It's a big decision to fund a startup without VC funding--but considering that venture capital is arguably the most expensive form of raising capital and that it can lead to losing some control to the VC partners (#dilution), it's also a smart one.
I sat down with Kory Stevens, founder of Taft, a direct-to-consumer shoe retailer to learn more about how he and his wife Mallory bootstrapped a company that is now valued at almost $20M and counting.
You're three years into your footwear startup, and as of yet, you haven't looked into VC funding. Why not? Certainly at this point, you'd pique venture capitalist interest, right?
KS: Well, to be honest, it doesn't feel like it's worth it just yet. Thus far, we've been quite successful without VC funding, and it's really valuable equity to give up if it's not something we need. Funding a startup in 2017 is wildly different than it was ten years ago and there are a lot of other options besides expensive VC money.
Though we understand that waiting three years this long, like we have, is a luxury some start-ups don't have.
"But I would say that to anyone looking for funding, holding off for VC money as long as you reasonably can is a healthy goal."
We have held off because money wouldn't really solve the problems and obstacles we are facing as a brand.
How did you guys get to this point on your own?
KS: It all started three years ago. We had the idea to launch a line of designer no-show socks--but we didn't have the cash to place our first order. But we knew people would get excited about it. So we decided to turn to Kickstarter.
Crowdfunding seemed like a powerful option because it allowed us to start connecting with potential customers before we even had a finished product. Crowdfunding enabled us to generate excitement and then use that interest as momentum when we launched on our own site.
We ended up raising $50,000 in a month with over one thousand backers. It was amazing and we had all the capital we needed to place our first big order.
"Choosing the crowdfunding route only cost us a month of hard work and a few hundred dollars."
Crowdfunding also gave us the opportunity to tap into our personal networks. We were able to reach out to friends and family who were as excited about the idea as we were, and in turn, they spread the word to their own personal networks.
Following the success of the campaign, we chose to work with a single angel investor we knew and trusted--which meant we were able to agree on straightforward, mutually-beneficial terms without the usual complications that come with fundraising. And because of our friendship, we were able to buy back the equity we initially gave away (at a handsome profits for our friends) just a year later. They all love Taft, and didn't want to hold us back. Can you imagine a traditional VC doing that for us?
What challenges did you come across as you launched the company?
KS: At first, the trickiest thing was covering costs. Especially with credit. We made the jump from producing $2 socks in Asia to producing expensive, luxury shoes in Europe. Before we could get any business credit, we had rely on our own personal credit to cover our costs--office supplies, the Kickstarter campaign, our rent, you name it. We didn't have enough cash as recent college graduates, so it was certainly dangerous, but this bought us the time we needed. We had to be careful, though. This should only be something you're willing to do if you know you can do it responsibly.
"Lots of young businesses get into financial trouble spending too much too early."
Eventually, though, we did manage to get business credit as Taft grew and revenues increased. Specifically, offers from Paypal and Shopify--Shopify's the ecommerce software behind our website, so we owe a lot to them. These credit lines became tied to the business and, as a result, were much more substantial than the personal credit we were using before.
We don't look at PayPal and Shopify as just service providers, we really view them as partners. They are still a part of our business model to this day and have opened a lot of doors for us.
What other ways did you creatively bootstrap--pun intended--your new venture?
KS: Well, I'm not sure if this is something that would happen for all startups, but certainly for an online store, something that helped us was managing orders effectively. We knew managing orders effectively would be the difference between us making it or going under.
For the first three months, we only offered products on pre-order--nothing was actually in-stock. We posted pictures of shoes we still hadn't produced to ensure there was real interest. We deliberately under-produced, and only stocked what customers were buying.
"Because when you're small and money is tight, buying inventory you can't sell kills your company-especially when the costs to produce your product are so high."
So there you have it. If we've learned anything from Taft, it's that being creative about fundraising and spending can be the difference for a new startup to either succeed or have to shut its doors. Don't make the latter an option and get ahead of it.