They were raising $8 million at a $35 million post-money valuation. Despite a great founder and some blue chip customers, I passed. Here’s why…

“3L” is a tool for law firms to recruit new attorneys coming out of law school. ”3L” is a composite, not a real startup, and the name is made up. But it shows why slow growth and outsourced development make it hard to raise money.

The Good

In just 2 years, “3L” had signed up some impressive customers. Many top law firms were using the platform to find new attorneys.

The founder, “Tim,” knew his market inside and out. He had been a Biglaw attorney before starting “3L” and he knew what these blue chip firms wanted.

When he demoed “3L,” I was impressed by how easy it was to browse the profiles of new law school grads. If you want a new associate who’s done a lot of coursework in securities law, you can find one in just a few clicks!

The Bad

“3L” had an awesome platform. But they were having a hard time finding new customers.

Revenue had been flat for the last 6 months. Rapid growth in prior years had slowed down to a crawl.

The founders had a plan to hire more salesmen and pump up those numbers. But whether that plan would succeed was anyone’s guess.

“3L” also relied on a team from Bulgaria to write most of the code. This may have slowed them down — collaborating across time zones and language barriers isn’t easy.

Decision Time

Looking at the “3L” deal, I asked myself: “What am I buying here?”

We’ve got a business that isn’t growing. The team doesn’t have the technical skills in-house to make a better product that would sell faster.

Remember, “3L” is one of 100-200 deals a month I see. Many of those are highly technical teams with fast growing businesses.

As much as I liked “Tim,” I couldn’t justify investing in “3L” over all those other companies. I passed.

Wrap-Up

Lots of companies are like “3L” — strong initial growth that quickly peters out. In a situation like that, fundraising is tough.

The best solution is to get to break even, find some ways to grow a little, and then raise from a position of strength.

For investors, we have to focus on backing technical teams that are growing fast. In an industry rife with failure, they are our best chance of success.

Would you have invested in “3L”?

More on tech:
Why I Passed: “ProductPreview”

A Peek Into My Founder Meetings

Retool’s YC Demo Day Pitch

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order.