Mint.com: Nurtured by Super-Angel VCs

Intuit is acquiring a startup conceived by a "25-year-old kid" and funded by

First Round Capital, a new breed of high-risk, early-stage venture capitalist

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 Baseline Investments, Felicis Ventures, and Soft Tech VC.

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."

Ante is an associate editor for BusinessWeek.