Sramana: What was the reason you were making pitches? Were you trying to raise capital?
Jake Weatherly: We were pitching for practice in the beginning, but it was warming up to raise capital. In our first round we raised just over 1 million dollars and just over 1.5 million dollars in the second round. Both rounds have been with a small group of private investors. In the second round we were flattered to have everyone follow on from the first round.
Sramana: What was the source of your private investors? Did they come from the incubator?
Jake Weatherly: Some came from the incubator and others came from our existing networks. We did skip the friends and family round. We went from bootstrapping to picking professional investors. We did not have any institutional money. We had very seasoned, hard-core investors. We did not want to go from bootstrapping to having friends and family writing checks from their savings accounts.
It was important to us to have professional investors. We were looking for a group of advisors and seasoned entrepreneurs who had been through a lot of the things that we were anticipating going through. Some of our investors came from traditional backgrounds and others came from more of a technical or agile background, nonetheless we assembled a group of people who did not just represent the money they put into SheerID, but a group that we could sit down and have strategy discussions with.
Sramana: Can you talk a bit about your market sizing model at that point? One thing we know from fundraising is that professional investors look for larger market opportunities. How did you model and market that?
Jake Weatherly: We made a few mistakes in the early days. We came out with a total addressable market which was a certain number of enrolled students each year, a certain number of teachers, etc. We looked at the total disposable income or buying power. What we learned, especially from our early prospects, is that we could ask questions that we did not think we could ask our prospects. They would answer them with pride and then drill down without us even asking them to do so.
We started gathering data around the number of laptops that a student will buy on a discount each year. We learned the amount of money that students spent on apparel and the brands they would most likely buy from as well as how student discounts impacted their purchases. We were able to gather information that was real hard data. It is as much of an art as it is a science. We focused on a select number of industries that had a history of offering exclusive discounts to target audiences that we were interested in launching verification services for. We were able to use a handful of industries, and data from those industries, to prove a total market that was a very significant size.
Sramana: What is your business model?
Jake Weatherly: Our business model is to charge the retailers who have exclusive offers for these audiences. We charge them a per-request fee. When they ask us a question we charge them a fee. They see value on both answers. If our answer is “no, this student is not currently enrolled as a student like they claim to be” then they see value that they protected against fraud. If the answer is “yes, this is a student” then they see value in the fact that we enable their e-commerce to have an instant gratification effect for their customer. Either way, SheerID is giving them an instant answer.