The rule of thumb when raising funds is, The fewer investors, the better. But Susan Walvius and Michelle Marciniak, the co-founders of Sheex, a Columbia, South Carolina-based company that makes bedding and sleepwear from performance fabric, weren't afraid to break that rule. Since founding the company in 2007, the pair has raised $9.1 million from 69--yes, 69--investors, all the while maintaining a controlling stake in the company.
To be sure, this was a strategy born more out of necessity than design. Early on, before Sheex had gained traction, Walvius and Marciniak didn't have many fundraising options. But even as Sheex has grown into a $10.7 million business, they have stuck with their flock of angels. Walvius and Marciniak made that decision after meeting with more than 30 venture capitalists. The two found that the valuations they were being offered would force them to surrender control of the business, an outcome they felt wasn't fair to them or their early investors. Instead, Walvius and Marciniak have continued to tap friends, family, and business acquaintances willing to contribute relatively small amounts for equally diminutive stakes in the company.
The idea for Sheex came in 2007, while Walvius and Marciniak were coaching the University of South Carolina's women's basketball team. A passing comment from Walvius on how the breathable, moisture-wicking fabric used in the team's workout gear would make for comfortable bedsheets got them both thinking. Sheex's first seed investor, a friend of Walvius's who had known her since the beginning of her coaching days, provided $50,000 in late 2007. By the end of the year, Sheex had raised $100,000 to fund the company's initial inventory, production, and a couple of key hires in finance and operations.
Walvius and Marciniak have since raised three rounds of angel funding, the most recent of which closed in May. They assembled their pool of financing by taking every opportunity to talk up their company. "There was not one meeting we didn't take," Marciniak says.
They were also ready to pitch at any moment. Marciniak met one Sheex investor, Howard Behar, the former president of Starbucks, on a flight to Palm Springs, California. After the two struck up a conversation about basketball--Marciniak had played for the WNBA's Seattle Storm--Marciniak mentioned her company. She had a copy of her business plan and samples of Sheex with her. "I've seen lots of start-ups, and very seldom have I seen such passion and persistence to bring them alive," Behar says.
Despite the pie's being split into so many slices, Walvius and Marciniak have managed to maintain a majority of their company--50.1 percent, to be exact--while still offering their investors a worthwhile return. The arrangements vary, but the typical Sheex investor put up $100,000 for a stake ranging from one-tenth of a percent to 2 percent, depending on when he or she contributed.
Of course, eschewing traditional VC and angel funding can mean losing out on the expertise those seasoned investors bring. Professional investors bring "smart money," funding that comes with valuable advice and connections. "There's a difference between having money and being a sophisticated investor," says David S. Rose, founder of New York Angels. He suggests that companies raise a bulk round from early-stage VCs, who bring with them their business savvy, then fill in any knowledge gaps with angel investors who have industry-specific experience.
Walvius and Marciniak chose a different path, but they did recognize the need for investors with as much professional know-how as cash. They found that targeting specific individuals offered them a wide range of expertise, including finance and retail distribution. One of Marciniak's closest friends, Mimi Griffin, a former sports analyst for ESPN and CBS, helped the company land its first big break. It was selected as a vendor for the 2009 U.S. Women's Open golf tournament, which Griffin's company managed. Griffin, who coached Marciniak when Marciniak was young, also offered introductions to a few investors. "The diversity of talent that we were able to access has been really important to us," Walvius says.
To avoid the problem of having too many cooks in the kitchen, Sheex created a formal board of advisers made up of five investors to consult on any major decisions. Marciniak also updates all 69 investors with quarterly financial results and other developments. Even for businesses with fewer investors, regular communication is especially important during events such as raising a new round of funding or changing the company's legal structure, says Steve Davis, a partner at the law firm Goodwin Procter in New York City. Both cases require the notification of all investors. In Sheex's case, Walvius and Marciniak had to gather all their investors' signatures when the company converted from an LLC to a C corporation in 2009.
Regular communication can also help prevent later disagreements--and possible lawsuits. For instance, Davis says, if a company has to take funding at a lower valuation than in the previous round, it helps for the entrepreneurs to demonstrate that they have exhausted all other options.
So far, things have been rolling along smoothly between Sheex and its investors. "We know these people personally, and they have such a willingness to help," says Walvius. That kindness will probably be rewarded. Sheex products are being sold at Bed Bath and Beyond and Kohl's, and sales are skyrocketing. The company is projecting sales in 2012 will top $143 million. A true case of many happy returns.