Tough love: Blooom CEO Chris Costello offers advice to KC investors

Editor’s note: Chris Costello is the CEO and co-founder of Blooom, a financial tech startup based in Leawood, Kan., that recently raised a $9.15 million round. All opinions expressed in the commentary are the author’s alone.

I am happy to report that Blooom is fresh off its successful Series B round of funding.

Chris Costello

The round was supposed to be $8 million but thanks to higher demand, we were over-subscribed and ended up raising $9.15 million. I‘ve read fewer than 1 percent of all new companies are ever able to raise outside capital and my guess is that number significantly drops if you look at companies outside of Silicon Valley, New York City or Boston.

Although the outcome was successful, the process was long — nearly 6 months — and full of frustration. Many of these frustrations are normal and to be expected when it comes to asking people and organizations for money. But some of the frustrations we experienced with a handful of Kansas City-area family office investors would not be considered normal. Thus, it is the impetus behind writing this article.

Like it or not, we’re now a part of the illustrious “100 club” — though I’m not sure it’s a club founders should aspire for. The 100 club means that we have now been told “No” over 100 times between our Series A and Series B rounds.

“No” from venture capital firms. “No” from strategic corporate investors. And “no” from high-net worth individuals and family office investors. Ultimately, though, all that matters is that we heard “yes” from enough supportive investors that believed in our mission to complete both rounds of funding.

After pitching blooom to over 100 different investors from Silicon Valley to New York, it’s given me ample perspective to judge the behavior of individual investors on how they operate in the world of venture capital. It’s been quite an educational experience.

So for the benefit of area startups, I’d like to recall some of the lessons I discovered to help Kansas City’s high-net-worth investors and family offices. 

• Return emails and calls in a timely manner. In no other business environment is time more critical than within the four walls of an early-stage startup. We realize that you might be busy as well, but going dark after a productive initial conversation wastes precious time on both sides.
• Do not commit to invest unless you really mean it. And certainly do not sign a term sheet that you are ultimately not ready to stand behind. This should be obvious, but it bears repeating.
• Most importantly — a fast “no” is 100 times better than a slow “maybe.” Founders spending weeks or even months to get an investor’s answer is a terrible use of everyone’s time — especially when the clock is actively ticking toward the end of a runway.
• If you pass on an investment, be as clear and specific as possible as to why you are passing. This is no time to be polite; brutal honesty is paramount. It is then the job of the founder to decide for themselves if the reason is valid or applicable.
• Finally, and most importantly, you should know investing in a startup is entirely different than buying a piece of real estate or buying shares of stock in a publicly-traded company. A startup is full of real human beings. Many of them relying on the paycheck from the company to put food on the table or support a family.  A startup investment should not be just a line item on a Statement of Net Worth or a name that is tossed around at cocktail parties.

As a lifelong Kansan, born in Prairie Village, raised in Olathe, graduated from the University of Kansas, raising my family in Overland Park and growing blooom in Leawood, I’m extremely home-field biased. I have a strong desire to help foster a thriving entrepreneurial ecosystem in my own backyard. But the bottom-line is that new investors should adopt “do no harm” principles. By adhering to the basic tenets listed above we all can help boost the entrepreneurial ecosystem in Kansas City.

As much as I would like there to be more wealthy investors and family offices in Kansas City involved with providing capital to early-stage firms, it should not come at the cost of hindering opportunities for the companies in which they’re looking to invest. If the five principles above seem out of line or unrealistic for an investor to follow, then do not get involved in early-stage startup investing.

I hope this piece can remove some friction in funding early-stage startups in Kansas City, and maybe make the process of raising capital a bit easier for local entrepreneurs. As a city, we’ll grow through candid, efficient communication — but we all must do our part.