Need money? Consider these things before raising

Hello there everyone! Hope you’re enjoying your Easter Sunday. Welcome back for another Chew On This. Today we are serving a dinner called “Fundraising for D2C brands - considerations, pros, and cons”.

Feeling hungry?

Let’s dive in.

Alright, so in the last newsletter, we talked about some of the benefits we’ve seen from raising $2.2 million from a group of angel investors, friends, colleagues, and business acquaintances.

But… we all know that raising money from other people is not only sunshine and rainbows. It has definitely helped us achieve the next milestones in our company - but that doesn’t mean that it’s a good idea for everybody. So in this newsletter, we’ll walk you through some of the considerations we had prior to raising money, so that you can “chew on” whether or not it’s the right thing for your company to do.

Consideration #1 - Growth Goals, Timeline, and Ambitions

When thinking about raising money, one of the very first considerations you’ll have to make is “How big do I want my company to be, and how fast do I want it to happen”

That’s step 1. Whether you are a solo founder or co-founder, sit down with a piece of paper and a pen, and map out where you want your business to be in the next 5 years. Do you want it to be a high-growth 9-figure business, with all the responsibilities that comes with that? Do you want it to be a solid 7 or 8-figure business that’s growing at a modest rate year-over-year with a lean & mean team?

Are you willing to sacrifice free cash flow and profits to invest in growing the business?

How fast do you want to achieve the goal? For Obvi, we wanted to go from $30 million in topline to $100 million over the next 48 months. The ways that we will have to take to get there include larger investments in new marketing channels such as Influencer Marketing, OOH, and TV - as well as significant investments in building our retail department.

When me and my 2 other co-founders sat around the table, and reverse-engineered how we were going to take the company from $30 million to $100 million, we essentially came to the conclusion that we needed BIG money to do it in the time-frame we wanted to do it. So, we needed to find money from somewhere.

Could we have achieved the same outcome if we just increased our timeline from 2 to 12 years? Yeah, we probably could. But, because we would rather do it in 2 years, we chose to raise the money.

So, first thing to “chew on”: “How big do you want the company to be, what are the steps required to get there, and how fast do you want to get there”.

Re-engineer this question, and you’ll be one step closer to figuring out if you need external capital to reach the goal.

Consideration #2 - Exit Strategy

Exiting the business at some point in time (typically 3-5 years) is by and large the goal for every investor. As a founder, this means that we need to consider the aspect of exiting the business as well, when we think about raising money.

Let’s say that you want to keep the business for the next 10 years, and your investor wants to exit it in 4 years. This will inevitably lead to not only conflicts down the line, but also strategic conflicts in the short-run as you won’t be aligned on the timeline of the strategies needed to grow the business.

Maybe you don’t even want to sell the business at all, at any point in time… which is also completely fair. But in that case, you should really make sure to align with all of your potential investors, so that the expectations are the same - or simply say “I’ll grow the company from my own pocket and it’ll take the time it takes”. Both are good options.

So the second thing to “Chew On” is: “Do you want to exit at some point, and if so; when?”

Really important consideration to make, to prevent conflict and heated arguments with investors down the line.

Consideration #3 - Who should you raise from?

If you’ve already decided that you want to raise money, then there are a few routes you can go down. I’m assuming that most of you guys are probably doing between $5-10 million a year in your business, and therefore the most popular options to for you are; Angel investors and network (The route we’ve taken) and Venture Capital. I won’t go too deep into the differences between the two, but essentially Angel Investors are high-wealth individuals who invest their own money whereas Venture Capitalists manage a larger fund.

That means you can typically raise larger amounts from VC’s than from Angels - but in return they also want a larger share of the pie, and they also typically have higher return expectations than Angels.

Both can definitely contribute with a large network and very valuable domain expertise, so the consideration for you essentially has to be around;

A) How much money do you need, and how much equity are you willing to sell?

B) Would you be comfortable with the more aggressive growth targets that VC’s might set, in exchange for more money to fuel the growth?

The Obvi SOP for raising money through Angellist

Alright, now that you’ve gotten something to chew on in regards to whether or not raising money is the right thing for you, we’ll just give you our playbook for raising money - in case that comes in handy to you.

So, the first thing we did was we signed up for Angellist, which is a platform where you can find angel-investors who want to invest in your brand.

The setup process is fairly simple.

You get yourself set up with a lot of help from the Angellist team, who helps you prepare all the investor info documents, decks, and all the contractual documents.

All we had to do was answer 5-6 questions, and then let the Angellist team handle the rest of the process.

After we had gotten access to the platform and setup our profile in there, we were ready to send out messages to potential angel investors and ask them if they’d like to review our company.

The awesome thing about Angellist is that you get a comprehensive analytics dashboard, which you can essentially use to turn fundraising into a eCommerce play. So that’s what we did. Whenever somebody had seen our proposal but not responded, we’d shoot “abandoned cart” emails after them, and ultimately get a reply from them.

After we got the first few Angel investors onboard, the ball slowly started rolling and one investor referred us to other investors who then referred us to other investors. Of course, everybody will not be in this position - but it might be worth it to ask your interested investors if they know of anybody else who could also be interested.

After you’ve talked with the investors and settled on the terms, Angellist sends you the money that you raised - and the investors get their convertible debt which transforms into equity once we’ve reached later rounds.

Overall, raising through Angellist was a seamless and smooth process for us, and we found just the people we were looking for through the platform.

So definitely worth checking out if you are looking for funding from Angel investors