By Bethany Coates, Andrew Rachleff
2007 | Case No. E254
Will Harvey hopped onto his road bike and began pedaling up Old La Honda Road, the famously steep and windy street in Portola Valley, California. As the climb became more arduous, Harvey, the co-founder and CEO of IMVU, a company that developed 3D avatar-based instant messaging, began thinking through the three term sheets that were lying on his desk at the office. He and co-founder Eric Ries had to make a decision within a week about who to partner with on IMVU’s current round of financing. Harvey and Ries had adopted an unconventional approach to growth for their start-up. While the typical early-stage technology company delayed entering the market until its product had been perfected, IMVU sold its chat service to customers right away, even when it was incomplete, bug-ridden and carried a beta label. The IMVU development team then made continual modifications to the application based on consumer feedback captured through emails, surveys and online chat forums. Within eight months of launching the beta product, Harvey and Ries believed that they clearly understood many of the features desired by their “earlyvangelists.” IMVU’s strategy produced fast enough revenue growth (on a small scale) to attract offers from several Sand Hill Road venture capital firms as well as a large strategic acquirer. However, each potential partner had a different perspective on how to ramp the company going forward. Harvey and Ries weighed whether they should continue adhering to the methodology that enabled them to get IMVU off the ground or to shift gears in pursuit of a more aggressive expansion. That decision was the first step in choosing the source of capital best aligned with the company’s strategy and goals.
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