Y Combinator Startup Podcast - #26 - Founders of Science Exchange, Goldbely, and The Flex Company Discuss Fundraising

Episode Date: August 16, 2017

During the Female Founders Conference Kat Manalac invited three YC founders on stage to share their experiences of fundraising. The founders are Elizabeth Iorns of Science Exchange, Vanessa Torrivilla of Goldbely, and Erica Jensen of The Flex Company.

Hey, this is Craig Cannon, and you're listening to Y Combinators podcast. Today's episode is about fundraising, and it was recorded during our female founders' conference. So this conversation is moderated by Katman Yalek, who's a partner, YC, and she invited three YC founders on stage to talk about their experiences of fundraising. So those founders are Elizabeth Irons of Science Exchange, Vanessa Toravilla of Goldbelly, and Erica Jensen of the Flex Company. And as always, if you want to read the transcript or watch the YouTube video, you can check out blog.orgonadine, dot com. All right, here we go. Hi, I'm Kat.

And I'm really excited to introduce you to three YC alumni founders. And this is actually going to dovetail really nicely with what Kirstie and Aileen were just talking about, because we're going to be talking a little bit about fundraising, because we all know that that's a big challenge. And then hopefully we can get to a couple questions beyond that. But these three women are running companies that, you know, cover a wide range of categories. We have, you know, something from the sciences, marketplace, feminine hygiene.

We also have companies here at different stages. So Erica from Flex just went through YC in the summer, last summer, and raised a seed. Elizabeth went through in, what was it? Summer 2011. Summer 2011. And she just announced her series C raise today. So congratulations.

That's huge. news. And Vanessa with Goldbelly went through YC in winter 2013 and raised a series A, right? Series A last year. So we have a wide range of categories. We have a wide range of, you know, kind of stages. So I'm really excited for you all to kind of tell your story. So can you each introduce yourselves, talk a little bit about what your company does and where you're at today. Great. So I'm Elizabeth Lyons. I'm the founder and CEO of science. Science Exchange. Science Exchange is a marketplace for outsourced research and development. We work with some of the world's largest pharmaceutical companies, as well as agroscience,

cosmetics, aerospace and food science companies to help them manage their outsourced research and development. We have just raised our series C. We have been in operation for six years and through that process have built the company now to a global stage so it's very exciting. That's awesome. All right, Vanessa. Yeah. My name is Vanessa Torrivilla, and I am the co-founder and chief creative officer of Goldbelly. As Kat said, we did Winner 2013. We are a marketplace where you can discover the greatest, most iconic regional foods from everywhere in the country, shipped to your door.

Through us, you can experience places like Momofuku Milk Bar and Magnolia. a bakery in New York, salt like barbecue in Texas, and we ship it to you no matter where you're located. We recently raised $10 million Series A, and yeah, we're doing pretty well right now. Erica. I'm Erica. I'm the co-founder of the Flex Company. Like Kat said, we went through YC, actually twice last year. And we closed a $4 million. seed round in September. Our product is called Flex. It's a new menstrual product that replaces tampons, pads, and menstrual cups. You can wear it for 12 hours. It's disposable. You can have mess-free period sex while wearing it. And we started shipping to customers in October, and we're

currently on a multimillion-dollar run rate. Awesome. So I wanted to do one really quick survey in the audience. How many of you have raised money? Okay. Okay. How many of you raised a seed? Series A. Okay, series B. Okay, okay. So now we know where we're at. Okay. So on a scale from one to ten where one is easy peasy and ten is the hardest thing you've ever had to do as founders, how hard do you think, say, raising your seed was on that scale? For us, it was probably a four. Okay. So not the hardest. They're definitely not the hard. I feel like it was more like a nine raising a seed because fundraising, it's not something that you want to do. You didn't start a company to fundraise, so I would give it like a nine.

I think the first check is the hardest check you're ever going to close, and that was for sure a really solid nine. And everything beyond that was kind of a four. So how far long were your products when you first raise money? Well, so we manufacture a type 2 medical device that's regulated by the FDA, so we weren't very far at all, because as you can imagine, that costs a lot of money. So we were really an idea and a design and an early prototype and a founding team. Oh, we had customers, and we were demonstrating growth, and, you know, we were generating some good revenue, so. We were super early, so we, our first money in was Y Combinator, actually, and we had nothing. We didn't have even a website.

And then after Wecombinator, we'd build a website and built initial customers and had some revenue. And at that stage was when we raised our angel round. So you mentioned that getting that first check was really hard. How many investors do you have to talk to or what was that experience like before you closed? Erica. Talk to countless investors. For us, fundraising is a lot like hiring. You really want to align yourself with people that you want to continue working with

and that you genuinely like. I think Eileen said don't work with assholes, right? And so it was important to find people in the beginning who not only believed in us, but really believed in the product and believed in the mission that the product would achieve. How did you practice for those first investor meetings? What did practice look like? I think for us, we got a lot of practice during, I see. We were pitching to our peers. We pitched to PG. He gave us some amazing tips on, you know,

some things that we should really put out front and center. So it was mostly talking to people who were going through similar, you know, fundraising instances that we really learned how to do it. So you tried to pitch to as many other founders, who could give you feedback? Yeah, we wanted to focus on things that people were reacting to and they were like, flooding too. You wanted them to respond with a question. Yes. Not just have glazed. Yeah. If they looked confused, it was not a good thing what we were saying. And what did that your kind of practice process look like? So part of the challenge here for many of you is sort of selling this company to people, often, you know, a lot of investors are white men, who aren't necessarily

your users, right? Most investors aren't scientists or, you know, they're not women who have periods. So how did you hone that messaging? Like, how did you get to the right, you know, kind of message, that story to tell investors? Yeah, I think the storytelling is really important, particularly in the early phases. And for us, I'm not sure that we were very good at it at the beginning. So definitely for us, it was a journey, evolution of trying to understand what would resonate with investors as an audience. And what we ultimately came down to was really describing the business. so instead of being very focused on what's most exciting to me,

which is enabling breakthrough research, that was not, you know, people got excited about it, but it wasn't to them something that they really wanted to invest money in. And what really resonated with people was when they understood the market size, and they understood that this was a new market that was wide open where no software existed, and that there was a huge transactional cost that science exchange would eliminate, that they could really see that the economic benefits,

of science exchange was so compelling that this would be something that could create a truly billion dollar business. And so that's where we were able to really start to raise significant financing. Did it take you a few tries? So did you pitch to a few investors who, you know, you were pitching your, you know, as a scientist with someone, you know, from your background, the things that excite you, as you said, aren't the things that excite investors. So did you sort of have a couple people to practice on? Or did you make a few mistakes? before you back to the right message. Made lots of mistakes, for sure.

Yeah, I think for us, we tried to tell some interesting stories about use cases that had happened on Science Exchange. Like, one of our favorite ones was NASA used Science Exchange to develop the blackest material ever measured. And we were like, that is so cool. People should really care about this.

And it's a great story, but it's not a great investor story. And so not clearly describing why that could create a valuable business opportunity was definitely a mistake. and we sort of evolved from that and actually developed much more of an economic-based pitch, which resonated much more strongly. And Erica, you're going to have to tell us how you pitched a period product.

How did you get comfortable doing that even? I don't know that I am comfortable here. It was just something that we really believed in, and if we didn't talk about it with everyone, we knew that we wouldn't see it come to life, so that it was something that we had to talk about with everyone. and like you said, a lot of the investors that we were pitching don't have vaginas, don't have periods, and are frankly afraid of both. So when you go in and you're talking about both things simultaneously, they just don't understand it. And so we really focused on, and like the best advice I feel like I can give is like focus

on building a really incredible business that speaks for itself and that they can't avoid. and at that point the product kind of becomes irrelevant, although we definitely had conversations where they were like, like I can't even tell you guys how many times I've heard, like, let me ask my wife, or can you send a box to my assistant? I'll see what she thinks. And those aren't people that you want to work with anyways. So take that as like, I'm not interested and move on and find someone that is.

And Vanessa, was every investor just like food? No. Actually, at the time that we... we were pitching the hyper, like, local delivery space was pretty crowded. So we really wanted to make it very clear that you were getting specialty things from someplace else. So what we did is that we made sure that we had food present, you know, to illustrate what we were trying to, what we were trying to do. So we would bring a key lime pie from Key West. We would also do a lot of research about the investor that we were talking to, we'd find out where they went to school or where they were from, and we made

sure to have something there that maybe they had a nostalgic connection to. That's a good hack. Yeah, and it was really cool because by the time they arrived... Everyone's like, yes, bring us some key lime pie. By the time they arrived at the meeting and sat down, like, they saw the food item and they understood what we were trying to do. So that was, we didn't have to like go through all of this explaining anymore. And then the other thing that we used to do is that then we'd follow up with like another food item delivered to them.

So food, man. Food sells. So when you are trying to figure out you're getting ready to pitch to investors for the first time, how did you know what metrics they wanted to see? How did you figure that out? We just asked. Like, before, like, if Sequoia is your like super hot dream boat, don't set that up as your first meeting. go in to find an angel that you're also interested in, but it's not your number one pick,

and start practicing there and ask them, like, what metrics do you need to see in a company at my stage? And like, what would you be looking for? And they'll tell you. I think in our instance, our seed was raised on vision. We were talking about our vision, our experience, the team, the market size. So it was less about, like, how, what our metrics were, and it's more about, like, how are you guys going to win and why are you guys going to win? I think that by the time we went to raise our Series A, our seed investors were really key in giving us guidance on, like, what were the KPIs that were really relevant that would make, you know, investors interested in us. So it was through our seed investors that we learned what metrics to really put front and center.

Yeah, and I think related to that, those KPIs are going to be critical for your business anyway, so really understanding what those KPIs are based on the business type and then tracking those rigorously as you're growing the company, and then those will give you sort of benchmarks for where you need to be when you're going to each round of fundraising. So how has it changed as you went through a seed, an A, a B, and now a C, how has it changed throughout that process? Yeah, for me, I think actually the industry has also changed a lot. lot in that time as well. So I think when we started Science Exchange 2011, it was right at that kind of bubble when people were starting to think about becoming entrepreneurs, but definitely not at the level of interest that there is now that you see the huge number of people in the

audience today. And so that's amazing to see so many people wanting to become entrepreneurs, but it also creates a different level of expectation around where you should be as a company at each round of financing. So for us, when we raised our Series A, our Series A was like $3 or $4 million, and that was great. That was like totally normal back then, and now I think the median is close to $10 million.

So it's a very different type of expectation around where you should be, what stage of company you should be when you're raising each of these rounds. Certainly for us, we saw that same focus on vision, on market opportunity, and on team, being very important in the early stages and then much more focus on,

okay, how are you showing true product market fit? And in our series C, that was very critical that you had very large enterprise clients that were actually using this platform extensively and that you had genuinely proved out the business model and the cost of acquisition and all of those components that investing this money would actually

immediately go into creating an ROI for those investors. Right. So, you know, as, you know, you've all gone through the fund is in process, we've seen the numbers, not a huge percentage of women get funded. Do you think that at any point in the process, you face specific challenges because you're women? Sure. Absolutely, right?

Like, we face unique challenges being women. I think I really struggle with this question because raising money is hard, like, hard stop. It is hard for anyone. and you don't want to go into a negotiation or into a meeting thinking like, oh, this is going to be harder for me because I'm a woman, because you're giving that person the upper hand. So it's not to say that it's not happening, but it's like, how do you not think about that so that you can go into that meeting

and you can actually be the one who is changing that percentage or that statistic? It's a little bit hard for me to answer that question, because my co-founder is my, he was my boyfriend now, he's my husband. So I just feel like, you know, for us is as long as we're, you know, focusing on growth and we're showing, you know, demonstrating like product market fit, like that we're going to do well. I didn't feel like my gender had anything to do with where we are today. Yeah, and I think as you get into the later stages of financing,

you see perhaps less because there is much more focus on metrics. So being able to quantitatively show that your business is actually at a point where it deserves to raise a certain amount of financing, kind of removes an element of bias, even if it's unconscious. So my suspicion is that those earliest rounds, the angel rounds, are probably where it's most difficult and where you might face some bias. And I think we were very fortunate. I also have a co-founder who's a man.

I don't know if that help does or not, but I certainly think that if you can push through and get that initial funding, then you start to get traction, and that traction actually, you know, trumps any kind of weird gender issues. Yeah, and so that's an interesting, you know, I've had a lot of conversations, and it seems like getting those first checks are the hardest for women, and also that's probably the most vulnerable. So for things that happen, it's usually at that stage before you already have. have a network of investors who can help you through the later stages of the process. So for folks that are maybe raising their first, you know, their C, their A, do you have advice? What is it, if someone were to come to you and say, hey, can you help me?

I'm pitching investors next week. What one or two things would you want to impart to them? I think that about a series A, what we did differently is that we prepared much better for our Series A than we did for our Seed. We made sure that we had our financial model, you know, pretty ready to go. All of our data was ready. All of our KPIs were on display.

And we made sure to study up on all of the key metrics that investors at a Series A level would be interested in. So by the time we had our meetings, we already had all of the information that they were going to ask. weren't like scrambling to like you know we weren't having different conversations at different times we were having the same conversation with everyone showing everyone the same information and we you know we we just studied up and prepared before we had our first series a meeting so that's echo something that eileen was saying you just you have to know those numbers cold by heart yeah yeah and and it's

and it's not just your numbers by the series a you should also know who you want to talk to. Most of the time, you're going to start talking to people that have already invested in you at the seed level, or you're going to reach out to firms that you know can help you, you know, get to the next stage. So you're going to have to do a lot more preparing before doing a series A than you would a seed. Yeah, I agree. I mean, even at the seed stage, I think that being prepared is so important. Like, there's so much research that you can do. There's so many, I mean, all of you in this room, there are so many people you can talk to about, like, what has their experience been like?

You know, what are the averages? Like, what should I be looking for? Go talk to other investors, like I said, ask them what they're looking for and put that together for the people that you really, really want on your cap table. And so what, how do you identify those people that you want to talk to, right? So how do you figure out who might be interested in funding a feminine care product? Well, there aren't many that fun feminine care products. But look for companies that are similar, like if not in your category, similar to what you're trying to achieve. So like we have a,

you know, a feminine hygiene product, but we're also an e-commerce company. So like what investors have like a really strong presence in e-commerce, what investors have invested in female founders, stuff like that. Yeah, we were looking for investors that had expertise. We were looking for investors that had expertise in like consumer brands and marketplaces. So we did a lot of research about like who could really give us some like really great advice, right? Where do you go? Is it like you just go to like crunch base or angelette? Yeah, you literally like stock the investor. You look at their LinkedIn. You see what boards they're on. Yeah. Yeah. And if I mean if you're in part of the startup community, you already know what kind of firms, you know, focus on different industries.

And how much did fellow founders kind of, you know, help you out? Like, did folks offer to introduce you to their investors or they said, hey, I know someone, like, did that ever work reaching out to, you know, folks in your community? So one thing that I've, that we've always done is if we needed an intro to an investor, we would either reach out to a YC partner or to any of our peers that maybe had some kind of connection, like through LinkedIn, you can figure out who's connected to who. So, yeah, we would just ask for personal intros. And how did you divide responsibility on your team?

So as a lot of you know, when you fundraise, it sort of takes so much of your time and focus. So how did you keep the company running while you were out there, investors. What did that breakdown of, what did that breakdown look like? Yeah, that's definitely very challenging at the earliest stages. And again, I think that's, that's something we're minimizing the time at which you're actually fundraising and being very focused about when you're fundraising and when you're not fundraising is very important because you have to have, you know, really strong metrics going into the fundraise. And then if it's just, you know,

three co-founders and, you know, two of your fundraising, you're going to have a dip in your metrics because you're doing nothing else except fundraising and so that's very challenging I think once you get beyond that initial phase of only having a few people in the company hopefully you're at a point where the company should continue to operate more or less

seamlessly without you being in the office every day and that's a lot easier so definitely our C was so much easier from that regard but I think it would be great to hear how you guys handled that. So for our seed round we

Everything slowed down, right? Our entire team was focused on somehow helping raise the round. But by the time we did the Series A, our CEO, Joe, he basically did the round as I focused on operations. I made sure that we were still running and then we were still growing, that we were sticking to our goals and our metrics, month to month. so we could keep making money. The vast majority of running the company was up to you for a while. Yes. How long did it take?

We did it pretty quickly. The reason we did it pretty quickly is because we had gotten profitable before we went out for a series A, which I forgot to mention. That also helped speed up the process. If you've already worked out your unit economics and you've become profitable, then you have a little bit more leverage to have, you know, I feel like a faster fundraise process. So probably, I would say, just a couple months. Yeah. But I was basically involved in the day-to-day for our product and our marketing and BD as he was focusing on talking to investors.

Erica. Yeah, similar for us. We have three co-founders. Our CEO, Lauren, really focused on fundraising and we always say I kind of stayed home and like made sure that the kids were still growing which like meant that keeping the company running and keeping the traction that we were showing investors making sure that it was continuing if you could go back in time and give yourself a piece of advice to when you were first starting a company you know first starting the company what would you tell yourself doesn't have to be about fundraising just generally I think a lesson that I've learned being a founder is when you start your company, you're pretty obsessed and you put your everything and your all into your work, into your product, into what you're trying to build.

And you kind of lose yourself. You feel that if you work 24-7, you're going to be better and you're going to help your company take off. But what you don't realize is that you can burn out if you're just working 24-7. Evan, if you leave work and go home and continue to work, you're not going to make better decisions for your company. It's actually going to slow you down. So it took me a couple of years to figure out how to have a good life and work balance. I think I had, like, no idea how hard being a founder was going to be.

And not that that's advice, but more so, like, how, like, I wish I could have, or I wish I would have met more founders in the beginning to have talked to about it and like learn from them and just like be able to bitch about like everything that you have to go through. Because it's hard. It's really hard. I hope you all use each other for that. I do. Yeah, I know.

Yeah, I definitely think that learning process of trying to get advice earlier, trying to not be afraid to sort of talk about the challenges you're facing. and everyone is always like crushing it and doing so well on the outside and that's, you know, at times you feel like, well, maybe I'm not doing well enough and like you don't know who you can really talk to about it. And I think the reality is everybody feels like that and that if you're just really honest about that, people will say, oh yeah, you know what? I had the exact same thing and I'm so worried about it as well. And you can realize that every single company is so messed up. And you have, and I remember Jessica talking about this at one of the one of the same.

of the female founders conferences and I was like, that's really true. I mean, you always think that everything that you're doing is so much worse than everybody else. But the reality is everybody is just trying their best and creating these amazing companies in the process, but it's not perfect. It's not perfect for anybody along the way. Cool. Thank you guys so much for taking the time.

Thank you. All right. Thanks for listening. So the transcript and the video are on blog. commodator.com. And as always, please remember to rate the show and subscribe. All right. See you next time.

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