How I Failed to Attract Venture Capital and What It Says About HeatSpring

I spent the summer of 2014 raising money. More accurately, I spent the summer of 2014 pitching investors to help our company grow more quickly, failed, and cried about it. This is the story of what happened and what it says about our values and mission.

Who Should Read This:

• Current or prospective HeatSpring partners
• Current or prospective HeatSpring instructors
• Anyone interested in startups or fundraising
• Friends or enemies curious to explore my failures

Why Try to Raise Money?

We got into online education in 2008 with the help of video producer Dan Small. We began recording live sessions and converting them into highly produced flash videos that could be delivered on demand. The only problem was, nobody wanted to pay for online learning at that time. We were too early.

Six years later, that story has completely changed. Everyone accepts that many things can be learned online, and the tools to build and deliver great online courses are more powerful and available than previously imagined. As we rode the ups and downs of an evolving market we tried nearly every approach and learned best practices for professional online learning: webinars are lame, real instructors matter, partnerships are critical, and students should have to build something. This model for course development, which continues to evolve, started working consistently, and it got me wishing we could do more courses and move a lot faster. I felt like we were missing an opportunity by going slowly, and money could help speed things up.

My Approach to Raising Money

I set a goal to find, pitch, and get an answer from fifty potential investors over three months. Didn’t want to drag it out. Investors are just as unique as other companies – they all have different specialties, sizes, planning horizons, and personalities. I set my sight on angel investors, edtech VCs, and to a lesser extent, more general venture funds. 80% of my effort was spent pitching Michigan investors, through personal networks and events like the Michigan Growth Capital Symposium. 20% was spent on the coasts.

I told the story of a small but mighty company with a repeatable model for energizing niche industries through education. After six years of hard work, we finally had the software, team, and network in place to grow 10x in three years. All we needed was $1M to hire several key folks and make some software improvements. I valued the company at $3M pre-money.

Pitching was fun. Meeting new people and selling energize me. The fifty conversations were incredibly useful, but it was surprising how much conflicting feedback I received from the many smart people I met. I felt grateful to have so many talented, busy people engaging in my work and wanted badly for them to fall in love with HeatSpring the way I had, but the more I pitched, the more lonely I felt. It became obvious that nobody was going to care as much about HeatSpring as I did. How could they?

Crying in Patti Glaza’s Office

The story ends with me crying in Patti Glaza’s office, but it didn’t start that way. My initial conversations with investors were hugely positive. Nearly everyone complimented me on what we’ve accomplished at HeatSpring and got what we’re doing. I got feedback that they loved our honesty, values, and mission and all agreed that education is primed for disruption. Nearly every investor I spoke to wanted to stay in touch and offered to help make connections.

Nobody invested, though. For a long time I thought maybe there’s just a long sales cycle and all of these folks just needed time to weigh the investment and think about it. Turns out, that’s not really how it works. Investors were putting us into a bucket of slow-growth companies that couldn’t generate the type of 10x returns that venture investors expect. Even angel investors weren’t seeing how we could grow fast enough to deliver attractive returns. So by the time I showed up in Patti Glaza’s office, the writing was on the wall. She was the #1 investor I was hoping would say yes because she has an interest in education and an ability to ask great questions. When that meeting disintegrated into a meandering disaster, the reality of failure set in and my emotions poured out in an embarrassing, but totally raw and honest way. I’m a fan of having a good cry, but that was a low point.

Why Venture Investors Wouldn’t Touch HeatSpring

Venture investors wanted HeatSpring to be a ‘marketplace’. The closest example of this is Udemy, a platform on which one can teach or learn anything. Udemy doesn’t touch course content—they are a tech company that facilitates course building and consumption for huge numbers of customers.

I couldn’t tell an honest story about HeatSpring as a ‘marketplace’ because I think we would just start generating a bunch of crap content. In my experience, building a great course is really hard and even the smartest people in the world really struggle with it. Industry experts don’t have the training to be great teachers, and great teachers don’t have the industry expertise to go deep. Bridging that gap is really hard and software can help, but to consistently build high-quality courses, you need smart people to collaborate. And people aren’t scalable.

The other issue was my approach. Like everything I do, I used investor pitches as a way to cultivate long-term relationships. I told stories about the positive impact our courses have on students and organizations—not bad things for a VC to hear, but I focused on them too much. This approach is better suited to how you might get to know your local banker who can extend a line of credit. Being trustworthy and running a sound business isn’t how you raise venture capital.

What This Means for HeatSpring Going Forward

Venture capital plays an important role in our economy and is great for some companies. HeatSpring just isn’t one of them. It took me a couple weeks of mourning to get over my dream of explosive growth, but it felt peaceful when I finally did. Tom, Duncan, Gabby, and Chris—the small but mighty team—were supportive but somewhat skeptical of the fundraising thing anyway, so they were extremely positive and upbeat about the failure.

In August 2014, just weeks after my big cry, I got a call from Jordan Richie at Green Roofs for Healthy Cities. We had several conversations about bringing their “Green Roof Professional” training program online, including how to organize the program, how to build the content, the best way to attract students, and how to leverage the strength of both organizations to deliver a world-class program. Jordan’s team has built an incredible brand and community and they didn’t need a marketplace. They needed a partner to make the transition to online delivery seamless and connect with new and bigger audiences. It was a fantastic and timely reminder of what we’d be missing if we suddenly became too busy to have these conversations. The Green Roof Professional (GRP) Accreditation program launched successfully in the Spring of 2015 and it will always be a touchstone for me.

Partnerships we have with SolarPro, RenewableEnergyWorld.com, NESEA, MREA, RPA, SpaceNews, are really partnerships with Joe, Jenn, Miriam, Jenny, Mark, and Bill. You can’t force relationships like these— they take time to evolve. I continue to wish we could go faster and add more courses and make a bigger dent in the world, but you can’t have everything you want. Companies are forced to make choices based on what they value and as adults we have to live with the consequences of those choices.

Eating Our Company With Software

I still want to grow. To have a bigger impact on the universe. To raise the bar and force ourselves to get better every day. Even without venture capital, this is possible because we’re  slowly eating our company with software.

Coding and development talent is the scarcest resource on the planet right now, and a chasm is growing between companies who have it, and those who don’t. We’re lucky enough to have it. Duncan has evolved into a remarkably capable Ruby developer over the past several years and he continues to amaze me with the things he, along with Ramiro, Ward, and Mark, is building to make our company stronger. No individual feature he adds is transformative by itself, but collectively they separate us from 99% of the education companies that exist. This capability is why we continue to attract talent and provide unique value to our partners and instructors. It allows us to work with the best.

We made a choice to value personal relationships above all else and I’ve come to grips with the way that will limit short-term growth. The organic, touchy-feely approach that makes us unappealing to investors can be supercharged by software that continues to learn and evolve to make us more nimble and efficient. It’s a balance that works for us, for now.

Working hard, failing and crying occasionally, building relationships, and impacting the world by getting better every day—this is probably the best I can hope for.

If you made it all the way to the end of this deeply personal post, I’d sure like to meet you and hear what you’re up to. Send me a note at bhayden@heatspring.com or start the conversation by proposing a course or partnership here: partner or teach with HeatSpring.