Editor's Note: This story contains an updated list of angel investors lined up by First Round Capital.
Intuit's purchase of Mint.com was a big win for Mint CEO Aaron Patzer and the rest of the 38-person staff he assembled to run the personal finance Web site. Yet the $170 million acquisition also vindicated a new breed of early-stage investor that is betting aggressively on startups while big-name venture capital firms conserve capital and shy away from risk. These so-called super angels are trying to reinvigorate venture capital by taking it back to its roots, when firms were smaller, nimbler, and more adept at helping to build companies from the ground up.
Mint.com owes much of its success to one such investor, First Round Capital, which opted to back the fledgling company at a time when other VCs demurred. Indeed, the Mint.com acquisition is First Round Capital's largest exit, beating out the $100 million sale of portfolio company Powerset to Microsoft (MSFT). And although First Round Capital would not quantify the return on its investment, co-founder Josh Kopelman says the Mint.com deal generated the highest return of any deal the firm has done. Previously its best return came when eBay (EBAY) acquired StumbleUpon for $75 million, which generated more than 14 times First Round Capital's original investment. "I don't think this changes our strategy," Kopelman says. "It is continued validation for our approach."
When First Round Capital made its initial investment in 2006, Patzer was a 25-year-old software engineer working for an electronic design automation company. But the Duke- and Princeton-educated entrepreneur envisioned building a Web site that would help consumers manage their money—one much easier to use than Quicken, the market-leading product from Intuit (INTU). "Quicken is not quick," Patzer recalls saying to himself at the time. "There's got to be a better way to do this."
An Impromptu Demo After spending 14 hours a day for six months building an early version of Mint out of his own savings, Patzer began looking for money to take the company to the next level. He was turned down by a dozen angel investors and many top established venture capital firms, including Sequoia Capital, Greylock Partners, and Clearstone Ventures. "Every single VC told me I would fail because no one would trust a startup with their financial info," Patzer says.
First Round Capital saw something other investors missed. At a networking event for entrepreneurs in the summer of 2006, Patzer pitched Kopelman, piquing his interest. "I had a server running on a laptop in the trunk of my car," Patzer says. "He waited a couple of minutes. I ran out and got the laptop and fired up a demo."
Kopelman liked what he saw. He asked Patzer to send him a business plan. "We saw a really big market and someone who had really thought it out," Kopelman says. "He saw an opportunity to solve a really big pain point for customers." Within 10 days, First Round Capital offered to invest in the startup. "They moved incredibly fast," Patzer says. "First Round Capital put down a term sheet without caring what anyone else would do."
That got other investors moving. Over the next few weeks, First Round Capital lined up $725,000 in funding, putting in $325,000 of its own money. The firm brought in other super-angel investors, such as Felicis Ventures, Soft Tech VC, and super-angel Ron Conway.
A Near-Catastrophic Server Crash First Round Capital didn't stop helping the company there. FRC partner Rob Hayes joined the board and Kopelman became a board advisor. Hayes brought product development experience from his experience at Palm (PALM). "Rob taught us what a proper product organization did," Patzer says. "He helped us with usability tests…any time we needed a recruiter he would go out and interview five of them."
Guidance from First Round Capital also helped Mint.com avoid several potential disasters. After Mint.com won the top award at the TechCrunch 40 conference in 2007, its Web site was besieged by users. The company's servers went down, hampering its ability to capitalize on the coveted distinction. The Mint.com team traced the crash to a problem in its database technology. Later that night, Kopelman personally contacted an executive of MySQL, Mint.com's database provider, asking him to help solve the problem. "We were able to resolve the issue within 24 hours—if not faster—because of the connections Josh had," Patzer says. "It was a crucial moment." Thanks to that save, Mint.com met its initial three-month goal for user acquisition in 36 hours.
First Round also helped Mint.com raise additional money when the startup needed it. FRC introduced Mint.com to partners at Shasta Ventures, which ended up investing in a subsequent funding round. FRC also increased its allocation in the following three investment rounds. In total, Kopelman says First Round put in more than eight times its original investment of $325,000.
Users Have $50 Billion in Assets All the while, Patzer continued to rely on Hayes and other FRC team members to help guide him through the treacherous process of building a company. "I talk to Rob every week or every other week," Patzer said in an interview in February.
Since the summer of 2007, Mint.com has attracted a growing stream of customers. Today the company says it has 1.5 million users tracking nearly $50 billion in assets and $200 billion in transactions. Mint.com makes money by directing customers to partners such as credit-card issuers, insurance providers, and other financial-services companies. Mint analyzes users' finances, spending habits, and demographic information, then suggests money-saving accounts and financial products that may be suitable.
Hayes and Kopelman give most of the credit to Patzer and his team. On his blog, Hayes highlights several steps by Patzer. Among them, Patzer persevered to buy the Mint.com domain name when it looked to be out of his reach; he built a culture that relentlessly focused on the customer experience and continual product improvement; and he knew when to hire a top executive team. "It has been a great ride and I have learned a tremendous amount playing a supporting role as Aaron built this company," Hayes writes.
But it all started back in a parking lot when First Round Capital seized on an opportunity that emerged from the trunk of a car. For that support, Patzer says he is "eternally grateful" to Kopelman, Hayes, and the First Round Capital team. "They took a risk on a 25-year-old kid who didn't have a whole lot of experience."