Ask around startup circles, and you'll hear that angel funding is dead – or at least on a major hiatus. The mantra of some is bootstrapping, while the debate continues around creating big-bang exits versus lifestyle businesses. Personally, I believe the accessibility to solid angel funding is a self-fulfilling prophecy that incrementally increases the sizes of startup exits – and therefore creates momentum in the ecosystem. My equation goes: healthy angel funding today = bigger exits (on bigger ideas) = more new angels = more angel funding tomorrow.
But angels are out-of-reach now, right? Tell that to Toomah, who have just closed an angel round of $350,000 on what is principally a pre-revenue business – but one with serious momentum. Yep, you read that right: an angel round in this market to a pre-revenue company. So let's look at how they pulled it off.
The Toomah story begins with their founder Jay Forman. Like most startup folks, the core idea behind Toomah came along after he went through the process of landing a sales management position. His first task was to staff a full sales team, which proved to be as much of a logistical nightmare as his own hiring process.
A Technical Co-Founder
Forman quickly saw that streamlining the hiring process had strong business potential, and along came Toomah. While considering how exactly to improve efficiencies (manage the entire process for businesses or automate specific sections of the hiring process), Forman was also struggling with one of a founder’s greatest demons: How do I get this built? The issue of finding a technical co-founder who can both build and manage early development is among the leading issues faced by business-oriented startup CEOs.
After a suggestion from his wife about his super-techy cousin, Forman decided to reach out for the guy he’d met less than five times in his life (and even had him sign an NDA). As it would turn out, Rob Forman was living in Maryland and was doing both software development and network and information systems security work for the likes of Booz Allen Hamilton and PriceWaterhouseCoopers – not a bad background to go build a secure HR system.
So Jay and Rob set-off to create an alternative Applicant Tracking System (ATS) like Taleo. One of the features inside their first product iteration was InterviewPlus, which would eventually become a mainstay of the business. By cutting the pre-screening process from 30-40 minutes to less than 5 minutes per applicant, InterviewPlus allowed hiring managers in high-turnover industries like call centers to gain amazing efficiencies. But the sales cycles were long, and the orders just weren’t coming in fast enough.
New Faces, New Skills
At virtually the same moment in time, Jay’s financial advisor suggested he meet with a recently departed Computer Associates VP of Sales named Joe Gruca. The relationship began as consulting arrangement where Joe was helping to shape the product positioning and defining how to sell into the Fortune 1000. After a couple weeks of working together, it was clear there was a bigger play. And here’s perhaps the largest teaching moment of the whole Toomah story: Jay asked Joe to join Toomah full-time as the President & CEO.
“If nothing else, I know my strengths and weaknesses well,” says Jay Forman. “Having Joe join our executive team was the perfect complement to what Rob and I had been building.”
In the process of formalizing the relationship, Gruca also brought another experienced heavy-hitter to give Toomah instant credibility. Mark Hopkins had recently retired from UPS, where he led the Package Process Management group. Together, Gruca and Hopkins injected additional capital to enable Toomah to further develop the InterviewPlus product.
The Final Pivot Point
And while finishing the development in late 2009, there was another critical moment in Toomah’s existence. With the new experience in the management team – and the stalling of direct sales to call centers – Toomah decided on one more modification: they would sell direct to staffing agencies who do much of the outsourced staffing for high-turnover industries like call centers and even technology recruiting. As it turns out, these agencies have smaller staffs and an even larger pool of applicants given the economic downturn, and were absolutely open to this kind of process efficiency.
So today, Toomah has some pretty crazy momentum going. They’ve spooled-up their inside sales, and are now averaging ~25 unique appointments a month – most of whom quickly setup the free 15-day trial account. And early indications put the trial conversion rate above 50%, but Gruca will be the first to say it’s early.
The source of the investment dollars is perhaps even more of a story than the amount. While the $350,000 was made up primarily of friends and family money, there are two obvious exceptions: the Atlanta Technology Angels and the ATDC Seed Fund, who contributed $25,000 and $50,000 respectively. (Yep, they’re among the new generation of ATDC members.) This is big news in that both organizations have been relatively quiet in the last 12 months, and in the case of the ATDC Seed Fund, this is likely their final investment before the dollars get turned back into the budget shortfall.
The angel round (which was executed as convertible debt) has allowed Toomah to add two more BizDev resources, and will round-out the product development efforts begun when Gruca and Hopkins joined the team. They’re also targeting 10-12 major clients during this period of the company’s growth.
“This round will get us 6-8 months of operating cash, and then we expect to have an even deeper customer-driven product strategy in-place,” says Gruca. “We’re looking clearly toward a Series A round in late 2010 or early 2011 to complete another major round of development and really scale the business.”
If the Toomah guys can keep the sales funnel flowing, this could be the beginning of a very steep climb for a company founded to improve the hiring process. Fortunately for Toomah, the hiring process is not going to become a bastion of efficiency overnight – which represents a significant opportunity mid- to long-term. We’ll keep an eye on their progress and bring you any relevant updates.