You’ve seen it, of course. “Brewster’s Millions,” the movie — so popular that Hollywood remade it six times — in which a man stands to inherit a vast fortune, if only he can spend a smaller fortune before time runs out. The catch? If he shares his predicament with anyone, he loses everything.
Now, how’s this for a modern twist:
It’s 2013. An entrepreneur, known for sharing his every last professional trial and tribulation with the world, realizes he has a little over three weeks to raise $100k to keep his company alive. An investor promises half, but only if he can find the other $50k first. But — twist! — he can’t advertise for investors until securities law changes… in three weeks. If he shares his predicament with the word, he could lose everything.
What a gas, right?
Three weeks ago, it became painfully apparent that NSFWCORP — the online/print magazine startup whose growing pains I’ve been documenting on these pages — needed to raise an additional $100,000, and fast.
This past summer, we raised $250,000 in a series seed round, bringing NSFWCORP’s total investment to a little over $900,000. $250k isn’t a huge amount of money for a company with a dozen employees (nor is $900k, for that matter) but as I’ve written before, we weren’t exactly drowning in offers of more. Still, with some luck and a following wind, that additional quarter of a million bucks should have been just enough to get to the 10,000 subscribers we needed to become self-sustaining.
We almost pulled it off, too. In the past couple of months our little magazine really hit its stride — the New York Times has tipped us as the future of paid journalism, so has Reuters and the Daily Beast and CBS. Just last week, Jack Shafer included us in his list of “media typhoons” which look set to blow away tired old incumbents like Gawker and The Huffington Post. This month has been a record month for new subscribers. Our print edition is making people fall in love with printed journalism again, and our team — most recently boosted by the arrival of David Sirota — has been busting out scoop after scoop after scoop after scoop online and on paper.
Like Brewster’s apartment towards the end of the 1985 movie, we’ve finally got NSFWCORP exactly how we want it.
“Marilyn? This is the room I could die in.”
By late last month, it was clear that, even after slashing every possible non-essential cost (I don’t pay myself a salary and much of the senior team have taken voluntary pay cuts), revamping our subscription flow to leave not a dime on the table, and saying goodbye to two brilliant employees, we were still not quite going to make it to profitability without some more investment. Our burn for September would be in single digit thousands for the first time ever, but the irritating nature of cash-flow means we were still facing a hole. Without raising an additional $100k, we’d risk bouncing checks by late October, especially if we were hit with any unexpected costs.
Of course, bouncing checks isn’t an option. Instead, despite having a product that firmly in its stride, despite press that better funded startups would die for; despite thousands of paying customers, we’ll be forced to “pivot” in order to keep our core team together. God forgive me if I have to turn NSFWCORP into a fucking platform.
“Okay boys, take it all back…”
And so, three weeks ago, I sent an email to all of our existing investors. I would have telephoned them, save for the fact that we’re not really on speaking terms with two of our four backers. (It’s testament to either my credibility as an editor, or my stupidity as an entrepreneur, that at a time when we needed CrunchFund and Vegas Tech Fund the most, we published stories critical of them both.)
Still our other two investors responded immediately, one of them immediately offering to put up half of the money we need. Better still, our lawyers had wisely left open the option of raising up to $250k more in our series seed. We could have the money in days, without having to draw up new paperwork.
We were saved!
There was just one condition.
We were not saved!
Quite reasonably, our investor wanted to know they weren’t throwing good money after bad. Their condition: we’d only get their $50k if we could find someone else (or a group of someones) willing to match it.
And so began the farce.
As I’ve said before, if we were a bullshit app with the kind of press we’ve enjoyed and as many paying customers as we have, we’d be drowning in investors. But we’re a “content company” which no Silicon Valley VC will touch with a barge pole.
Our readers, on the other hand, are more than happy to pay for journalism. When we launched the Conflict Tower — offering lifetime subscriptions for up to $1,500 a pop — we sold almost $50,000 worth in a matter of weeks. When we opened up ten year subscriptions ($200), we sold dozens in the first 24 hours. If it weren’t for the support of our subscribers, we’d already be out of business.
The most obvious way for us to raise $50k, then, would be to turn again to those subscribers. Given the willingness (and ability) of many of them to pay four figure sums to help keep us going, it’s likely that at least some of them would qualify as “accredited investors.” And of those, perhaps half a dozen could be persuaded to exchange a few thousand more dollars for part-ownership of the future of journalism (with jokes).
And yet, and yet.
Until midnight last night (when certain key provisions of the JOBS act came into effect), we were barred, by law, from publicly mentioning the fact that we’re raising money. I couldn’t write about it on PandoDaily, I couldn’t tweet about it and I sure as hell couldn’t email our subscribers to tell them. The small print on AngelList, where we listed our most recent fundraising requirements, made the rules clear…
In the U.S., it is relatively simple and inexpensive for your lawyers to close your financing as long as you don’t (1) publicly announce that you’re raising money or (2) raise money from unaccredited investors. 99% of the startups that you’ve heard of took this approach. The alternative is a set of complex and expensive regulations, with serious penalties if you screw up.
We forbid all public fundraising announcements on AngelList; for example, through a public status update. And we advise you not to make public fundraising announcements on Twitter, through a reporter… or anywhere elsewhere.
And the risks of not complying with securities regulations…
1) Your closing may be delayed for 6 months.
2) All of your investors may have a legal right to get their money back, whether or not they invested through the equity crowdfunding site. Lawyers call this a “right of rescission”. The directors and officers of the company may also be personally liable in this event.
3) The SEC and state regulators can apply additional penalties.
The law, and the penalties, made perfect sense, of course. They prevented snake oil salesmen from plastering the Internet with ads for shady investment opportunities, and put the fear of hell into anyone who considered “disrupting” the rules.
Unfortunately, while the old law certainly irked those in Silicon Valley, it was deeply frustrating for companies outside of that bubble. In San Francisco, a great tech product with decent enough press will bring investors swarming directly to your door, term sheets in hand. But for those laboring, say, in Las Vegas or Virginia, spreading the message that you’re looking for investment is ludicrously difficult if you’re not allowed to use social media or any other public channel.
And that’s just tech companies. To find even one investor willing and able to put money into a boring old journalism startup — especially one based in the middle of the desert — requires shouting very loudly indeed: the one thing that the law specifically banned us from doing.
And it’s for that reason that companies outside the valley, generally, and media companies like ours, specifically, have the most to gain from today’s change in the law. Finally we can do what we do best: tell our story, loudly and clearly, to an audience who are already predisposed to hearing it.
The only question, for NSFWCORP at least, is whether that audience has enough time to act.
The boardroom clock inches closer to midnight. Tick, tick, tick…
EXCLUSIVE: NSFWCORP MUST FIND $50,000, OR DIE
“Don’t make us pivot into a fucking platform,” pleads founder.
In a plot straight out of Brewster’s Millions, much-hyped journalism startup, NSFWCORP is looking for $50,000 of new investment, in order to trigger more cash from its existing backers.
But the company, which describes itself on AngelList as “The Future of Journalism” and which CBS recently called “a modern day equivalent to Spy,” says it only has about a week to secure the funding or be forced to “pivot.”
Founder Paul Carr said he was “as confident as it’s possible to be” that the company could find a backer who understood its peculiar mission, which often seems to include gleefully mocking its investors. “They get a room in the Conflict Tower, and equity at a $4m valuation,” he added. “I mean, what else do they want?”
Asked about where NSFWCORP might pivot if their fundraising efforts were unsuccessful, Carr pointed to cash-rich rival “Bustle” as a possible inspiration. “Maybe we’ll become a feminist site,” he said. “I mean, how hard can it be?”
At press time, Carr had already registered Refinery29le.com, “just in case.”
Paul Carr is a regular PandoDaily contributor, and CEO of NSFWCORP which is raising money right now, via AngelList. He can be reached at firstname.lastname@example.org.
[NSFWCORP shares two investors with PandoDaily: Vegas Tech Fund and CrunchFund although, as he explains above, he hasn't spoken to either for a while.]