As we were incredibly busy in the midst of the 3-month long TechStars accelerator program, Russell Benaroya, my co-founder & CEO, scored a meeting with Sandbox Industries in Chicago. Sandbox is a VC which manages the Blue Cross Blue Shield Venture Fund, which is a VC fund from over 20 different Blue Cross plans in the US.
There was some reluctance from Sandbox to meet with us because they heard the same pitch a million times... “Our startup will change the health of your employees and reduce your healthcare costs”. That’s what 99% of the companies in this space are trying to do. They are trying to make unhealthy people healthy by changing their behavior, which is a herculean task. To top it off, there are two groups who have money and interest at making their “members” healthy: Health plans and employers. And that’s the reason so many startups try to do this: Big dollars, big problem, easy to identify sales strategy.
Russell went and met with Sandbox’s Anna Haghgooie and a few more folks and they were intrigued by EveryMove. We had such a different approach to the problem they said they would circle back with us in a week or so.
Just about a week later Russell gets a call from Sandbox basically saying they wanted to invest in us and they wanted to put $3.5M into the company. Holy crap! We hadn’t even launched our beta product yet and this VC wants to invest that much money from the get-go?
If you haven’t proved it yet…
If you know a thing or two about investment or negotiation you understand leverage. Sure, we had a unique solution to a big problem and we were both experienced entrepreneurs, and we had a partnership with Premera Blue Cross, but those were our only leverage points. In other words, the Sandbox valuation was justifiably low.
We were already in the middle of our fund raising, and we had Premera investing more in EveryMove, we had Blue Cross Blue Shield of Nebraska very interested and we had the commitment from several Angel Investors, including Founders Co-op.
Splitting the risk
We could have walked away from Sandbox money and told them to either put a much higher valuation on the company, which would have been unreasonable based on the stage we were in and it could have driven off all the other investors, or we could have told Sandbox, let us build this thing out and then you guys can invest in us.
In a pretty natural way, we thought why not have it both ways? A higher valuation and the money from all existing investors and Sandbox, but do a time shift on the problem. Basically, why not set a Term Sheet that was based on us hitting some milestones and that would increase our valuation.
And that’s what we told Sandbox. Invest a little bit of money right now at a low valuation side by side with the other investors, and put the rest of the money at a higher valuation if we reach certain product and business milestones that we would agree upon.
Twofer: Series A + Series A-1
We negotiated this as a single document with two tranches of funding, called A and A-1. If you are an entrepreneur who has fundraised before you know how much energy and resources it takes to do that. We really didn’t want to be fund raising in 12 months again and have to take the focus away from building the product and the business, so negotiating two funding rounds in a single shot felt right.
The milestones we agreed on were based on Sandbox risk mitigation thought process, and it tried to answer the following questions:
- Will consumers come and care about it?
- Will brands be willing to sponsor rewards to consumers?
- Can you two (me & Russell) build the team and the technology?
It felt like a fair set of questions. Heck, if the answers to those question are “no” a year after we got funding, we might as well stop this train and go find something else to do.
So we negotiated both the metrics and numbers we wanted to track and the terms of the deal and we ended up closing the deal in late April 2012, less than a year ago.
When it rains, it pours
This March has been an incredible busy month. I even had to cancel my trip to SXSW last minute and sacrifice long term biz-dev deals for the deals we had at the table. We launched partnerships with MyFitnessPal and Endomondo. We just launched a pilot with the employees of Blue Cross Blue Shield of Nebraska for them to get rewards on EveryMove and we have a very large deal we will announce in about three weeks. To top it off, we’ve been frantically working on our Android App and today we are announcing its official launch.
Android is here!
There is no other “feature” more requested on EveryMove than an Android App, and today we just launched our Android App. It’s pretty easy to understand that physical activity and Mobile go really well together. We are not a tracking app and our goal is to integrate, as deeply as possible, with the great existing tracking apps and devices out there, not to replace them.
If you think about doing physical activity, socializing about it with your friends, checking how many points you earned, earning and claiming a reward, yes, mobile is the way to go. Mobile serves us well on many fronts and it’s already the primary driver of new sign ups on EveryMove and it probably will be 80-90% of our sign ups in the next year. We still have a very complex piece of back-end, and the website still provides a richer experience, particularly around data visualization, but we are doubling-down (tripling-down?) on Mobile this year.
BTW, we are recruiting great mobile developers in Seattle if you know any.
It has been an awesome ride so far, full of ups and downs, but by far what I’m most proud of is the vision we set to execute and the team we built. In a time when each startup and big company is fighting to get the brightest minds, our team seems particularly special. Not only because we have bright minds, but also because we manage to maintain a cohesive culture and attitude that is inspiring and enabling.
We are just beginning at EveryMove. We are building EveryMove into a brand as known and as familiar as American Airlines Miles, Membership Rewards by American Express and My Starbucks Rewards. It’s a loyalty program for your health, on your terms.
We have a world of partnerships and integrations to conquer, and although we have done nearly 100 deals so far – from data partners, rewards, employers, health plans – we have a couple hundred thousand more to go. The challenges are both daunting and achievable. We are on it for the long haul and this round of funding will give us enough runaway to continue to focus and build a multi-billion dollar business. But more than that, it will re-shape how people get recognized and get benefits from their day-to-day healthy choices!