Balanced raises a rapid $800K on a little-known fundraising platform called Facebook
When Matin Tamizi wanted to raise a modest round of additional funding for his online payments company Balanced, he ended up doing something he says was more effective than presenting at Y-Combinator’s Demo Day – which the company did in 2011 – or going through Angel List.
He chatted with some Facebook friends.
Not his old college buddies, mind you. By "Facebook friends," I mean friends who worked at Facebook together.
There's a little-known, loosely organized group of them who get together to look at deals, including Andrew “Boz” Bosworth, who built the original News Feed and created Facebook’s famous boot camp for initiating new engineers; Phil Fung, Facebook’s mobile engineering manager, who led development of the company’s mobile app; and Steve Grimm, a former infrastructure guru at Facebook. Balanced was introduced to them via Yishan Wong, CEO of Reddit and an existing investor in Balanced, who is the former director of engineering at Facebook.
And those intros happened on -- what else? -- a private group on Facebook.
Balanced had intended to raise a $500,000 bridge note, and instead netted $800,000 in about two weeks, Tamizi tells PandoDaily. Most of his new 18 investors work or worked at Facebook, including Boz, Fung, and Grimm, with a few non-Facebook people sprinkled in. Tamizi says the angels cut checks ranging from $25,000 to $100,000 each. Balanced hopes to close the round at $1 million at the end of the month. “It's a pretty great group of people to get connected to if you have an exciting idea,” Bosworth says.
In a Valley culture where entrepreneurs emphasize the importance of eating your own dogfood, it's fitting that the post-IPO Facebook riches are being disseminated to the next generation via Facebook. The group has a private Facebook page with some 200 members called “Angels and Entrepreneurs,” where the members gather and talk about angel investing. It's very casual and has no formal affiliation with Facebook, the company. Usually, one member will bring up a startup and offer to make introductions to the group. If members find the company and synopsis compelling, they will ask for intros.
It would be tempting to call the group the "Facebook Mafia," but Wong doesn’t want to hear any talk of that. Oddly enough, to prove just how small a world Silicon Valley is, he’s a part of the PayPal Mafia too, as an early senior engineering manager at the company, starting there in 2001.
While mafias have existed in Silicon Valley long before PayPal -- Fairchild anyone? -- Wong is right that the moniker doesn't quite work in this case. If any group of Facebook alums were to be considered a de facto Facebook mafia, it would be the people who founded the company and guided it during its earliest days. Names that have become well-known angel investors and second act entrepreneurs already include Dave Morin of Path, Dustin Moskovitz of Asana, Chris Hughes of The New Republic, or Adam D’Angelo of Quora. Even Mark Zuckerberg and Sean Parker fit into that mix.
Instead, this is mostly a group of Facebookers who made their first real millions post-IPO and are now of means to help companies make it.
The group also doesn't function much like a classic tech mafia. It's too large and disjointed. There’s also no collective sense of mission, or the haunting memories of those early founding days in the trenches together. A lot of mafias get their juice after an acquisition -- they have money, need something new to do and can have a frustrated sense of unfinished business. This group had none of that.
This is simply a loose-knit syndicate of people who've passed through Facebook. As Kevin Colleran -- Facebook's first head of advertising and a partner at General Catalyst -- explains, admission to the group is pretty easy. "The group is for anyone who ever had a 'fb.com' email address," he says. (Incidentally he passed on Balanced due to a competing investment in Stripe. And in another example of the small world of Silicon Valley, Stripe was funded by PayPal mafia dons Peter Thiel and Elon Musk.)
This is something slightly different than what we've seen before even in a place like Silicon Valley where reinvesting in the next generation and doing it along with friends and coworkers has been the norm for decades. It's something that has informally existed around massive IPOs like Google -- where way more than just early founders make money. But this may be one of the most powerful incarnations of it, given the ease of organization that Facebook itself has afforded, and the comfort this generation of entrepreneurs has with fundraising over open platforms like Angel List.
There are several Facebook groups for former employees about investing, but this appears to be the most inclusive. As far as I can tell, none of the Facebook founders are in the group, though members of the group said they wanted to keep the published details of the group scant, including who created it and who its administrators are. Less secretively, many members said they just didn’t know or could not remember who started it, including Wong and Colleran, who were invited to join when the group still only had a handful of members.
The group essentially serves as a message board for the investors. Members post about companies often, but this is the first time many of the members invested en masse in one company, although group members agree that its hard to gage how much support companies get, since many of the interactions happen outside the group after someone initially posts about a company.
So why was Balanced so captivating? Initially, it had lot to do with how respected Wong is, and his vouching for the company. He invested in it before taking the reins at Reddit, and this caught the attention of the other members, according to Bobby Goodlatte, a former Facebook designer. But after investors met with Tamizi, the rest had to do with his personal magnetism and the business outlook, many of them said.
The company is especially equipped in powering peer-to-peer marketplaces and crowdfunding platforms -- doing things like holding money in escrow and securing credit cards -- but the service works with any ecommerce platform. In fact, the company got a lot of advice from fellow YC grads Airbnb early on, and CEO Brian Chesky is also an investor. One of the company's main sticking points is making sure merchants get paid quickly, within 24 hours. Tamizi said he'll use the extra funding to bring on more people as the company grows and eventually looks toward a Series A. He says the company has been growing by 30 percent month over month.
With an investing group so large and disparate comes differing opinions on how the group should handle press. Some of the investors aren’t quite ready to tell the world how powerful they can potentially be. Even though part of Balanced's press pitch was the unique way it was funded, the more I dug into the story, the more nervous some investors in the group got.
While most were cooperative, many showed concern with the direction of our story. It’s less that they’ve got anything to hide. They just don't want the group to get too much attention. Despite repeated requests, investors were loathe to name other startups who got funding as a result of a post on the Facebook page, citing respect for the privacy of others in the group.
But if Balanced is an outlier -- we're still not totally sure -- it may not be for long. “I think we’re seeing the beginning of an organization here," Goodlatte says.
There are clearly benefits to having a smattering of the early Facebook team in your corner. Tamizi says that Goodlatte helps the Balanced team mock up designs for hours. And Ronnie Cheng, who worked for Facebook’s payments team, helped guide Balanced through the process of the Payment Card Industry audit.
There’s also the simple plus of expedition. “Normally if you’re pitching 25 investors, it’s a very time consuming process. But here, there were some days when I was meeting, like, five people back to back,” Tamizi says. It's almost a smaller, distilled, invite-only version of Angel List.
But there are some things the group might have to watch out for, Tamizi warns, although most are the same pitfalls that groups of angels already risk falling into. One is the monkey-see-monkey-do syndrome, where one investor might only invest because he knows another well-regarded member like Wong is doing it.
For those currently working at Facebook, there is also slight potential for a conflict of interest. Right now, Facebook’s ecommerce operations are home grown and handled in house. But with so many Facebook folks investing in Balanced, perhaps the two companies could strike up ties. It’s logical, even without anything nefarious going on: If these people believe in Balanced enough to invest – regardless of their affiliation with Facebook – why wouldn’t they want to use its service for Facebook, based on merit?
Still, Grimm, the infrastructure engineer, says the appearance of a conflict of interest may cause the opposite effect, and influence the investors to act even more scrupulously. “They’re not going to want to ruin that objectivity,” he says.
It's certainly a use case for Facebook that Zuckerberg couldn't have had in mind when he started coding in his dorm room that winter in 2004 at Harvard. But he likely didn’t have Egyptian revolutionaries in mind either. In a landscape where Facebook has just redesigned its New Feed in an attempt to keep users engaged, it’s a reminder that one of the service’s greatest assets is its ability to galvanize small groups. (And sometimes big ones, in the case of the Arab Spring.)
It's also a powerful reminder that the meat of social networks is the content, context and relationships each users puts into it. When I use Facebook, hours of productivity mysteriously disappear from my day. Best-case scenario, I have a private group with close friends that we use to make weekend plans. But when people like Yishan Wong or Andrew Bosworth use it, startups have the opportunity to get funded.
“Coming from Facebook, we have a pretty clear sense of how lucky we were and how hard it can be,” Bosworth says.
[Illustration by Hallie Bateman]