Series A Success Story: An Interview with Fig
We spoke with Justin Bailey of Fig (since acquired by Republic) about his experience on successfully closing a Series A round. He has some great tips and shares important lessons for founders embarking on their funding journey.
Tell me a little bit about yourself and why you founded Fig?
I’m Justin Bailey, Founder and CEO of Fig. I founded Fig about five years ago. Previous to that, I was the COO at Double Fine, and even before that I worked for Double Fine Adventure, and was there for the whole documentary shot by 2 Player Productions. I was involved in Massive Chalice, the studio’s second crowdfunded game, from beginning to end.
Back in 2012 when Tim Schafer and his studio went to a kickstarter, he put out this amazing video about getting fans directly involved in funding a game. To me, it signaled a potential evolution in publishing where the community could become more involved in video games and decide which video games got funded.
Working at Double Fine and going through the whole process, with the community involved with funding the game and us updating them, we basically had the 2 Player Productions as a documentary crew. They created a film for three years that went on to the development of the game. It really inspired me to realize that not only is this potentially going to evolve video game publishing, this could be a great investment opportunity for those people who are involved. It was during that time that Oculus got a huge raise and then went on to sell for two billion dollars to Facebook. Then Ouya raised a large amount of money as well and got some VC funding. I started thinking to myself, the missing component here was these early supporters and backers, so that’s why I started Fig.
How long did it take to get traction with Fig? And at what point did you look to get outside investors?
I think in many ways I’ve always approached things sideways. I got into the video game industry kind of in a sideways approach and directly went into leading the green light and the pitch committee. The same thing happened with my seed funding. I essentially put a business case together, but I originally went out to the VCs and said, “Hey, why don’t you invest in Double Fine?” The VCs gave me feedback that there was too much content risk to actually invest in Double Fine, which caused us to come up with the idea of having a subsidiary of Double Fine that the VCs will invest in. The VCs very quickly told me that that wasn’t a clean enough structure for them, so they needed a brand new structure. They wanted me to be the CEO of it and then they could fund it.
I talked to my then boss at the time, Tim Schafer, and he gave me his blessing. I put together a business case and went out. I think the biggest thing for us was I had a bunch of partners lined up who were willing to be the first campaigns. I also had three partners, Tim, Brian Fargo and Feargus Urquhart. Tim did the first multimillion-dollar fundraiser on Kickstarter. Brian Fargo did the second, which followed just about 30 days after it. The last person was Feargus Urquhart and he had eclipsed both of them, raising even more later that year.
I had these guys, these all-stars from the kickstarter, and they recognized that their fan base supporting them could be a bigger thing to allow them to have a financial stake in what they were backing as well. They also really believed in that mission. When I went to the VCs, I had that business case along with those three amazing creators who had already pledged to do the first campaigns. The whole process was kind of an odd sideways way to come in. I got three million dollars without having even hired anybody at the time, and the company was not even formed.
How did you approach targeting investors for your Series A round? How did it differ from the Seed round?
I don’t know that it was different. My background is in corporate development, so a lot of time these VCs, like me, were in the back end of this. I did the green light committee, but also like these video game publishers, I was in charge of looking at acquiring video game studios.
The VCs that were involved were trying to sell their companies to me. So, because of that, I kind of knew the landscape of it and knew that when you go through these funding, whether it be a series seed or a series A, you need to identify all the people and all the VCs that are potential fits for you. You need to prioritize the ones that fit early. They can give you valuable feedback and your highest-profile targets at the end so that you’ve refined your pitch and you have a better chance of getting them to sign. Also get them to issue a term sheet.
I did the same process I had done with the seed. The difference here was that I had the lead investor, a seed lead investor, who helped refine the pitch. The investor did an amazing job with that. A lot of times, especially as a founder, you’re dealing with the day to day business, and sometimes you can lose that outside perspective of what’s the it factors, what’s the hotness about your company that you can summarize very quickly for people who aren’t in it day to day, for them to understand why this is such a huge opportunity.
You mentioned there about making sure the investors are a good fit. How did you know that these investors were a good fit? Or what kind of things were you looking for?
I looked at previous investments to see if they had invested in video games in general. For us it’s somewhat binary; either VCs have invested in the industry, or they haven’t. If they haven’t, odds are they’re not looking to get involved because you have to have some industry expertise. I’ve talked to other people that are real estate, consumer, packaged goods, and they said the same thing: unless VCs have invested in their space, it has become specialized, and they really wouldn’t seek out those VCs who have never invested before. I can echo this for myself because it was definitely a waste of time to go out looking for anybody who hadn’t already placed an investment. A vested interest was number one.
Number two was really talking to them to find out who they funded and if I knew them. I would try to find out how their experience was with their VCs. Also talking to previous founders who had been backed, and asking to get introduced to VCs to get a friendly intro. Only one time did I ever get a meeting after reaching out to their general email and it was the worst meeting I’ve ever had with a VC. So definitely go with a friendly intro.
How did the pitch meetings go? How did you prepare, or what kind of lessons did you learn after them?
It was a discussion. So a lot of times, I had VCs that I actually informally ran a pitch by because VCs have their own fundraising process. Another part to keep in mind is to find out if they’re actually raising their own funding because they probably are in a fundraising mode themselves and their intention is probably not to sign up new companies. A lot of times I’d find those VCs that weren’t raising and I would have a coffee meeting with them to run the pitch by them. They would give me informal advice on how to change it. Even venture partners that are not actively investing are experts. I would run the pitch by them as well. Bing Gordon at Kleiner Perkins gave me a great amount of advice on how to pitch to VCs. He even provided this awesome pitch deck, “How To Pitch To VCs.”
During the pitch, I’d talk about the success of the previous partners in the seed. Then I talked about my team and their background and how they’d execute on it. I’d follow with giving my proof of why it was working so far and why we thought it was going to be something huge. The last part was the numbers that basically support everything you talked about.
What were the toughest questions that investors asked?
My toughest question was during the seed, and one other one during the A. The first question was around my terms. So with this company, I had certain terms with developers and certain investment terms. Some VCs wanted you to have those business terms from the very get-go.
The second question was about value leakage. What happens here is you basically make these developers really famous or help them out, make the investors in these games really rich but you the company doesn’t actually become a conduit for both of those people, or those entities are basically to profit and you yourself don’t profit.
What was your experience with the negotiating process and term sheets? Are there any kind of takeaways for other companies?
I read a book that was all about term sheets. I think it’s called Venture Deals. I read it because one of the term sheets we got had some non-standard terms attached to it. Having read that book, I was able to identify them and know what points to negotiate.
I think you have to really know the term sheet, you have to know every single piece of it and how the possible implications of that could affect the growth of your company later on. You obviously have lawyers, but those lawyers are pretty expensive. A few hours of a really high-priced PC Lawyer might not be something you can do, especially in the beginning. As a founder, knowing these different terms and how they could affect you is of paramount importance.
Did the investors have any specific insurance requirements that you had to meet?
Yes, especially because we’re doing investments. You don’t want something unexpected to come up and really infect their investment. It just makes sense to have those protections in place.
Looking back, would you have done anything differently? What are the main lessons you learned about the Series A process?
After going through the process, I would have slowed things down. We skipped the angel stage. I think that’s actually a really good stage to have because once you hit the seed and the A, in the way the fundraisers work, you’re really on this track that you can’t get off. Also having that time upfront with angels to do some development, kind of like a MVP version zero, to identify your team and get to know them. These things are all pretty important. We were successful in getting the A which was great, but doing it over, I would have taken my time a little bit more during that angel stage.
Is there any other advice or anything you haven’t touched on you’d like to add?
Work with your lead investor and just iterate the heck out of your message, so when you walk in you just give a really polished performance. You wanna make sure you stand out.
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