Event Recap

Event Recap: Path to Profitability: Choosing the Right Funding for your Business

Apr 16
Aug 23
Alley Team
Event Recap

Event Recap: Path to Profitability: Choosing the Right Funding for your Business

Apr 16
Aug 23
Alley Team
Event Recap

Event Recap: Path to Profitability: Choosing the Right Funding for your Business

Apr 16
Aug 23
Alley Team
Path to Profitability: Choosing the Right Funding for your BusinessPath to Profitability: Choosing the Right Funding for your Business
Photo by Austin Distel on Unsplash

There’s one thing that startup businesses and other businesses—whether Fortune-500 or privately-owned startups all have in common—and that’s earning money.

With COVID-19 being thrown at our businesses every which way, we at Alley want to give you advice and access to experiences that can help you get on the path to profitability.

In this Webinar, “Path to Profitability”, we talk with our panelists, Galina, Vishnu, Andrew, and Adrian, and go through their own personal experiences with their businesses and how they approached their funding strategies to help them become profitable—regardless of the world around them.

What type of funding is right for you?

The first aspect to tackle is knowing what kind of funding is right for you and your business.

Choosing whether you’re raising funding, taking a loan with a premium payback, giving away a percentage of equity in the company, self-investing, a Kickstarter campaign or even asking family and friends for their startup.

The different routes you can take will influence the decisions that you make when growing your business—so it’s important that you make the right decision for you.

COVID-19 Doesn’t Have to Bring Your Business Down

Although there are a lot of stories you hear nowadays of how this crisis has caused some disturbance in businesses, that doesn’t necessarily mean that your business also needs to take a nosedive.

As one panelist puts it, ”We're in an unprecedented situation in the affecting the globe. While VCs are definitely better positioned, it's not like we (all) ran out of money. VC funds didn’t just run out of money overnight, funds are definitely still deploying capital. Of course price terms may be different at this time.”

If you’re finding success during this time—share your story!

 

At Alley, our team is focusing on supporting our community digitally by sharing resources and hosting video events. We hope this event and our entire event series can help keep your business stay connected to the community, move forward in development, and grow with intentionality.

Mentioned Resources:

OUR PANELISTS:
Noelle Tassey
Alley
Galina Ozgur
Aera VC
Vishnu Datla
AutoRabit
Andrew Shearer
Farmshelf
Adrian Solgaard
Solgaard

TRANSCRIPT:

Noelle Tassey  0:00  
[Thank you] everybody for tuning in today. My name is Noelle Tassey, I'm CEO of Alley. Some of you already know us, but for those of you who don't, we are a nationwide network of accelerators and labs and we work with corporate partners and local startup communities to, you know, fuel entrepreneurship and take corporate resources and essentially bring them to early and growth-stage startups all with the goal of promoting tech for good. So, we're so excited to have you all here today, just so you know, there's a Q&A feature, so please feel free to submit any questions at any point during the panel. We will try to answer those as we move forward with the conversation. For those of you who are free next Wednesday, we're doing two of these panels every week and next Wednesday, we'll be talking about leading in a time of crisis with experts from VaynerMedia, Blink Health and Now What. Next Thursday we'll be talking about the future of live experiences in the age of AR and VR with Magic Leap. So I'm going to queue in all of our panelists for introductions. Let's start with you, Andrew.

Andrew Shearer  1:11  
Hi, my name is Andrew Shearer. I'm the CEO and founder of Farmshelf. We make it possible to grow food where you live, work, and eat by automating the hardest parts, and providing the plants exactly what they need, when they need it. These are farm shelves.  [I] love Zoom backgrounds, except I look a little weird. And we have about 175 systems across the United States, restaurants, court cafeterias, hotels, and schools. And we're based in Brooklyn, in the Brooklyn Navy Yard [with] 30 people. Yeah.

Noelle Tassey   1:41  
Awesome. Adrian, you're next.

Adrian Solgaard  1:46  
Hey, I'm Adrian Solgaard. I run a travel brand called Solgaard. We make backpacks and suitcases using recycled ocean plastic. So we collect plastic in the Philippines and Maldives that's been recycled in Taiwan and we turn that into fabric and we use that fabric to make bags and suitcases. We launched about four years ago via Kickstarter. The first campaign raised $1.2 million that got us up and running. [I] was originally living in Spain when I started the company and moved to New York about two and a half years ago. And have a team based here; we're about 12, 13 people.

Noelle Tassey  2:15  
Love that. And where's your background?

Adrian Solgaard  2:17  
Canadian, Norwegian, German— weird mix. [laughs]

Noelle Tassey  2:21  
I meant your Zoom background.

Adrian Solgaard  2:22  
Oh, my Zoom background, that's in Spain. [laughs]

Vishal Datla  2:29  
Things are changing. It's a whole new world.

Noelle Tassey  2:33  
So many ways to ask that question. Galina, you're next.

Galina Ozgur  2:36  
Hi, everyone. I'm Galina Ozgur. I'm a venture scout at Aera VC and Ambassador 13 Ventures. For both of these firms, I'm responsible for bringing deal flow, start deal flow, as well as LPs into these funds. My background in tech is— I've been with a number of prominent accelerators, running programs, working with founders; kind of on the ground, in the trenches. So I'm really excited about this panel. This background is a painting I brought from Thailand a long time ago. It's actually— it's an elephant, if you can tell, which is one of my favorite animals in the world. So...

Noelle Tassey  3:22  
Love it. Last but not least, Vishnu.

Vishnu Datla  3:28  
Hi, everyone. I'm Vishnu Datla, founder and CEO of AutoRABIT. What we do is; we are- AutoRABIT is a DevOps platform for Salesforce. That means essentially, we are helping the Salesforce developer teams and developer community to collaborate, increase, and do things faster, increase— increase the development velocity, that means they're able to do more with less. And then finally, all this is enabled through a lot of automations, process enablement, and getting the best practices and the like to link for all the Salesforce developers. And in— and finally, it also covers the backup perspective. If something goes wrong, they're able to kind of recover all the data. So that's, that's what we do.

Noelle Tassey  4:14  
Love it.

Vishnu Datla  4:14  
And just from a background perspective, we have been— started in 2015. But the bootstrap, until, very— until last month, it's been about a month and a half since we received our funding and close over $10 million, and we have grown substantially and pretty decently over the years 3% to 100% in the last year was 81% bootstrapped.

Noelle Tassey  4:44  
Love that. And that's such a great segue into what we're talking about today, which is the path to profitability and the overarching question that we want to really dig into here, from everyone's personal experiences as a founder, CEO or on the investment side. Going through this with many companies, is how do you decide which type of funding is right for you? And how does that influence decisions that you make when growing your business? So I actually want to start by all of us just going around since Vishnu has already done this and just share, you know, how is your company funded? And at what point did you switch funding policies if you didn't. So Alley was originally friends and family— was founded eight years ago by Jason Saltzman, the former CEO and current chairman and during the first seven years, Alley raised money from VCs, private equity, and— and then a convertible note from a corporate partner. I guess that was the first six years and then for the last two years, we had made the decision to bootstrap, grow organically, and focus on building a truly, like, self-sustaining business through that so we are no longer in the market for raising venture capital, yeah, at this time. Although I imagine a lot of people might say that right now. We'll take it over to you.

Andrew Shearer  6:08  
Sorry, to me?

Noelle Tassey  6:09  
Yeah, yeah.

Andrew Shearer  6:12  
So started Farmshelf, working on that full-time, October 2015. Prior to that, I worked at Pinterest and Twitter and sold some Twitter stock to pay for the company for the first seven months. Then we got into Urban-X, a startup accelerator. So we did that, and that was some funds. And then— since then, we've raised $8.5 million over three rounds. We don't have any real venture investors, it's Fortune 500 CEOs, celebrity chefs, and real estate developers. We've pitched VCs— lots of them, and some were good fits and others weren't, and with the type of investors that we had attracted, there was additional strategic value, and so we went with them. On a path to profitability perspective, and why you raise what you raise— hardware is a lot more expensive on the front-end than software typically is. Not always true but usually true. And so, building a hardware— a company that has a hardware component to it, is going to be very hard to bootstrap unless you got a nice big bank account, or you're really good at getting that hardware cheap. And so just understanding kind of, what funding mechanisms you need based on your business, kind of upfront cost, and then, who you want to have as investors, you know, they're going to be with you for the duration of this and so be careful who you bring out to your cap table.

Noelle Tassey  7:52  
Yes, that is some sound advice, and we're going to get into the pitfalls of pros and cons, shall we say, of that later on. Adrian, I would love to hear from you just a little bit about your funding history.

Adrian Solgaard  8:05  
Yeah, sure. In the previous company I ran before this, it was a bike lock company, I had an angel investor come in. And he took 50% of the company right off the bat, and then ended up within about two years going— turning it into going sideways. So when I started this one, I wanted to make sure to not get in the position that Andrew is just kind of outlining. So we started out with Kickstarter, the first campaign raised $1.2 million between Kickstarter and Indiegogo. And we managed to use Kickstarter and Indiegogo to kind of like, fund the inventory. Since we're in the physical products business, we need to buy inventory upfront and then we sell it so we have like a 90 to 120-day window there that we need to cover the cost of goods. So capital has always been a challenge. We've now raised some additional capital, another guy who invested in the bike lock company put some capital in. We raised some funding through a group here in New York called Ember. They fund product inventory brands who are doing mostly direct-to-consumer sales. There's typically not a lot of funding for that, and the debt format and in a non-diluted format, through banks and everything like that they typically want to lend to get some sort of collateral. So as you're growing, you kind of run into that same pitfall. And then, funnily enough, Galina is working with 13 Ventures, which I didn't know, and we just received some funding through 13 Ventures about a month and a bit ago. And so now they're a new partner as well. And they're kind of a similar structure to Ember, where it's like a venture-debt type thing. They lend some money up front, it's then paid back with a premium and then at the end, they still maintain some percentage of equity in the company, but it's something somewhat small.

Noelle Tassey  9:40  
...for a sec, and then Galina, I think for you, I mean, obviously, you guys are on the other side of this question. So just what kinds of companies are you funding right now and how are you making those decisions?

Galina Ozgur  9:50  
Sure. With— so with Aera VC, this is a very interesting conversation that I tend to have. So Aera VC is a New Zealand-based fund. We— we're based in New Zealand, with an office in Hong Kong. I represent here in New York. We typically fund companies, broadly speaking, the ones that are good for the world or for the society. So we've focused on companies in the future food space, alternative protein, future of health, microbiome, genetics, genetic biobanks, things like that, as well as, you know, one of— one of the curious investments is in Danner Aerospace, which is a green propulsion mechanism for satellites. So, we've really gone into some interesting areas of funding, we're seed-stage fund. So that means that our sweet spot for us is around $250,000 to $300,000 checks, into around, let's say, $2.5 to $3 million that's— that's where our average investment is. So yeah, so that's how we invest, we invest— we invest— we invest globally. We've invested in the West Coast and the East Coast, in Southeast Asia. We're powered by family offices. We're at the tail end of our fund two at the moment. How we invest going forward? You know, is an— is an interesting conversation, I'm happy to discuss a little bit more. Whereas 13 Ventures, as Adrian mentioned, you know, as a venture debt financing mechanism, and it's great for brands; direct-to-consumer companies that have, you know, a model that gives you some understanding of what, you know, your sales are going to look like, what your revenue is going to look like. So it's a very in-depth look into, you know, your financials, typically deeper look than a VC would look into, you know, very early stages of diligence. The fund is based in New York and invests specifically in d-to-c brands. So I'll stop there. And we can— we could discuss a little bit more.

Noelle Tassey  12:13  
I love that. And I like— it's gonna be very interesting when we get going later to talk about kind of the direct-to-consumer space in general because I think in terms of how you raise venture funding in that space specifically, it's, you know, it's very uniquely impacted by how you're raising, how much in one. And then, Vishnu I know you mentioned earlier that you're bootstrapped and then just recently closed a round of venture funding but, would just love to hear a little bit more about you know, that process and making that decision to switch.

Vishnu Datla  12:45  
Sure. So, again, just to give you a little bit more transparency, I went through the entire— entire lifecycle starting from friends and family seed, and then venture debt, and then ARR, and some debt-based things and a couple of rounds of debt. And then retiring a few— few rounds, because friends and family, there was— there was some, some pressure for kind of retiring some of the loans and so on and so forth. So, so those were— that's the background from which we came. So first it was just me, I was fortunate enough to have a different company, which was— which kind of helped me in the first few months, but then on from 2015 we had been— I had been on my own and then the key thing was, obviously 2019 was when we kind of started our seed list and started looking for funding and one of the key areas was in terms of— there's a specific time when you kind of know that you hit the wall— hit the wall and, and how do you kind of know that? You know that when you kind of do some introspection, and it was one of those things where I will— It was evident that I was cutting corners, it was evident that I was not getting the— hiring the right team or the right person that I would want to, but rather than what I think I can afford, and then in terms of the processes, or the tools that I was buying, and then it was to just give you an analogy, it was like putting scotch tape on a boat— on a speedboat that you were trying to kind of drive fast. And we were kind of doing 100% growth on the near end-year basis. So it was like putting scotch tape on the leaks. And we— I was— I was on-boarding water, which was not good for the growth and scale of the company. And then I think it was more around the 2019 December timeframe. When the parking lot is empty on Christmas Day when you are sitting in the office, and that was my time to reflect a lot on— on every year. And during that phase— then you reflect upon your life— the pressure that you're putting on the family, on friends and on your friends and family and some of the loans that you've taken. Some of these loans that I think we were just talking— about other panelists were talking about, are pretty steep. So if you're looking at ERR loans they're about, maybe they'll run up to between 18% to 24% or 25%. Unless and until you are able to service those loans. It's— it should not be— it's not a very viable— viable solution if you're— if you're just doing basic remedies. And then finally, long story short, a lot of different things that kind of go into making— making those decisions, and then you really realize that you are cutting yourself— you are— you are becoming the hindrance or money's becoming a hindrance for your growth. And the market opportunity for me was pretty— pretty large. I could grow— I was growing (indistinguishable) year on year. But with funding, obviously, I wanted to get— one scale it's very easy to grow from 1 million to 2 million or $500,000 to a 1 million dollar, 1.5 million (indistinguishable) growth is great, but going from a $5 million to $8 million- $10 million is a very, very different ballgame, then you need to kind of do your metrics and stuff. and they were not in place for me. So that's when I slowly realized that I needed a partner and not just the money. So that was the important criteria, because of the reasons that I stated. All of these things came together. And it's one of those eureka moments, you will have it when you know it. And then you say, need to go. And then the next journey started when I did it first— I started my journey in maybe January or February, and we did a roadshow and an entire full-on throttle exercise with the entire management team and myself and I was one hundred percent focused on funding, and over the last two years, in 2017 and 2018, I built a Rolodex from scratch for about 75— 75 VCs, I pitch to every one of them. We did get some term sheets and unfortunately, that did not happen. And you can imagine If you have a term sheet and it does not go through, it reflects pretty badly. And then we stopped— we stopped it, whatever the reasons it did not work out, then we started off again in September to get two months break, or to get three months break; started off in September again. And thankfully, we got a great partner in Full In in terms of how we started off and even at that point in time, we had about three term sheets, and then we ended up choosing Full In and maybe I can talk a little bit more if required, but we can give —we can— so we chose Full In and even though it was not the highest valuation, but after speaking to the 75 or 80 there's a process as to how you can find out who's the right partner for you. And we chose the right partner and so glad that we went with the right partner.

Noelle Tassey  17:54  
Yeah, and I think that that's— that's such a theme that we hear again and again, right? Is how important it is to get that fit. And Andrew, what I'd love to hear from you- because I know that you've raised from a number of very high-profile, let's say, angel investors, just how you built those partnerships, how you decided who you wanted on your cap table, and the impact that's had on the— on the path of your business. Because you know, when we were talking the other day, you had so many interesting add-on effects there that— that are pretty special.

Andrew Shearer  18:28  
Yeah. You know, we got really lucky in some regards. But, with Farmshelf, it's really a mission-driven company with the goal of enabling everyone to grow food and doing that first as a luxury product, but then evolving it to something that can be affordable to everyone. And so first off, it was like sharing that dream, that vision, and finding people that believed in that and wanted to make that possible. And then I think being very open to feedback. I have this line that's like: "I'm not here to play camp startup." Like, I want to build a business that scales and drive impact. And just showcasing that passion, really letting people into it. And not sugarcoating it— startups are hard. You don't have everything figured out. If you make them think that you have everything figured out, they just know that you're not telling the truth. And so it's really building those relationships. Some, it was a 23-minute meeting. and then I walked out with a check. Others, it was pitching them literally for like a year and a half, every three months. And just building those relationships. And it's the same for, you know, venture, it's really about building relationships more so than this, like, two-week roadshow. There's a— those work for some people, especially if you have a really metrics or software-driven business. But there are some great YC articles from Michael— and I'm blanking on his last name, about kind of this, this preempt process of building relationships and really through that, inviting people in to see how you're executing on a business, the culture you're building, the values of your organization and how you— you know, react to difficult situations. Our three biggest investors, I've actually never asked them for money, which is weird. Just like, told them the story of what we were going after, ask them like, where we were missing, what we could do better. And we've even gone to people for advice and gotten money that way. So it's just like, sharing that vision and that passion that is why we get— that's why we dedicate crazy hours in our— in the office on Christmas when the parking lot is empty, as Vishnu said. And so with that, then when you— you know, invite one person into that story and they invest in you, then they introduce you to other great people. And so we're fortunate to have like the, you know, the CEO of Levi's is like, a longtime supporter of Farmshelf, and who just like, believes in it full-heartedly and sees that future in that vision. In a way that's also them coming alongside you and being part of that story. With having individuals as investors, it also means that there are certain— there are certain things that are not going to be as easy in terms of getting connected to the type of like, venture— the things that venture groups have access to. But on the flip side, those personal relationships and, that you build and kind of, having the individual involved as opposed to like, a VC that's representing an LP means that they're not going to necessarily— the discretion of their money is theirs more—they don't have like a fiduciary duty to another investor. It's their money and they're getting to decide what to do with it. And they've been through the ups and downs of market cycles. And so that means that they can sometimes do much more understanding when you know, you get dealt a bad hand. I remember one time we had some unfortunate circumstances happen and called up an investor, just told them what was happening, asked him for advice. We got through it and called him up and said, you know, we got through this, thanks so much for the advice, really appreciate it. And he was like, "Great, I want to double down and put, you know more money." And I was like, Oh, that is not what I was calling for, but thank you. And so I think it's just being honest and letting people in, you know, hiding, and like, trying to manipulate, ends up just hurting yourself, especially because, you know, like a CEO and a founder, and fundraising is a super lonely journey. And so let people in and it'll save you a lot of heart—heartache, but at the same time, make sure that you're always reading your terms and making sure that if the deal sounds too good to be true, it is.

Noelle Tassey  22:43  
Yeah,

Adrian Solgaard  22:43  
Yeah, I'm going to second what he said about when you're dealing with an individual that's investing their own money, it's so much simpler to communicate with them because what they say— they're speaking for themselves. They don't have someone behind the scenes that they might be answering to, and that— that level of responsibility that the investor might have to their LP, is a lot more confusing than when you're dealing with someone who's written a check directly themselves.

Noelle Tassey  23:04  
How has that influenced the way that you've scaled your business? And sort of, the— the decisions on the way that kind of— that duality, I guess, and that dynamic and how has that influenced your journey?

Adrian Solgaard  23:15  
So are you asking me, or Andrew? I know I kind of jumped in.

Noelle Tassey  23:17  
Andrew.

Adrian Solgaard  23:17  
Okay.

Andrew Shearer  23:18  
I think so the first few people that invested in the business, the first two people invested were individuals putting in their own money. And it was, I approached it that way because I had an understanding of the way that they— the way that they were thinking about it. And then as, I think— we pitch to a bunch of VCs, and we went that route, and I think that's where it got confusing is, you're dealing with this advisor, but then there's the part— but then there's the— you're dealing with someone who's like, 10 steps away from the money so it's just, I found it really frustrating. So I, what was it maybe nine months ago or so, nine months or so ago, I just cut off the route of like, trying to go for VCs for more funding because it just wasn't— it wasn't the right route for us as a d-to-c brand, because the level of capital that we need and trying to provide a VC, a 10x exit in the next three to four years is not the business model that I'm trying to run. So it's like, well, stop trying to force-fit it, just because the other brand's doing it.

Noelle Tassey  24:15  
Yeah, it's a great point, something I wanted to ask you more about anyways, and this is for both Adrian and Galena, although if anyone else wants to chime in, feel free. In d-to-c, specifically, you've seen, you know— we've seen so many companies, you know, reach unicorn status through venture funding that's essentially being put into your business model where your customer acquisition costs are quite high. And I think there's a real question around how many of these companies are viable without that supply of funding and how many of them are too big to really find an exit that's not a public marketed IPO which we're now also kind of seeing that path or not? Companies drying up. So, really just curious about how you guys see the impact of venture capital and the way that the d-to-c industry what has— has grown over the last five to 10 years and where you see that going? Because it feels like it's kind of time for a phase shift there.

Adrian Solgaard  25:12  
Yeah, I don't think— I don't think VC is right for d-to-c at all. And I think it has created this, I mean, look at the numbers for Casper, let's just— let's just look at them. It would be cheaper for them to give a mattress away for free with $300 stuffed in it than to run their business. So it's absolutely insane at the rate in which these companies have been burning through capital because of how easy it was for them to get it as they sort of built that— that road up. And again, that's because the fiduciary responsibility of these investors in these VCs they're— they're not investing their own money because they think it's a good idea, their investing it because their boss will give them a good like, tap on the back and— tap on the back and say: "Good job!" and they'll get a promotion and they'll get more funding. So it's— it's not investing in— in the— the old school way of like, here's my money, I want to see my money grow. And that's where I like Andrew's approach. I think that's what makes the most sense.

Noelle Tassey  26:04  
Yeah, and Galena—

Adrian Solgaard  26:05  
That's where— that's where things like 13 Ventures and these other groups that are coming out with— with debt structures, because d-to-c brands, brands that are selling goods, you can make that money back within a year or two, you're just not going to make a 10X on that money in three years, but you can make it back and you can build up—

Vishal Datla  26:19  
Absolutely.

Adrian Solgaard  26:20  
You can build— and building a really good business takes time. And so I think that trying to 10X your money in three or four years is an insane proposal, it might happen for some people, but to have that as the mandate is not the right business model for a company that needs to buy stuff that takes 60 days to make, you ship it across the world, and then you ship it to the consumer. You cannot do that with those kinds of numbers.

Noelle Tassey  26:44  
Right, exactly. It's the— you know, the idea that a valuation model and expectations that were primed by software companies somehow transition to selling something on the internet.

Adrian Solgaard  26:54  
Yeah.

Noelle Tassey   26:55  
You know—Yeah.

Galina Ozgur  26:56  
Exactly. Exactly, Noelle, it's the, you know— it's the superimposing of the SaaS model on to consumer businesses, which doesn't work, and expectation of a 10X return on businesses that have a completely different structure- there's a supply chain involved, there's a lot of variables there. And, you know, outside of 13 Ventures or, you know, the funds that I know, there's— there seems to be an emergence of venture debt vehicles or, you know, revenue-based financing for d-to-c brands that addresses exactly that issue.

Noelle Tassey  27:35  
Do you see the entire, I guess, venture or, I guess, a segment of the venture community that's currently investing in those brands moving that direction, or do you think there are still venture firms that are willing to write these checks, you know, for 20X on a toothbrush company?

Galina Ozgur  27:52  
No, I think there's— there's still— there's still very much, you know, tech VCs are investing in— in brands. I don't think that's going to go away right away. But I am seeing an emergence of this new trend, which is revenue-based financing. And I think it's a good way to add another option for founders who have been hitting the brick wall, in a lot of ways, with VCs when they're pitching, because when they're pitching VCs, VCs are just measuring them often with the same measure that they would look at tech companies and it's just not necessarily fair for their condition.

Noelle Tassey  28:31  
Right, and how— I'd love to hear you know, if you've seen that influence the growth of, you know, a d-to-c company that you've— you've been close to, or you've been involved with, personally, in terms of having to then meet those VC expectations. I think a lot of people watching at home you see, companies— like you see a company like Bonobos, where— never quite got to a profitable business model but got big enough that you could, you know, facilitate an acquisition whereas without venture funding, although that is still kind of unique case funding wise, but like, you know, without venture funding, what would Andy Dunn have done differently, for example? How does that change that company?

Galina Ozgur  29:14  
Is that— is that a question for me?

Noelle Tassey  29:16  
Yeah, for either of you if you just have like, personal experience with that?

Galina Ozgur  29:20  
Yeah, I think for a— for some companies that— that I know personally is giving them breathing room, it's giving them an opportunity to rethink their pitch and focus the financing that they receive on things that matter, like their inventory. Things that they know need to work for their business to work. And the way that these conversations are structured are less— less of a stress for them, because typically, investors that are very focused on d-to-c have the expertise to invest in d-to-c, have enough experience working with those term sheets, they know what metrics they're looking at. So generally there's a closer understanding of what goes on in that company. And it's just a fair approach, you know, with d-to-c, I feel like debt, you know, and metrics-based financing. It's a win-win. And it's a fair— fair position for both the funder and the company receiving that funding.

Noelle Tassey  30:31  
Yeah, absolutely.

Vishal Datla  30:34  
But, I had a little bit of a different take especially from the revenue-based funding, because I've experienced that before. And one of— one of the key things that every founder has to kind of be— be very careful before choosing that route is to— because revenue-based funding is fixed, it is— the cost is pretty high. And if you're not disciplined to kind of manage those bits, especially fixed funds. For example, if you have a 1 million— if you have 1 million revenues and you take [one] hundred thousand dollars, just ensure that you have your damn goals set, and how you're going to spend that hundred million— that $100,000 and how you will come out in one year and would be able to pay the $100,000. Otherwise, it's one of those labor-intensive that you kind of get into. It's a downward spiral from then on, and it's very, very difficult to kind of come out. So that's— that's one thing that I realized. Luckily for me, we have a growing fast enough SaaS business. It was [a] one year upfront payment. So I made the mistake in the first six months. And then we took the second— second funding too, and from there, I promised myself that I'm never, ever going to take any extra money, but I will spend only 50% of the money that I took on the second round. That kind of really helped us in terms of cleaning some of my shop.

Noelle Tassey  32:00  
Yeah, I think that— that makes perfect sense. And Andrew, just over to you quickly in terms of raising from individual investors. And you mentioned you've got high-profile investors such as the MC of Levi's and I think a few others. How have bringing them onto your cap table— how has that helped you beyond just the funding and the advice even? You know, having an aligned investors, I think you were telling me a story about some of the exposure you've actually been able to get during this crisis.

Andrew Shearer  31:59  
So like, José Andrés is one of our investors and is the only one that has one in his home. He paid for it. There's a whole story behind that for another time. But the other day, I think it was Chrissy Teigen was tweeting that she would trade like, bread for romaine lettuce. And so José Andrés tweeted at her like, that he had his own romaine lettuce growing in his, you know, living room with Farmshelf and that she needed to get one, and that he would trade her like romaine lettuce for it. And so all of a sudden, we see like, 20,000 views on this video and it's awesome. And so I think it's, you know, the funding and the advice is great, the introductions that they can make, to VCs or people they think that would be good mentors or just good people that, you know: "Hey, I don't know why, but I think you should go meet with this person about your pricing strategy. Something's a little off and I just think this person has some good advice. [I] could be totally wrong." But, usually, they're not. And I think the other thing is that there's this interesting idea with like— individual investors, from my experience, are going to be much more concerned about like, the underlying, like, profitable unit economics and like, like a— like, relatively low-cost path to scale. Because venture, it has more of a capital allocation problem. There's too many bets out there, but they only want to place a few big bets, relatively speaking— versus wanting to place, you know, a thousand $1 million bets. That's a lot of money, never mind, take that back. But on that it's, you know, it's not about being cashflow positive for a VC. It's like, having a profitable unit economics and showing that you have a scalable, defensible, product and a scalable and defensible way to acquire those customers. And so I think it'd be, you know, really understanding that like, for— the story is different for each investor type. And, especially looking at like their backgrounds. And so with that, like, you have a different deck or a different way of verbally adapting it of what part is the most important for a VC versus an individual investor. I think it's something really important to look at. For example, you don't want to tell a VC that's willing to write a $10 million Series A check: "We're not going to raise a Series B". No, they want you to raise a Series B, they do not want to be the last money in unless you are just like printing out cash, and they're like a relatively small company.

Adrian Solgaard  35:10  
They don't want to hear that you want to build a business for 10 years, either.

Andrew Shearer  32:30  
And also, if you like, if you have a company that's not gonna, you know, be ready for liquidation, like for a liquidity event, and you know, five to eight, maybe nine years because of how you're building your business and a lot of businesses are built or it takes much longer than that to actually hit profitability, or hit a liquidity event where you can sell some of your company or tell people about it for your investors and making money, then VCs also, probably not for you. There's a few exceptions, more on like, corporate venture, or certain individuals that are so wealthy, they just have their own VC fund. Or really, then they're just like, beyond super angel, but that's another story.

Noelle Tassey  35:13  
For sure.

Vishnu Datla  34:42  
Yeah. So— Yeah, so one of the things, at least for me, just to look at the process in terms of going for these high net worth individuals or for the VC, especially if you're going for five or 10 different ones, there's always a trade-off in terms of going after individuals. And I think from— from dollar terms standpoint, based on a business, if it's a smaller— smaller dollar terms, you can kind of go there. But when you want to kind of scale when you get to the $2 or $3 million, I think Andrew has, it's very, very— I've not seen too many guys raise, maybe $7, $8 million from individual investors. It's not all that easy. And maybe it's the business model also. But for— for the people on the calls, at least, for the average Joe who's kind of starting off his new— his own company, my first— my first— the first raise was about $400,000. And I thought based on— you typically know what— what every earning potential is, I thought it would be just snap a finger, I could do it, but it was like really, really seriously hard. And obviously, at that point in time, if they're not— if somebody does— if— if you do not have a high net worth individual, they kind of really do not understand investment. And then you get into the trap of talking to a carriers account, carrier sales or a credit accountant who has maybe $50,000 or $100,000 that he does not want to invest but he has put it in the bank, then it's very, very— if it's a carrier— professional or carrier person who's working, once it gives the money, there's always the— the— always the issue of them, not understanding [what] investment in a startup is, when there's a very thin line defining a loan versus an investment. So that is one thing, especially if you're not going with— going— if you do not have— do not have people who are giving you funding who understand startups, that has to be very, very clear from the get-go. So that's one mistake that I definitely made. Yeah, I have hundreds of mistakes that I've made. That's one of them.

Andrew Shearer  35:16  
And yeah, definitely raising, you know, north of, I'd say, even like $2 million from angels is, is rare. And so like, we are, we're not the— we are not the typical story for how much we've raised and mainly being from angels. And align that, to your point of like, getting people familiar as angel investors and investing in a startup, I think it's like, again, just being very upfront and honest with them, like show them the stats of how many startups fail, why they fail, what time frame they fail in. For very close friends and family that like, you know, this is their first time investing in a startup I was like, have you ever bought a lotto ticket? Like, go to the store, buy a $10 lotto ticket and be okay with losing that. Like if this is gonna change your life, in terms of like, if you invest $10,000 in this, and that means that you can't live the life that you were expecting to live, then this is probably not the investment for you. Like, go put it in the stock market, in some risky stock like Tesla. Kidding. But yeah, so I just think you need to be very upfront and transparent about the risks. And I think you'd be surprised that when people understand the risks, and you tell that to them, like that lotto ticket story, it creates a— not only an easier decision point for both parties, but then you don't feel guilty when you're running the business, and there's like this huge, like, overhanging responsibility that they didn't know they got into.

Noelle Tassey  39:41  
Yep, for sure. And Adrian, you've actually been part of a few Kickstarters, right, which is, I think, just another funding mechanism we haven't mentioned yet but a very interesting one and would love to kind of...

Adrian Solgaard  39:53  
Yeah, so we've run five different Kickstarter campaigns in total, that's been like three— around $3 million in funding. The first one, was for my bike lock idea of 2013— wow, seven years ago now, and then we did a backpack, then we did another backpack, then we did a suitcase and then another backpack as well. And we're sort of queuing up a few more to do now, some other products, just kind of as the economy is shifting around a little bit. It's a fun way to bring out new products to market. And it's definitely an attractive funding model if you have the right product for that community. But you need to— you can't just go: Okay, hey, I want to make mugs and then think that that mug is going to sell on Kickstarter, you need to look at Kickstarter, and think about what is the right product or service to sell through that, and find something that works for that model. So that's where sometimes the version of the product that we'll bring out on Kickstarter will have different features from the end result. But that way the the version that lives on Kickstarter has certain features and extra add-ons that will appeal to that community. So it's a very tech-focused community. And you— you really want to specify your— your people towards that.

Noelle Tassey  41:01  
Can you give us an example of some of those features? Such a great example of platforms directly impacting the way that you run your business or develop your products.

Adrian Solgaard  41:09  
Yeah. So the first backpack that we made came with a solar-powered power bank and Bluetooth speakers built into it. Then the next time we brought out a backpack, we were like, Oh, well, this doesn't have any tech element to it, what should we do? So we made— we increased the retail— like, the retail price of the product by like 40 bucks, but we included a power bank built into it, because then it kind of enabled the tech features and made it a powered sort of smart bag. So while that product now in the market doesn't include it in the standard, it did include it in the standard there.

Noelle Tassey  41:41  
Awesome.

Adrian Solgaard  41:41  
That's the easiest example. One— one thing to keep in mind, too, with Kickstarter, that's just really important: If you're going to be running a product on Kickstarter, don't market it to just the whole audience, the whole world. Market it only to the Kickstarter audience. So you have to work with a crowdfunding agency to do that because only about 0.25% of people are willing to put their money into a Kickstarter project, because it is really throwing your money out the window, kind of like buying a lottery ticket, hoping that it might show up. Because there's a lot of campaigns that have failed. So, rather— rather than just marketing to everyone, marketing to people who have already expressed interest in betting their money on risky bets like this. It's a better— better way to get return.

Noelle Tassey  42:21  
A quick show of hands— who here has actually participated in a Kickstarter and have the product show up, at some point?

Unknown Speaker  42:28  
[chuckling]

Unknown Speaker  42:31  
One of four.

Andrew Shearer  42:33  
Wow, damn, that's bad.

Noelle Tassey  42:35  
Mine is three years late.

Andrew Shearer  42:37  
Wow. [laughs]

Noelle Tassey  42:40  
It was supposed to be a Christmas present.

Andrew Shearer  42:47  
[Laughs]

Noelle Tassey  42:47  
Yeah, three—

Andrew Sherer  42:48  
Always promise to over deliver. And if you do that, then you'll probably just deliver on time.

Noelle Tassey  42:52  
Yep

Adrian Solgaard  42:53  
Exactly. Yeah, that's what I always tell people, pad a couple of extra months in and even then you'll be a month late.

Andrew Shearer  42:59  
If you're Hardware startup, you should fully understand the term cash conversion cycle and really, really understand cash flow. Like, cash flow is one of the most important things that you can learn how to really manage. And there's some awesome tools out there. If you check out like, Long-Term Stock Exchange, that's got a lot of interesting tools for managing your startup, everything from cap table to hiring, to cash flow planning.

Noelle Tassey  43:23  
Yeah, I would— I would, after that, even if you're not in the hardware space, if you're running a business trying to scale it, and you don't have a pile of, you know, $20 million in venture funding. Cash flow is one of those things that no one likes to talk about. It's not as sexy as your $60 million valuation, but it's— a $60 million valuation is not going to get you out of trouble, when like, a deal falls through. Managing your cash flow likely will. Andrew, I'm curious if you guys— I know that you were exploring, you were telling me the other day, different, you know, routes of taking your product to market right? You've gone with a much more enterprise-focused version of your products, knowing that eventually you'll launch consumer products. Was there ever a thought to leading with the consumer products potentially through channels such as Kickstarter?

Andrew Shearer  44:09  
The original idea was to build a consumer product first. And that was actually the first thing we prototyped. And then applyling— and in applying for the startup accelerator, they asked us some interesting questions that when we started digging into it, we realized our strategy, and kind of the three main thesis points we had were a little off in terms of timing. And so with that adjusting strategy, like, keep your core tenets and what you're going after just, you know, be flexible and open to feedback that if something is off about your strategy, like, you're willing to listen and hear it out. Firm convictions athlete, Hell is like a term I've heard used well, and for us, it was also you know, there's nothing new under the sun, so steal from others, you know. If you look at Vitamix, Keurig and SubZero— SubZero in the 1930s, Keurig and Vitamix more recently, these food hardware products actually started off in the professional segment before then being introduced to the home segment. So you get to like, perfect your technology, get your brand out there before then introducing it to the consumer where: "Hey, I saw that Vitamix at Jamba Juice, I want the best blender in the world. I'm getting that for my home." And so looking at others and how they go to market even if it's in a different industry and really learning from that is something that's been super helpful for us. But maybe that's just because I need to study some more and come up with my own ideas

Noelle Tassey  45:34  
No— fair enough. I think searching for inspiration in your industry is pretty key, right? And, I'm curious actually, you mentioned food hardware products I think there was a pretty notorious— was it a Kickstarter in the last like, three years that did— it was like, a smoothie product? They—

Andrew Shearer  45:56  
Juicero

Noelle Tassey  45:57  
Yeah.

Andrew Shearer  45:59  
The— I think it started off at $2,000 then went down to $800. It was like— and then $400. It was like, this Wi-Fi connected juicer. So I interviewed like five of the first 15 employees right after it went under just to try and learn. And like get advice of like, what are we doing wrong? Like, that's a great question to ask, and don't get offended when people tell you things like, it's one of the best questions you can ask. It was interesting, because I think that they actually had a— they had an incredible product, but they didn't actually focus on it, in a weird way. Their product wasn't actually the juice presser that wasn't that impressive when you think about it, which was proved by this Bloomberg article that showed that you didn't actually need the $800 juicer you could just squeeze it with your hands.

Noelle Tassey  46:44  
Right.

Andrew Shearer  46:45  
The super impressive part was that— that food packet they had and then the insane supply chain they had so that you could have non-pasteurized juices that had been less than two days from the field to like, your fridge. It was insane. And if they would have rolled that out just b-to-b (B2B)— no business really cares about $1,000 or $2,000, like, juice press the way a consumer does. And then you roll out a cheaper consumer version, you get all the exposure in the business setting so that people are familiar with it, they know it, they've tasted it, you've been paid to advertise your product. And then you roll out the home version with this like, scaled system and brand and supply chain that's been tested in a kind of lower risk setting. Consumers are super risky to test on because they just blow you up on Instagram and Twitter. [With] b-to-b at least they'll give you a phone call before they blow you up. And yeah, so it's interesting that you can even have like, a great product and great technology, but your— your rollout strategy can even kind of hurt you. This is my personal opinion. I've been told different things from people that work there and that my opinion is wrong. But also they raised so much money that they kind of had to scale super quick. I mean, $120 million? Whoa.

Noelle Tassey  47:59  
Yeah, that's just another cautionary tale, (inaudible) doing too much, too fast.

Andrew Shearer  48:05  
They're good people, though, really nice people.

Noelle Tassey  48:08  
I think that this is actually something we talked about in our panel— our panel yesterday that also came up that you touched on there is that, you know, sometimes the business you think you're getting into isn't actually the business you're getting into. So if you switch to like, looking at the supply chain aspect, for instance, and building a business around that, maybe that's not the company you envisioned yourself as CEO of, but it might, in fact, be the company you're running.

Adrian Solgaard  48:34  
Slack seems like the perfect example. They were a gaming company that had hundreds of failed games. And then somehow they realized that their internal communication system they had built was great for other teams, and then they became Slack.

Noelle Tassey  48:45  
Yeah.

Vishal Datla  48:46  
Yeah.

Noelle Tassey  48:47  
Exactly.

Adrian Solgaard  48:48  
Rovio had like 100 failed games. And then Angry Birds was like, written on like, the last dying breath of the company and all of a sudden it took off and now they have a massive franchise behind that— so many things.

Noelle Tassey  49:01  
It's incredible. And I think so I know we're kind of coming up on time. And we've had a lot of questions in from the audience around the theme of obviously, we're in very uncertain times right now. And I just love to hear from everyone here. We'll go around one more time— how your business has had to adapt to— to the current crisis. And I can actually start because our business has adapted by doing these. We used to—we used to do a whole lot of in-person events in our accelerators, with all of our corporate partners. And for now, we're trying to bring those resources to our community, virtually. And Andrew, I know that you have a lot to say on this, so we can kick off with you and go around counter-clockwise.

Andrew Shearer  49:43  
So. our biggest customers have been, you know, with the exception of airlines and live events— disproportionately affected by the COVID-19 and the various shutdowns. And so with that, you know, our idea was to always enable people to grow food where they live, work, and eat and evolving that— kind of that food hardware trajectory. And so we just rolled up the timing of which we would enable people to get a home unit, you know, just accelerating our timeline on certain areas of the business and pulling back on others. And— so not so much pivoting, but just, you know, feathering different levers that you have. And that's why I think, when going through these, like very difficult times where so much is changing, having a plan is super important. But more important than just the plan is understanding the levers and when you make what adjustments, what on the other end, like, happens, and starting to really experiment with those things so that you kind of, you know, through that, build a better feedback loop and testing mechanism. So follow Farmshelf on Instagram. Next week, there's some exciting news coming out around Farmshelf and some things that we've been working on. And yeah, really excited about that.

Noelle Tassey  51:00  
I love that. Adrian. Oh, you're on mute.

Very cool. And then, Galena, I would love to hear just what you're seeing in terms of the funding landscape because you're responding to this crisis from a different perspective, right? Which is, you're still going out and writing checks, making investments. So how does this change that for you?

Galina Ozgur  52:16  
Yeah, so on my end as a scout, I don't— I don't write checks. That's why I never say that I'm a VC. But what I do see that is, you know, I get a lot of questions from founders. First of all, "are you guys investing? Are you investing? Are you still in business?" Then the other side, you have a lot of chatter from the VC community. "Oh, we're still in business, don't worry, we're still writing checks." As opposed to: "Hey, guys, let's be honest about this; not all of us are writing checks or we're all slowing down." So I think it's okay to be honest and say that we don't know what we don't know we're in a very, you know— we're in an unprecedented situation in the— affecting the globe. While VCs are definitely better positions, it's not like we ran out of money, all of us. The landscape has changed that, for example, you can't take a meeting in-person. How do you get to know a founder truly when the entire industry is based on these very personal connections that Andrew was talking about? Right? So a lot of VCs are like: "Well, I don't take, you know, in-person meetings. So I guess I'm not investing or I'm waiting on it a little bit." Other investors are saying: "Listen, it's business as usual. We're still deploying checks and it's all good." On the RBC front, we have made a couple of investments, fall ones, and you know, some new as well as 13 Ventures. I'm not speaking for the entirety of the industry. I'm just telling you what I'm hearing and the chatter is really different. I think if you're at an early stage pre-seed, let's say, and considering what to do next, and you're wondering, well, should I be pitching investors right now, especially if I don't have a pre-existing relationship with them? I would say my gut is telling me it's not the most effective use of your time. If you don't know the investor, don't have a relationship with them, with don't have a very warm introduction— introduction to them. Some of the options is maybe you look at accelerators that are in fact deploying checks into new cohorts and getting funding that way and getting community that way. Which you know, is very important through your engagement with Alley, you know, it's a very lonely job to be a founder, as everyone in this panel will confirm. And so if you're banded with other founders, and you're in the same boat, maybe it's less lonely as you're working through that crisis. So, you know, what I'm trying to say, I guess is, if the advice before was, be careful of who you're taking money from, you know, have all your ducks in a row, make sure that you have good relationships, understand where the money's coming from how the investors are motivated? Well, it's not any different right now. Only the market potentially in some parts of slowing down, depending on where your businesses is. If you're in biotech, if you're in pharma, if you're, you know, creating some life saving drugs, maybe the interest is peaking. If it's future food supply chains, if you're in the restaurant business, maybe not so much, right? So I think it's all very custom right now. So a report just came out from Primary Ventures that the Q1 financing for seed rounds is on the rise. Whereas other publications like TechCrunch are saying that it's been slowing down, right? So who do you believe and what do you— what kind of sources of data do you (indistinguishable) from that? So, my point is, if you have a relationship with VCs or angels and you're in a position to go raise, go try and raise but other than that, you know, try to stay— try to extend your runway and you know, try to stay cash positive and cashflow positive and, you know, not waste a lot of money right now. That's, that's kind of my thought around it.

Noelle Tassey  56:21  
Yeah, for sure. And Vishnu, we'll— we'll end with you since we're running up on time.

Vishnu Datla  56:51  
Sure. So from, I would say, obviously, we have— we have— we have the W-7 (indistinguishable). So we are— we have a different take on this. So first is obviously— plus we have got the funding at, I would say the most the right time possible two months back. So one of the key things is now what we're trying to do or what my goal right now is on a weekly basis, I'm trying to look at the bottom of the "U." It's not a "V" curve, it's a "U" curve, and, meaning that how does my— how does my company— where is the low point of this for my— my organization? And we are an enterprise so—so a couple of things how we went about doing that one was, number one is that look, this is a passing phase. This is a once essentially event that has happened but at the same time we will come out of it but it would not be the four months, six months cycle and things like that. And for that what we have done obviously we are doing a lot of scenario planning, real time to— on a weekly basis trying to adjust where the bottom of the "U" for us would be because we should not be— I should not want— get to a stage where we are kind of not planning for the upswing also down the line. And as— as others in the panel were saying, if, if you are a competitor or if you are in e-commerce, now that is the time to go to and, and, and as in hallways or something like that we request them even through phone or computer that I have seen one per— one of the companies actually get some money very, very recently. So it's outdated, but based on how you kind of want to do and then if you are even doing some revenues, this is the right time to kind of focus on your customers and especially show empathy to them, telling them that you care and also letting them know that you are there on their side, and everybody's looking for a break and so are you. Realign with your vendors and try to kind of get any kind of— do the same thing with your vendors too. But at the same time cash flow is the king and I would say plan for 18 months. Anything less than that, it's kind of dangerous. And then finally, from a person-side, management team-side, your side, you have to get to to get to the 80/20 rule now. So just leave some of those things, you cannot do everything plus react to the new— the new ecosystem and stuff of the type. So, it's not going to happen. And finally, the way I see it, especially from my company's side from— from the market that we play in— everything, the digital transformation, you must have heard the buzzwords and that is going to be real. Because eighty year-old grandpa, grandmothers are getting on a Zoom call and talking to each other. That has not happened before. Everyone was trying to do that, now that is a new reality. So— and working from home is a new reality for everyone, every employee, even for us, we were— we had offices, now I'm really considering if we can kind of continue one hundred percent of work from home at all times. So these are some fundamental changes that are happening, try to think about how these changes will affect your business. If you are blunt about it, if that really helps you in terms of this transformation that is happening, then you need to kind of double down. And I saw one question in terms of, hey, is the right time? Just— there's never a right time for starting a business. And if you're already in, at least go with the fundamentals, again, what everybody talked about, and it is always the thing. If I had to go back and start my company, I would have shut it down at the three or four times that I did because, the— you have to be foolhardy and passionate to kind of  full-on start.

Noelle Tassey  1:00:42  
Yeah, and I think we've all felt both of those ways. Andrew, did you have a—?

Andrew Shearer  1:00:49  
I came across this the other day, and especially if you're early stage—NFX is doing a $20 million, $1 million to $2 million safes or convertible safes, and then make a decision in nine days. And they give you feedback in three. So I posted the link, if you just go into Google and type "NFX", and then (space) "Fast", like, you'll find it. And it's also a good tool— it's called "Signal." That's a great way to organize your content, and then send it out to various VCs and tighten up the overall decision-making process. So yeah.

Noelle Tassey  1:01:27  
Awesome. And I think there was a follow-up question on the cash flow tool that you mentioned earlier. So just in case—

Andrew Shearer  1:01:32  
"Long-Term Stock Exchange."

Noelle Tassey  1:01:33  
Awesome.

Andrew Shearer  1:01:33  
And "Live Plan", if you're in an early stage startup that like, could benefit from some very rudimentary financial planning is also a decent tool.

Noelle Tassey  1:01:43  
Yep, for sure. Awesome. Well, I know we're over for time. So I want to thank all of our attendees who've stuck it out over the time limit with us as well as our amazing panelists. We'll be running a lot more of these events as long as we're shut down. So definitely check out Alley.com. Thank you all so, so much for joining us today. And thank you to the (indistinguishable) us as well. Thank you.

Vishnu Datla  1:02:12  
Thank you all so much. Bye, now.

Andrew Shearer  1:02:10  
Yes, this quarentine is making us all go crazy.

Adrian Solgaard  1:02:14  
Thanks, all!

Galina Ozgur  1:02:15  
Bye, everyone

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