4 Counterintuitive Stories From Rapportive’s Seed Funding

Rapportive this week announced $1 million in funding from a long list of angel and early stage investors including Dave McClure, Paul Buchheit, Jason Calacanis, Gary Vaynerchuk, Shervin Pishevar and VentureHacks. The startup makes a Gmail (s GOOG) plug-in that gives dynamic social web profile data about the people you are emailing with. It is in the current Y Combinator startup incubator class, set to finish next month.

Rapportive CEO Rahul Vohra

Rapportive’s product may be simple, but it’s very on-trend; web productivity tools are the startup category du jour, especially since acquirers like Google (s goog) have snapped up players like AppJet and reMail. Just a few months after starting in January, Rapportive’s free tool was getting press write-ups for being useful and neat (see ours on WebWorkerDaily). Then the seed funding offers started coming in.

At this point, conventional wisdom would say this company has things set — it’s time to take the money, get hiring, and set off to bottle that excitement, right? But Rapportive co-founder and CEO Rahul Vohra chose to apply to Y Combinator (s yhoo) instead, the startup bootcamp program (which particularly seems like a bit of an odd choice given the company’s direct competitor, Etacts, was in the previous class). Then, rather than just taking YC’s money and fully focusing on product and business development, Vohra went about raising money on a rolling basis from what ended up being a gigantic group of investors — the “slimmed down” list he emailed me today had 14 separate people or organizations on it.

We talked to Vohra to get the backstory on Rapportive’s somewhat surprising choices. His answers are below, lightly condensed and, in some cases, paraphrased.

Counterintuitive Move No. 1: Joining Y Combinator‘s summer term in June despite fielding seed funding offers in the spring.

Y Combinator’s program is usually targeted at startup founders just getting off the ground; often, participants change their company idea multiple times during the program.

“We applied to Y Combinator, and we put the product on our website for YC to play with. But instead, the press found us; I think first was The Next Web. It turned out we were a month ahead of the normal interview. I told [Y Combinator] I could raise a seed round right now, and they funded us over Skype, which I think was only the second time that happened; only Heroku had done it before. They actually gave us a discount on their normal deal because we were ahead of other companies. The value is incredible — it’s a very strong brand. it helps when trying to recruit and talking to press. It helps with getting upvotes on Hacker News. It helps on raising money.”

Counterintuitive Move No. 2: Participating in Y Combinator after it had a direct competitor, Etacts, in the class of companies in the prior session (Etacts has also since raised funding).

“I know the Etacts guys reasonably well. When they started they were doing keep-in-touch and reminders. So we then launched, had all this ridiculous traction, thousands of people in first 24 hours. And I think they looked at that and said we have to jump on this bandwagon, so they pivoted in the course of a week. The YC guys said this happens occasionally. They actually funded us before Etacts pivoted. There are 140 million people on Gmail, and we’ve probably both got 100k users, so there’s plenty of room.”

Counterintuitive Move No. 3: Holding a rolling seed funding round, rather than setting a conventional target amount and closing date.

After YC accepted Rapportive back in March, Vohra said,

“I immediately embarked on raising funding. I knew the moment was there and then because we were flavor of the month, and I knew that wouldn’t last. We had a rolling close for the last 2 to 3 months… We set out to raise $300,000, then it became $500,000, then $600,000, then $1 million, then at one point $1.5 million, and we said this is enough.”

Vohra said the first big moment that boosted the round was when Rapportive launched Raplets, a way to bring other products’ CRM tools into its platform that got a bunch of press coverage. Then when the company was a launch partner of Google’s Contextual Gadgets, it got another push. “[Our] investors’ No. 1 question was ‘Doesn’t Google hate you?’ and we could say ‘No Google likes us’ after that,” Vohra said. (The rolling funding round has recently become part of the Y Combinator philosophy, as YC founder Paul Graham explained last week.)

Counterintuitive Move No. 4: Faking a potential investor’s product endorsement to try to get his attention.

Rapportive raised money from Dave McClure “by being fanboys,” said Vohra. But rather than write him fan mail, they used their own product as bait, portraying McClure as the example user of their original web site. “We plastered his face all over, and then people kept asking him, ‘These Rapportive guys, are they your company?'” After McClure got that question more than once, he was intrigued enough to follow up and commit to investing, and then made copious intros for the rest of the round. It helped that McClure was trying to raise his $30 million investment fund at the time, Vohra said. “The best thing you can do to any investor who’s raising a fund is make him feel connected.”

In a sense, Rapportive and Vohra’s choices are counterintuitive, but they are becoming the way the leading edge of the web startup world works. Seed rounds with outsized numbers of investors, more mature companies (and people) participating in startup incubators, and rolling funding closings are practically as hot right now as little productivity web apps.

Related research from GigaOM Pro (sub req’d):

Report: Web Worker Survey 2010