SoundCloud, a music and audio sharing service for artists, has been gaining momentum and rapidly growing their user base since the launch of the service last October. They have gone from 20,000 users to 100,000 users in a matter of six months.
Not only have they grown fast, they also just raised €2.5 million (roughly $3.3 million) in about 4 months. When we met SoundCloud at Le Web last December they were just starting to talk to VCs. Just last Thursday they signed the papers for the €2.5 million, which should give them a run way of roughly two years.
It also seems that SoundCloud is all the rage at The Next Web Conference and one of the hottest startups present based on the number of interviews co-founder Alex Ljung is doing. I talked to Alex at the venue about SoundCloud and the experience so far. He told me about the process of raising venture capital in the current economy, what they want to do with the money and how it all got started with SoundCloud sometime in 2006 in Stockholm, Sweden.
When asking Alex how he liked the process of raising venture capital he laughed and said he didn’t, and that it is “Hard as hell”. A long and tedious process, but very rewarding once you pull it off. He told me that he pitched their presentation a ridiculous number of times to the VCs and even though SoundCloud had all the needed elements in place -a solid team, a very fast growing user base and a model where they started charging money for the product from day one, it was still very very hard.
The €2.5 million they raised all from Doughty Hanson Technology Ventures will go mainly into 1) expand the number of employees, 2) extend and improve the product with new features and 3) expand into other markets. Oh, and pay themselves their first real salaries.
According to Alex, they are thinking of taking the company from what is now seven people to twelve or thirteen people by the end of the year. Alex also asked me to tell they are currently looking for great developers, music lovers, community managers and over all great people, so do get your CVs ready. Once they have written the job descriptions they will be posting them on ArcticIndex Job board.
As the founders are naturally very much product guys, the money will also be used to ramp up the business side of things. This will also include starting to expand into new markets. Currently US is the biggest market for SoundCloud, UK second followed by Germany and Italy.
When the founders had an idea what they wanted to build, their approach of choosing where to physically set up the company was rather unusual one. They systematically went through all the options for a good location starting from San Francisco, but finally settling for Berlin because of the vibrant tech music scene which is clearly crucial in building a great product from the idea they had. Not everybody have this option be it due to family reasons or otherwise, but SoundCloud has shown it can be done and it works.
Alex told me that when they moved to Berlin they really didn’t have much planned or prepared. Once they settled for the location they just packed their bags and went. They first gathered random pieces of wood from the yard and other material to use as their office desks and really didn’t have proper apartments but just a mattress on the floor for several months in the beginning. Once they had scraped together something resembling an office they had to use gloves while working with laptops because the office was so cold. The money doesn’t come over night from the VCs and you need to be prepared to push through the rough beginnings with a lot less. Alex, just as many others, have told me how getting VC money is very different from Angel investments. Angel investors will invest in you with what is much more of a gut feeling than rigorous analysis after they have looked at your product and your team, whereas VCs will want to see all the numbers and take their time to do a thorough due diligence. The process of getting VCs to invest in your startup is a lot like a dating game: You meet and pitch your product over and over again and try to give the best possible representation of yourself as you can, but you really don’t know what the other side is thinking and whether they are in it for good before one day they send you the term sheets and propose a deal to live happily ever after. Congrats to Alex, Eric and the team!