How to Start Building #5: How the Brew Raised Money (Classic)

What's up, everyone. This is Alex Lieberman, co-founder and Executive Chairman of Morning Brew. Welcome back to Founder’s Journal, my personal audio diary, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. You're listening to episode five of our How to Start Building mini-series. This week, we're dropping double the episodes focused on developing entrepreneurial skills and turning your thoughts and ideas into a real business. In this classic episode, I'm talking about how we raised money for Morning Brew and how you should think about funding your side hustle or your business.

Getting off the ground

So to give the full Morning Brew fundraise story, we need to rewind back to 2015 when I was in college and my co-founder Austin was in college as well. You see, we didn't start Morning Brew thinking about it as a business. We started Morning Brew thinking about it as a hobby where I was writing a daily business newsletter because students were telling me that they didn't like The Wall Street Journal. I said to myself, there has to be something better. Austin was one of my first readers. The newsletter originally that I was writing was picking up steam and I had sent an email out to people saying, “Hey, I want to take this a little bit more seriously. Does anyone want to help out?” Austin emailed me, said, “Hey, I have ideas for how this could be better.” He joined me as my co-founder. Co-founder is a very loose word, because again, we weren't a business. We weren't making money, but we did incorporate the company as an LLC in Michigan. Thanks to Michigan's Law School that did it for free. But the reason I give that context is because things like raising venture capital money, taking out debt, even raising a family-and-friends round, it wasn't on our radar for several years, because this was just a side project, right? It would be like if you were thinking about starting gardening in your backyard, you wouldn't think about raising money for it. You would just fund it yourself. And so that's what we did. When we were sending out the original newsletter in the early days, let's call it end of 2014, beginning of 2015, Austin and I paid for it ourselves. And then we also applied for grant competitions through the University of Michigan. This was actually a big part of a previous episode that I talked about, which is college was the best time to start anything, a business, a project, a nonprofit, because there were so many resources at our disposal to help drive this project forward. So at Michigan there was something called the Zell/Lurie Entrepreneurship Institute. There were other entrepreneurial incubators. And so basically Austin and I did everything possible to apply for every grant competition. And over the course of my senior year and his sophomore year, I want to say we probably got $15- to $25,000 in funding just from winning these competitions.

Where Morning Brew’s investments came from 

So the combination of getting $15 to $25,000 in free grant money, no strings attached, literally just given to us as a gift for being student entrepreneurs at Michigan, and then also just funding the business out of our pocket, that's how we were funding what was a business slash project early on. And just to give you a sense of costs, right? We weren't developing an app. We weren't starting a business that required a ton of infrastructure or machinery or manufacturing. It was an email newsletter. We were paying for Mailchimp. We were paying for a website. I think we were paying a little bit for email addresses so that we could have Alex at Morning Brew, daily.com and Austin at Morning Brew daily.com.

So funding it out of our pocket cost a couple hundred dollars a month, max. But this all switched when we decided to go full-time on Morning Brew and when we started thinking about this as a business and not a project. So fast forward, I graduated from Michigan. I went and worked in financial services, in sales and trading in New York city for about a year. Austin is two years younger than me so when I was working in sales and trading, he was still in college and he was a senior and it was in late 2016 that we decided that we'd go full-time on Morning Brew. This is when the switch flipped. This is when we start thinking about Morning Brew as a business, right? Because no longer was I going to be able to rely on my job, to pay for my apartment or my bills. It was going to be Morning Brew. And for Austin, he turned down a lucrative job in investment banking to do this full-time as well. And when that switch flipped, everything flipped, not just how do we fund the business, but also how do we build this into an actual business and not a fun side project that has a little audience. And the reason we needed to think about funding, it was no longer could we have college students writing our newsletter. Basically from the time I graduated Michigan to the time I quit my job, I could no longer write the newsletter. Austin was busy with his senior year of college. And so we had college students helping us write the newsletter. But if we were going to be a business, we needed full-time writers, full-time writers command salaries.

We didn't have enough grant money or money in our own pockets to pay the salaries of writers. That's when we had to start thinking about raising money and at the time Austin and I weren't, you know, sophisticated entrepreneurs, we didn't know all these different ways that you could fund a business that we now know. There was basically one rat in our head, which was raising venture capital money. That was the only thing we had heard of, but we are really averse to it. We had all these preconceived notions of what it meant to take money from venture capitalists. We had this vision of raising money from VCs, selling our soul, not controlling the destiny of our business. And that sounded horrible to us. We also had these visions of other media companies that we had heard of companies like Mashable or mike.com, other businesses that had raised VC money and ended up doing really poorly after taking a bunch of money.

And so once we knew that raising venture capital money, wasn't an option, self-funding and grants was no longer an option as well, we really didn't have any options. And so we went with what we thought was the only option and the most direct route to getting money to fund the business. And it's very unique for us, but I think being creative in how we decided to fund the business actually ended up being a huge asset. So what we did was we actually raised money from, I wouldn't even call it family and friends. I would call it friends of friends and friends of family friends, basically the long story short, it wasn't family members that helped fund the business. When we were starting Morning Brew in college, we did this weekly thing where we would interview big business people.

And the way that we got in touch with these big business people was through the Michigan network, through our own networks, so through me, in New Jersey, Austin and Maryland, and through other networks, we were part of, and it was really cool. You know, these people would do interviews with us because they wanted to give back to college students and help them learn about business. And we got to feature huge business names in our newsletter. Well, when we went to raise money, Austin and I had this spreadsheet of all of the people that we had interviewed as part of this ongoing interview series. It was probably 20 people. We reached out to all of these names, who we had kept in a list and we said, “Hey, we've decided to go full-time on Morning Brew. It's no longer just a fun pet project. It is a business. We are going to disrupt business media and you help to provide a springboard for us when you did the interview with us, you know, several months ago. We want you to be able to be a part of this journey. We're raising money for the business. Are you interested in taking a bet on us?” And while the process, you know, beginning to end of raising money probably took four to five months for us, which I think all things considered wasn't that long for fundraising for a business, we ended up getting 28 checks from 28 different individuals. We raised $750,000. And the vast majority of the people who put money into our business were either people who did those interviews with us while we were in college, still doing this pet project, or friends of people that we had interviewed.

And so it was this really interesting dynamic where it was wealthy individuals and they didn't have the same expectations as venture capitalists. They weren't expecting three X, five X, 10 X, a hundred X on their money. Honestly, I think for a lot of them, they were just hoping to get their money back. And in a lot of ways, they were paying money to be nostalgic, to relive the glory days of building a business early on, and to support two young and hungry college students who became entrepreneurs that they somewhat believed in. So that's how we funded the business. And in retrospect, it made a ton of sense. The reason I say in retrospect is because Austin and I weren't that thoughtful about fundraising in the early days.

Like I said, it was just, we had these preconceived notions of venture capital. We didn't really look deeply into it and we didn't have that many other options for how we were going to fund our business. The reason in retrospect it made a ton of sense is first of all, Morning Brew did not require a lot of money to get to profitability. So one of the reasons you end up raising a lot of money is if you need a lot of money to become profitable, right? Like you need to spend a lot to hire people to start selling a product or providing a service that at some point in the future, but in the distant future, willl get you to profitability for Morning Brew, it was such a low cost of funding the business because it was an email newsletter and the point of breaking even on that business was so low that we didn't have to raise a lot of money. That's one reason it made a lot of sense to raise in this way, not raise more than 750K and not raise from large institutions that would generally write bigger checks. 

Media and venture capital 

The other reason this made sense for us in retrospect is because one of the biggest rules in fundraising that I believe in is that you should take money from an investor that has similar growth expectations that you have for your business. Generally speaking, there are few exceptions, media and venture capital do not generally go together very well. And the reason for that is not because venture capital is bad or media is bad. It's because venture capitalists generally have an expectation that a single investment can pay back their entire fund and to pay back your entire fund, an investment has to, we're talking 10, 20, 50 X, but when you look at the trajectory of a healthy media company, a healthy media company does not grow in such an aggressive, exponential manner, generally speaking. And the reason I bring that up is you can have a really healthy, fast-growing media company, but it still may not grow fast enough for venture capitalists, leaving venture capitalists unhappy because it's not meeting their expectations. And so all that to say that while we were lucky and not raising VC, because Austin I were stubborn and we had preconceived notions, it was actually I think the right decision now, when we look at it from a logical place.

And that is how we funded Morning Brew from day one in what I will definitely call an unconventional and a creative way. But what in hindsight was an incredibly effective way to give Morning Brew the lifeblood it needed to start the business in the early days. 

I would love to hear from you. Now, do you have any questions about Morning Brew’s fundraising story, or do you work in a company that's raised money? Are you thinking about raising money? Any questions you have about the fundraising process? Shoot me an email to alex@morningbrew.com or a DM on Twitter @businessbarista. And I'd love to just hear some of the most common questions that the Founder’s Journal community has about raising money as a business. As always thank you so much for to Founder’s Journal, and if you enjoyed, please let others know who you think would enjoy the show as well. Thanks again. And I'll catch you next episode.