lost until Dan Kuthy, one of our classmates at Excelerate suggested we go the angel route instead, which turned out to be phenomenal advice.  Rounding up ten or twelve Angels can be a lot more work and take a lot more time than getting one VC firm on board, but in the end, it was worth it for us.  We were able to set the terms for our deal and now feel fortunate to have twelve incredible investors on board who believe in our mission.

Stella:  How did you meet the people who would ultimately become your investors?

Ethan: We were lucky in that Tim Krauskopf, one of the Excelerate mentors really took us under his wing.  He helped us fine tune our pitch deck and made early introductions for us to angel investors in Chicago, ultimately helping us secure our first $200,000. Once we had the first $200,000 in the bank, it was a lot easier to get others on board.  Matt McCall from New World Ventures made some introductions for us and we began to reach out to folks we met through Excelerate Demo day to set up meetings.  After we had 80% of the round committed we turned to Angel List to get the final $100,000.  Angel List, by the way, is a great tool and definitely recommend it to others trying to raise money.

Stella: So how did you go about determining valuation?

Ethan: Honestly, we kind of just picked a number and went with it.  We had spoken to a handful of investors about valuation ranges to gauge what was reasonable, and then we just chose a number in the middle.  Our goal was to come up with a valuation that would be attractive to investors and help get the deal done fairly quickly. 

Stella: Was there any disagreement at first?

Ethan: No. We figured it was better to be reasonable than to try to push the limits.  We could have pushed for a higher valuation but the opportunity cost of being away from the business and having to spend an extra few months fundraising wasn't worth it to us. 

Stella: Here’s a tough one: how much equity did you have to give up? Was it more or less than you expected

Ethan:We can't disclose that but we can say that we were happy with the amount of ownership we retained and we think our investors were pretty happy as well. 

Stella: Now that it’s in the bank, how do you plan to use the money?

Ethan: We already took 90% of it to build an awesome Facebook app that allows people to give away ponies and rainbows to their friends.  You should check it out.     

Stella: Was there any liquidity for you and Desiree?

Ethan: No liquidity, but after two and a half years Desiree and I are finally taking our first real salaries.  So that's kind of awesome.

Stella: Woot! In the five months you were pitching to investors, how did your pitch change? Who or what tools helped you refine it?

Ethan: Desiree and I spent a month putting together the original pitch, which she delivered at Excelerate Demo day.  We received a ton of mentoring from Troy [Henikoff] and Sam [Yagan] and great feedback from our fellow Excelerate classmates, but most of the credit is due to Desiree.  We probably changed the pitch about twenty times before we had a finished product, which is crazy because we were expected to memorize the pitches.  So each time we changed it, Desiree would have to memorize a new eight-minute pitch by heart.  It was a pretty trying experience but Desiree just kept working on it and honing it until it was perfect.  

I'm very grateful that Desiree delivered the pitch and not me.  We actually got graded at Excelerate on our pitches each week.  The one week I filled in for Desiree because she was sick, I think I got the lowest grade for any company pitch over the course of the entire month.    

Stella:  Desiree is awesome and she really set the bar high by going first at Demo Day. When she walked off the stage I remember everyone being totally blown away by her poise. Now to a more boring but important question: can you tell us about the legal aspect? Who did you hire and how much did you pay?

Ethan:  We hired Ben Kern from McGuire Woods. He was great.  We haven't got a final bill yet, but I can tell you he was sympathetic to the fact that we are still very much in bootstrapping mode. One thing that really helped us keep costs down was a suggestion from Sam Yagan to use open source documents.  Rather than drafting our own documents from scratch, we started with documents available on the Tech Stars website and then tweaked them a bit to fit our needs.  I definitely recommend this route for others raising $500K or less. In the end, it's going to save you a ton of money.

Stella: Thanks Ethan! You talked a lot about the Excelerate program, which is Chicago’s summer incubator for startups. I think we can both agree that any startup looking to raise money (or just succeed in general) should apply.