How Foundry Group Got the Gist of T.A. McCann’s Startup: Anatomy of a Software Deal

5/6/09Follow @gthuang

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got Gist’s offering. “Other investors hadn’t used the product,” McCann says. “On Christmas morning, I’m getting feedback from Brad Feld. That’s a person who cares about it—he’s passionate about using the product.” By the end of March, Gist had a term sheet, and the deal was finalized shortly thereafter.

I’ve heard several people in the startup community question the size of the deal—why did Gist need $6.75 million when it has a small team (10 people) and is close to releasing its product? Especially in the current climate for funding software startups? One clue comes from a talk Feld gave in Seattle in February, where he said, “It’s not necessarily cheaper to scale a business to a large company…To create a large company, you still need $20-30 million…it’s not that $250K gets you there.”

McCann, for his part, says, “We wanted to do a plain vanilla Series A, in the $3-5 million range. Ultimately, both of those guys [Vulcan and Foundry] wanted to put in more…It’s a big round.” As for the market opportunity, he explains, “We’re stepping into a big space. It’s the overlap between personal communication, Web content and search, and social networks. Each is a multibillion-dollar space, but those spaces are overlapping and colliding in a very interesting way. Raising $300K isn’t the right strategy for this company. We said, ‘Let’s go big.’ Even if you just solve the e-mail problem, or part of the social networking problem, it’s exciting—and scary. That’s what we do as entrepreneurs.”

In the meantime, Gist’s service now connects to more types of e-mail systems, in addition to Gmail and Outlook, and it supports Twitter (you can import friends and followers as a new inbox). There are also new search features that can be personalized on the user interface, to help you find information about people, companies, documents, and attachments. McCann says the number of beta trial customers has been kept deliberately small—around 2,000. And now it’s time to really focus on their feedback on Gist’s “personal assistant” interface. “I just have to worry about you, the customer, having this beautiful personal assistant focused on doing this work,” he says. “Let’s just keep building stuff that smart people with money will use.”

McCann says the new funding should easily last 18 months. Gist has plans to double its staff to about 18 or 20 by the end of the year. “For those of us just raising money now, we have a bit of time to figure it all out,” he says. “We can be methodical about our process, build the product, and listen to our customers, and not spend too much on marketing. We’ll be positioned very well when the economy comes around.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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