By Katie Doyle and Jay Adams. Source: ReadThink.
Running a startup requires quick decision-making. And often, these decisions are made with little information or data. But the one area startup founders should always put significant time and consideration into is fundraising. It is easy to get swept up by stories of startups raising millions a few months into launch (or even before launch) and think, “Why them and not me?” One way my co-founder and I have combated these feelings of FOMO is by identifying the right money at the right time. This mantra helps us to stay focused on the best path for our business. Below, we outline our decision-making processes over the last 18 months in relationship to fundraising and investors.
The First 6 Months
The beginnings of Brass date to February 2014. My co-founder, Katie Doyle, and I saw multiple brands popping up online (Bonobos, Frank & Oak, Chubbies, Trunk Club) that catered specifically to men. We felt that women were being left out of the direct-to-consumer fashion wave. We, too, wanted easier and more enjoyable ways to shop for clothing online. This desire, coupled with the lack of good quality, affordable clothing, was the impetus for starting Brass. We began building a clothing brand, focused on helping women build the perfect wardrobe, sold exclusively online.
In March 2014 we approached our third business partner (my boss at the time) with the concept. In June 2014 the three of us drafted an operating agreement, became equal equity partners and incorporated the business. On September 23, 2014 we launched our site and started selling our first line of dresses.
We designed, developed, and produced our first collection of 5 styles in 9 months. We had approximately $25,000 in cash and a credit line of $10,000. To some this might sound like pennies. To others this may seem like a mountain of money. For us, it was enough working capital to buy flights to China, fund our first production run, ship the product via air freight to our studio in Boston, set-up a website on Shopify, and buy packaging supplies for shipping to customers.
We spent the vast majority of the initial $25K on 500 units of dresses. From the beginning, we relied on selling product to bring in cash. We didn’t have a pile of venture capital money to pull from. We barely had enough money to cover our costs, so we were strategic with every dollar we spent. For the first 6 months, this was the right money at the right time. Without a safety net of money to fall back on, we were forced to design and create product that our customer wanted to buy. But we also had the freedom to try and test ideas without considering to investor opinions.
The Next 6 Months
In January 2015 we faced the decision of how to get more money. We wanted to expand our line for Spring/Summer and we wanted to add more styles. We needed another $20,000 to put five more dresses into production. We had three choices: 1. Get a loan from friends and family, 2. Attempt to get investors/venture capital, 3. Pre-sell via Kickstarter.
Most startups face a similar crossroads in the first year of business. We knew we would have to commit significant time and effort toward raising a seed round. And, maybe, more importantly, we’d have to give up a large part of our business. Time would be taken away from growing the business and developing the brand to pitch investors. There were 3 main reasons we decided to pursue a Kickstarter campaign instead of money from investors:
1. Venture capital is a boys club.
Only 3% of venture-capital investments go to companies with a chief female executive. There are many contributing factors to this statistic; almost too many to list. Lack of confidence, access to the right people, and difficulty in proving worthiness or experience are just a few. Understanding the landscape of venture capital helped us make our decision. With only 6% of female partners at venture capital firms, it is no wonder that women struggle to get funding. With the odds stacked against us, Katie and I knew that it would take us a lot of time and energy to raise money.
2. Crowdfunding is all about the customer.
Our customers are part of our product development process. This ensures that we are creating product they will love. We compile customer feedback from Facebook, Instagram, email, surveys and reviews in order to improve and create new product. We felt Kickstarter was the best way for us to continue building this customer dialogue. The process of seeking venture capital would remove us from our customers. It would force us to pay more attention to our investors than our customers. And, just as we continue to feel today, our customers and our product are the two most important parts of our business.
3. Crowdfunding is low cost, high reward.
It can cost anywhere between $20–50 to acquire one new customer online. Kickstarter, and crowdfunding in general, allows you to expose your brand and your story to a wider audience at a much lower rate. Minus the Kickstarter processing fees, running a crowdfunding campaign is essentially free. In our case, almost 70% of our Kickstarter backers were new customers. If we had used standard online advertising we would have spent more than $3500 to acquire these new customers. That would have been almost 15% of our initial investment.
The last 6 months
Over the last 6 months, our sales have increased rapidly. We still have not taken on investors. Rather, we are diligent and deliberate about creating product that is highly sought after and sells quickly. Additionally, we have honed in on our customer. We understand her and we do everything (from creating new product, to customer service, to crafting emails, to FB ads, you name it) with her in mind. Like with all consumer product companies, inventory is our largest capital constraint. Soon, our customer demand will force us to find a new way to fund our purchase orders. But, in the meantime, we will continue to perfect our product and our brand so that when we are ready to take on outside funding we can be sure it will be the right money at the right time.