Tomer Kagan shares Merit's unique fundraising philosophy and best practices

"We use our fundraising process as a forcing function in the company to compel us to make constant improvements."

Tomer Kagan, Merit CEO and co-founder

99% of businesses in the US are considered "small," with fewer than 500 employees. 50% fail within five years, and 65% don't survive their first decade.

What are the secrets of those who thrive? Do they simply offer a needed product or service at just the right time? Is something revolutionary in their business plan or novel in their marketing strategy?

Knowing the practices of durable companies is invaluable for entrepreneurs, potential employees, and investors whose funding is necessary to turn ideas into reality.

Merit CEO and co-founder Tomer Kagan shared his thoughts with Alejandro Cremades, an international business and trade attorney who provides M&A and fundraising advice to early-stage companies. This Entrepreneur Raised $80 Million To Bring Verified Data Into Existing Workflows summarizes their discussion. 

We've highlighted three key takeaways for those asking how Merit thinks about building a business and fundraising. 

#1 - Don't focus on money. Focus on your customers.

"We have a particular philosophy about fundraising," Tomer began, "the goal can never be money, but to make customers beyond happy.'"

From the start, Merit leaders refused to make profit their primary organizing principle; instead, they engineered technology that solved actual, critical problems and supported clients during its implementation and use. 

"We never wanted to raise huge money or even make money itself our first goal. Build a great product and make customers happy. The money will come."

#2 - "Use Fundraising as a forcing function. Raise money on your accomplishments."

"One of the things we did very differently was that we've always tried to raise based on accomplishment."

"I always say, 'Fundraising is terrible, but the fundraising process is necessary.' If you're selling a house, you often find problems you would never know were there unless you were selling. I broke up my series rounds upfront, knowing it would take more time. I said, 'Let's prove x, then prove y, then z."

Tomer described the three stages of "proof."

By successfully building the verification process for the United States Parachute Association (USPA), Merit demonstrated it could create a consistent, reliable information flow from the license issuing body, USPA, and the drop-zones, instructors, and divers. 

Beyond replacing an inefficient, time-consuming paper-based system, the verified digital credentials instilled a culture of trust felt by everyone participating in skydiving.

Could Merit provide the same benefits to a statewide licensing agency? Since the founders' ultimate goal was to replace obsolete systems, Merit's ability to scale and solve the challenges of large agencies was a critical test.

In 2019, Merit enabled Virginia's Department of Professional and Occupational Regulation to offer dynamic, digital licenses to all its statewide licensees with one of the most successful digitization processes of the agency: over 200,000 licenses were made digitally available for more than 40 professions.

The COVID-19 shutdowns and subsequent disruptions of government agency focus forced the company to choose between shutting down or pivoting to meet new demands. Merit supported the Florida Division of Emergency Management's award-winning response to the pandemic, enabling the state to rapidly verify and badge registered nurses needed at testing and vaccination centers and track millions of staff hours. 

"By lining up all our business goals with the series rounds, we were not fundraising for its own sake. We use our fundraising process as a "forcing function" in the company to compel us to make constant improvements." 

#3- "Everybody's baby is ugly. Lean into anti-fragility."

"One thing people need to know when they go into business is just how emotionally draining it can be when you are finally ready to raise money. Everybody's baby is ugly, and asking people to look at your baby, hearing them tell you that your business is ugly, is going to hurt."

Tomer pointed out that leaders who can listen to the valuable, albeit painful observations about where they need to improve instead of taking this personally or refusing to "lean in" to the pain will overcome problems that otherwise lead to failure. 

Be here next year!

Merit's approach to fundraising could be summarized:

• Prioritize customer satisfaction over profit
• Ground funding appeals on completed projects
• Gratefully use (painful!) constructive criticism to drive continuous improvement

Guided by these principles, Merit raised over $80M in financing and continues to scale with new partnerships in states across the country. We're bridging the gap between the public and private sectors and have good reason to hope we'll see the benefits of our strategy.