Ask A Founder: Startup Lessons Learned from Squareknot’s Jason Rappaport
Jason Rappaport, Founder and CEO of Squareknot, has raised $1.3 million to date — his first $500,000 round came after a single email, pitch, and lunch.
We sat down with Jason as he shared what his fundraising journey was like, the startup lessons he learned, and his advice to fellow founders. Here is what he had to say:
HK: Tell me a little about yourself. How did you come up with the idea for Squareknot?
JR: Back when I was 14, I was building some of the largest communities on the web like Zelda Universe, the largest Legend of Zelda fan community online. It was on the message boards of Zelda Universe where, through sharing tutorials, I learned Photoshop and graphic design.
Then when I went to college, I found that I already knew most of the stuff I was learning, and that I had learned a lot more on Zelda Universe than I was in class. My initial reaction was that I had to fix college. So I spent three years building a learning management system to make school better. I launched a platform called GoodSemester in 2012 that had everything you needed to run an entire university online including an automatic grading system, collaborative note taking, and Q&A system. I had always thought that if we could create great software, making it easier for people to learn, then they would utilize it. But what I found was something a little more obvious – people just don’t care about college, no matter how awesome the software is.
So we took a step back and asked ourselves, ‘what are we really trying to do here?’ which was just help people do things. We couldn’t think of a better way to help people do things than the way we learned how to do them ourselves: through tutorials. So we pivoted and set out to build the best tutorials we could. And that is Squareknot.
If you are going to build a service for a way to do things, it has to have every single possible way ever to do that, so we came up with our branching model. Anyone can add alternative endings to anyone else’s guides, from any step. This gives you very specific, collaboratively built guides that are perfect for very exact situations.
How much angel funding have you received to date?
Our first angel funding round was in March 2013 when we closed $500,000 from Gabriel Investments. Then we did another pre-seed round last August led by Josh Kopelman from First Round Capital in a new fund called Startup PHL Angel. This round also included Delaware Crossing Investor Group, Ben Franklin Technology Partners, Gabriel Investments, and a number of individual angel investors for $300,000 with a $235,000 follow-on six months after that.
How did you decide when to seek angel funding and how much to ask for?
The first round came at a point when we were just ready to become Squareknot. I thought $500,000 sounded like a good number, pretty big but not too big. I know that sounds ridiculous, but we didn’t know what we were building at the time, and I needed to ask for enough that I was sure we could build whatever it was.
For our second pre-seed round in August 2014, we knew exactly what Squareknot was going to be, what our costs were, and that we were raising money for 9 months of operation. It was very different than our first time because we knew so much more about the business.
Did you really receive angel funding after one meeting with Gabriel Investments during your first funding round?
Yes! I went in for the one meeting to pitch to Richard Vague and the Gabriel Investments crew and literally the next day they decided to do the financing. He asked me to come back for a fancy lunch the next day and at the end of our conversation he was like, ‘So you do Zelda Universe?’ And it turns out his son was huge fan of the site. Nowadays, I call this phenomenon the Zelda Mafia – all these people you wouldn’t expect connected by a common interest in a great game series. But I always tell people there was no data that would have supported this amazing thing happening. It was honestly one of the best moments of my life – that all the things I have done since I was a kid somehow magically added up to me being able to ‘adult’ properly.
Wow. And your second round? What was that process like?
We talked to a lot of people, and I mean a lot of people. That is really what showed me that the first investment from Gabriel Investments was an anomaly. It’s a numbers game. We made a sales pipeline with every single investor in the reachable area and found ways to get connected to them. We did it like an old fashioned sales process. And when people were a fit and wanted to invest, we got them in quick. We would tell them that the round was closing in two weeks, even if it wasn’t.
What type of investors were you looking for?
We were looking for the type of investors that were in it for the long haul. We measure Squareknot’s life in many years, and we see Squareknot as a 10-year investment. If you want out of Squareknot in two years then you will probably have a bad time, so we tend to turn those investors away. Those types of investors will push for the wrong thing when you are trying to build the next most integral part of the entire internet, especially when you are doing community building. You need time for the community to come together and then the community needs to trust that you will be around for a long time.
You have a reputation for giving excellent pitches. What’s your secret?
Because I did choir and bit of drama in high school, I don’t have a lot of stage fright. Instead, I treat pitches like a show, and I love that – it is so much fun. Everything I say about Squareknot, the language, is carefully considered. Not just for me, but the whole team. We have drills about how you talk about Squareknot. And that same level of consideration goes into every meeting with an investor. Our pitch deck has now been evolved over a series of 400 to 500 hours of work. And every second of it is planned, down to the pauses in my voice. There is not a single bullet point on any of the slides, which is something I am particularly proud of. It is designed to be presented, so one of the things I will never, ever do is email the deck to somebody. All the slides are supplementary to me who is saying the important things that you should be listening to. Because ultimately you are selling yourself – if they don’t believe in me, then they aren’t going to believe I can build a good company.
To give you an idea of how hard we work on these presentations, I rebuilt Squareknot’s interface entirely in Keynote so I could demo all of our branching animations without having to be online. Some people might say that is too much effort. But if you don’t think that the effort is worth it to present your company the way you envision it, then people won’t think your product is worth it. It tells them how your brain thinks about building stuff.
Helping other entrepreneurs with their pitches is something I really like to do in my spare time as well.
So have you ever had a bad pitch?
Oh yeah, something goes wrong generally every pitch. That is one of the things I learned in high school – how to handle messing up in show biz. Most people though, if you ask them how my pitch was, will tell you it was amazing and nothing went wrong. And that is because I am able to fall gracefully. As long as you don’t act like you messed up, nobody will notice.
How do you feel like you and Squareknot have grown since you first started fundraising?
I think we have learned how to be more prepared. We ran out of capital last summer. We were totally broke for four months before we raised our second round. So we learned how to be ultra lean. We have 15 staff members and our burn is only $30,000 per month.
We have also learned how to prioritize quality. When we first started building Squareknot it took us a long time to realize what it took to make quality software. For us, that meant not rushing. Investors wanted us to meet certain deadlines that were arbitrary. It was very easy for me to say yes to that and fire drill my team into producing a buggy product. And after about the fourth time we ended up with spaghetti code – bugs that we couldn’t fix because every time we did we would have a new bug – we finally just said that this is not the right way to build something that is truly great. So we sat down with our investors and told them what our real goals were and why, and said nothing you say is changing our mind because we want to build a world-class service. After that we slowly ramped up a really quality software development workflow that is able to ship something every two weeks. But we also aren’t scared to delay things if it doesn’t meet our quality standards. And this is something that a lot of entrepreneurs are scared to do. I think if you really know what you want to build and you really believe in it, build it the right way first.
Those are great lessons. Any other advice you want to share with your fellow founders?
Always get up. People always talk about ‘failing fast,’ but that also means you have to get up fast. A lot of people have a hard time getting back up because failing sucks. Horrible, terrible things happen all the time, every day, and it’s your ability to get up that makes or breaks the success of your company.
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