Dwolla’s Series B: Three things it means for Dwolla (Part 1)
About the author: Geoff Wood is the COO and main connection point in Iowa for Silicon Prairie News, the co-founder of VolunteerLocal and founder of Eggcrates. For more on Wood, see the note that follows this post.
As you may be aware, the anticipated and recently rumored Series B funding news broke this week for the good folks at Dwolla in Des Moines. This round totalled $5 million and was not only raised out-of-Iowa but out-of-Silicon Prairie, with money coming in from both coasts.
As rumored, the round was led by New York-based Union Square Ventures. Union Square, and its principal Fred Wilson (left), are two of the most well-known names in nation's startup community, touting a number of notable investments in hot internet startups, such as Etsy, foursquare, Kickstarter, Zynga, Tumblr, Turntable.fm, Twilio and Twitter.
As we saw with the startup's Series A round in 2010, founder Ben Milne has been very strategic in the amount of capital he takes and who he takes it from. The Veridian Group and The Members Group (the two Series A investors) provide as much value from their partnership as they do with their cash. There was no shortage of choices for this round, as Milne told me in the fall and Business Insider later reported that the company managed a spreadsheet with more than 700 investors who were interested in participating at some level.
Dwolla's leadership team chose USV to lead the round and I believe it is purposeful for three main reasons:
1. Investor name and credibility
While Wilson himself didn't join the board – his associate Albert Wenger did – he'll still lend his star investor fame to Dwolla's operation. He has around 115,000 RSS subscribers and an average of 10,000 visitors per day to his blog, "A VC," along with 200,000 Twitter followers. It didn't take long, a day after the raise was announced he was already blogging about the payments startup including this call to action:
While I don't have access to Dwolla's analytics, I'm guessing that was a fairly successful referral link.
2. Access to portfolio companies
If you follow Wilson, you likely know that USV does not require portfolio companies to work together. He wrote an informative post about his philosophy back in 2010 and in the comments on his post yesterday which was also about Etsy, he directly answered a question of when Dwolla will become a payment option on Etsy:
Regardless, in the 2010 post he did note that he'll make introductions between portfolio companies if he sees a strategic fit. How could Dwolla not be salivating at the idea of becoming a payment option in the aforementioned Etsy (800,000 active shops as of July 2011 - Etsy), Kickstarter (over 1 million individual backers as of October 2011 - kickstarter.com) or Zynga (236 million active monthly users as of the first quarter of 2011 - Mashable)? Obtaining users in large chunks, rather than one-by-one has been part of Dwolla's growth strategy for awhile (see the FiSync product).
On a related note, Dwolla's fanatical following in Des Moines is very organic and very personal to the role they play in this community. We haven’t seen them scale that level of engagement around the country, yet, and by aligning with much beloved companies in other markets, like those in the USV portfolio, there's another tactic to push on.
3. Dwolla wants to go big
Simply put, USV is the big time, it's "the show." Dwolla is now playing with the big boys and they're doing it in a way that few others in the area are. This means that expectations are now higher and that performance and growth will all be measured differently. I think Dwolla wants that and they want to be held to the higher standard. I asked Milne (left) back in February 2010, on the second episode of PrairieCast, why he'd ever pursue such a project as Dwolla. He said simply that sometimes, "If you want to go big, you have to go big."
I think having financial backing from USV is a very visible sign of Dwolla taking the next step on the ladder of "go(ing) big."
Part 2: The second portion of this two-part opinion piece, "Dwolla's Series B: Three things it means for Des Moines (Part 2)", will appear on Silicon Prairie News this week.
About the author: Geoff Wood is the COO and main connection point in Iowa for Silicon Prairie News, an organization working to increase the notability of the Silicon Prairie region – Des Moines, Omaha, Kansas City and surrounding area – as an innovation center and startup hub. In addition to a daily news blog, the Silicon Prairie News team also produces events like Thinc Iowa and Big Omaha. Wood helps organize Barcamp Des Moines and DSM Startup Drinks.