#4 Money
Time spent to date: 14 months, 1 week.
Time to launch: Products: 3 months
$ Invested: 250K
Money is Fluff.
This email took so long because raising money takes so long.
In fact, I’m still finalising my seed investment round. I was hoping to write this once completed.
Asking people for money when you don’t like people paying for your coffee is hard. But we need money to launch Fluff the way I know it needs to be launched. I don’t have that money on my own.
-I sold out of my last business for $500,000.
-I had $50,000 worth of legal fees.
-And $50,000 of other expenses that occurred around the 9 months it took to finalise my sale of shares, during which I had no income.
-My capital gains tax was somewhere near $125,000.
-I went away for four months, to take a break and figure out my head. And chill out, comfortably. I saw some incredible places, people, and things. And that stuff isn’t free.
-I invested $35,000 in a friend’s business.
-I lent $10,000 to family and friends.
-And around $20,000 into the never-ending fun ride that is the café I own.
-I put $150,000 into Fluff.
Maths: time to raise money.
As ever, more questions than answers:
-Do we raise the bare minimum and bootstrap the company?
-Do I put all my own money in?
-Do I get money from rich people or money from strategic people?
-Will we do a raise again, in how long?
-How much of this company am I willing to give away?
We started this process a year ago, trying to raise 500K. I’ve spoken about in past emails why this business is different to the launch of frank body. 500K would be enough for us to launch with two full-time employees, three products, a showroom/office, and a marketing strategy that we believed would resonate with our audience.
Now, we’re going to start 2018 with three employees, several contractors, four products, our dream showroom/office, and a marketing strategy that we already know is working. I’m still getting my head around the fact that with minimum order quantities of 20,000+ I’m going to be spending circa $30K on fancy envelopes :/
Our seed round is with friends and family (literally) and people I’ve met over the last few years in the industry. We required a minimum $25,000 investment per person.
It’s taken us a while to get here — when we started our discussions in October 2016, we were offering a straight equity deal, with an individual investor. We had two very interested parties of who we spoke back and forth, and in February of this year, we decided that it just wasn’t right. It’s true what they say about going with your gut.
We worked through projections of 5 years of financial modelling with a contractor and our advisor, and ended up bringing it back down to two — budgeting for a company that doesn’t yet exist is weird. But totally worthwhile and important — I have learnt so much.
So that brings us to a convertible note; a loan that will convert to equity at an event like when we next raise funds (Series A) or at a pre-determined date where the loan “matures” and therefore converts. We went down this road because it was meant to make things easier (hah). Why? Two reasons. 1, because giving people equity requires writing them into a Shareholders Agreement and lawyers are expensive. 2, because giving people equity (a % of the stock of your company) based on how much money they give you means determining a valuation for your company (and therefore what % of your company they’re buying.) This is extremely hard when you’ve never sold a product, and all you really have is a good idea, a track record, and an Excel spreadsheet showing that you understand how maths works.
For me, the fun part has been answering questions, some that I didn’t think I’d have to answer, and learning that I’m comfortable in doing so. These include:
-Justifying our valuation
-Justifying our expenses
-Discussing runway and burn rates; when the money will run out, and what we’ll do then
-Justifying my employees and business partnerships
-Discussing gender, race, and sexuality
-Why I think I can sell x amount of units in x months
-How I’ll keep my word regarding our company ‘Why’
-What our exit strategy is.
Considering this is often ‘just business’ for an investor, but the reason I get out of bed every day, it’s been important for me to really know who I’m taking money from. Which is why the group we’ve settled on are people who I either know extremely well or have done enough due diligence on and importantly, sat down for a coffee and/or wine and talked about stuff other than business. If I can’t be myself or honest with them, I can’t do a deal. If I couldn’t sit down and enjoy a dinner with them, then I couldn’t proceed.
This has been, to date, the second hardest part of this whole process, mostly because it’s taken so much of my time and focus, and it’s so far away from what makes me good at what I do. This is something that not many people tell you: taking on investment is all-consuming and confusing. There’s literally no one way to do it. Everything is a negotiation. And it’s never a deal until the money hits your bank account.
But for all it’s beat me down, it’s lifted me in other ways, too. We’ve run through different scenarios, budgets, exits: almost every possible outcome with lawyers, accountants, and advisors. And we’ve done it all several times. Do I wish I had enough money to do this all on my own? Sometimes. But I don’t know if I’d want this as bad as I do if it were that easy. Having a group of people to be accountable to is challenging and rewarding. I now have something to prove not just to myself.
This process has reminded me, time and again, that there are people out there who believe in what we’re doing. And while money makes the world go round, and will give us the runway we need to get this business off the ground, often it’s the support of others that gives you the grit you need to make sure this business happens; to show up to work every day, even when you don’t really want to.
Right now this business is:
Redoing formulations
Design debates
Signing off packaging
Moving into an office
Meeting people
Seeing lawyers
Seeing accountants
A website !
Fluff.
