EquityZen: Is Buffer's Series A a Paradigm Shift in Fundraising?

ATN-300InsightaaS: This post from EquityZen actually first appeared on InsightaaS as part of a comment responding to an earlier ATN post, but it got lost for several weeks in the morass of spam comments (more than 3,300 to date!). In recognition of the quality of the post, the subject matter and our appreciation for having a real human interspersed within the spam posts (we're running at about 100:1 spambot-generated comments to human comments), we thought we'd highlight this examination of Buffer's Series A financing here.

As the post illustrates, the Buffer story is unique on a couple of levels. From our POV, the most important is that more than 70% of the financing is explicitly intended to "provide liquidity for founders and early employees." This isn't a common description of a financing objective - as the post notes, investors "typically want a substantial majority of the proceeds to be used to fund aggressive growth" - Buffer has a plan, which is "taking some chips off the table."  By providing liquidity to management and employees with "everyday life needs, such as buying a house or paying tuition" the company is able to to reduce "pressure to pursue a premature exit." Kudos to the believers in the VC community who have backed the approach, and to EquityZen for highlighting the deal.

Buffer made a splash announcing its Series A fundraise and opening up the kimono on valuation and metrics on October 27. Joel and Leo, co-founders, have taken an unorthodox approach from the beginning, and naturally there are many interesting facets to their capital raise. While I'm skeptical that many startups will follow suit, what they've done is nonetheless worth exploring and even celebrating.

With a blog post, Buffer, the popular social media manager, announced it's raising $3.5 million in its Series A funding round. To the uninitiated, Buffer is singular among startups for its open embrace bear hug of transparency.  The company makes all employee salaries, company metrics, and  equity composition open to the public. Heck, every email sent in the company can be seen by everyone else in the company. While this is a reflection of the company's values, it has no doubt proved to be a marketing boon. In this context, it's no surprise that Buffer would not only announce that it's raising but also make public how much ($3.5 million), at what valuation ($60 million post-money), and its key metrics. While it's progressive, doing this is not revolutionary. It's actually just general solicitation, which has been permitted for over a year in startup capital formation.

Thinking Progressively about Liquidity

What is revolutionary is the use of proceeds. While there has been a steady drumbeat,  which has grown stronger, of founders taking chips off the table in funding rounds (see Snapchat last year), what Buffer is doing is unprecedented. $2.5 million of the $3.5 million round (71%) will be used to provide liquidity for founders and early employees. The balance will be used towards growth and operations. It's no small feat to convince venture investors to do this (they typically want a substantial majority of the proceeds to be used to fund aggressive growth)...

Read the entire post on the EquityZen site: Link