Emboldened by the success of our unconventional reverse auction-style approach to raising our third round of venture capital for Coupa Software, there was no question we would follow the same process for our next round, only faster, in four weeks instead of five.
As it turned out, we raised round four in about two-and-a-half weeks. Along the way, we fielded a surprise proposal, resolved an ethical dilemma and ended with a frenzied, exhilarating 72-hour sprint to the finish line, landing $40 million in funding from Meritech Capital.
We began at the end of February of 2014. We had executed above plan on our previous funding round, we were beginning to scale globally, and all of our metrics were looking good. The funding climate was better than it had been in a long time and it felt like this would be a great time to get more money into the bank and expand a bit more rapidly.
As we had done with our last reverse auction, we planned to share information about our business with six to ten potential investors, and ask for term sheets at the end of the current quarter.
We were looking for growth stage investors this time around, so we got in touch with those that we were interested in partnering with, explained the ground rules, and invited them to participate. Then we began holding meetings to share our latest pitch deck and financial data.
Things heated up fast. It seems that at least a couple of the firms read my previous blog posts about fundraising, and they started running their due diligence process very, very quickly.
One firm in particular knew everything there was to know about the company in a matter of two weeks. They called blind references as well as those we provided, and investigated me through every possible channel. When they asked me to get together for drinks at 31st Union, right across the street from our old offices in downtown San Mateo, they explained Coupa’s value proposition to me almost better than I can explain it myself.
After a couple of drinks the lead partner said, “We want to be part of this,” and handed me a term sheet.
I was stunned and thrilled. This was a firm with a marquee name, arguably one of the top three in Silicon Valley. It was an honor to get a term sheet from a crew like this, and it was a real validation of everything we’d done to date. The valuation was quite fair as well, and the lead partner really impressed us with his speed and thoughtfulness.
I said, “This is great, but we’re running a four-week process.” He replied, “Shame on everyone else that’s not coming in hot to get in on this deal.”
This was quite a dilemma. We had come a long way since raising our initial venture round, which saw me camping out at the Starbucks on Sand Hill Road schlepping my deck door-to-door every day for a month. It was very gratifying to have such a prominent firm now proactively pursuing us.
Part of me wanted to say, “Let’s roll,” so we could get right back to work. It seemed like bad form to spend another month with this process, when we could spend that time creating value for the company.
On the other hand, we had some outstanding firms that had spent the last couple of weeks in good faith getting to know us, and it also seemed like bad form to suddenly pull the plug on the process we’d laid out for them. Four weeks is not a long time, and they were working quickly to learn as much as possible about us.
I slept on it, and in the morning I called a board meeting for that evening. I outlined our options: We could end the auction right now, and maybe try to negotiate a bit with this firm; or we could honor our process, which could lead to something better but could also prove a waste of time.
Or we could try something else. We could shorten the process so that those firms that had already been working with us still had a shot if they could come to a quick decision. That seemed like the best way to manage the needs of the company and be fair to the investors, and so I offered this recommendation. After all, if others had known they could have come in with a term sheet at any time during the process, they might have done it too. It didn’t feel right to change the rules in the middle of the game, unless the new rules were applied to everyone.
The board agreed, and the next morning we let everyone know that we had an offer on the table and they had 72 hours to complete their due diligence and present a term sheet.
The next 72 hours were the most frantic that I’ve ever experienced. All but two of these firms dropped everything and rearranged their calendars to see if there was a way they could get involved. I was getting calls and emails late at night and in the wee hours of the morning.
During the days I was giving back-to-back presentations to all of the firms who had been willing to accelerate. It was exhilarating and humbling.
At the end of the 72 hours we got five additional term sheets. We decided not to go with the first bidder. We chose Meritech because in addition to offering a very fair valuation, they were the most flexible. They had also shown interest and gotten to know us in previous funding rounds, and our other investors knew them well. The reputation and experience of the firm and of the lead partner were all pluses. Also, the first firm probably couldn’t have matched their valuation offer and their flexibility.
It was quite a ride, and as soon as we made our decision we caught our breath and got right back to work building the company.
This article originally appeared in Forbes.