Founders of Science Exchange, Goldbely, and The Flex Company Discuss Fundraising

Hi! I'm Cat, and I'm really excited to introduce you to three YC alumni founders. This is actually going to dovetail really nicely with what Christy and Aileen were just talking about because we're going to be talking a little bit about fundraising. We all know that that's a big challenge, and then hopefully we can get to a couple questions beyond that.

These three women are running companies that cover a wide range of categories. We have something from the sciences marketplace, feminine hygiene. We also have companies here at different stages. So Erika from Flex just went through YC last summer and raised a seed. Elizabeth went through in, what was it, summer 2012 or summer 2011? She just announced her series today, so congratulations! Makes it huge news. And Vanessa with Gold Belly went through YC in winter 2013 and raised a Series A last year.

So, we have a wide range of categories. We have a wide range of stages, so I'm really excited for you all to tell your story. 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 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 agriscience, cosmetics, aerospace, and food science companies to help them manage their outsourced research and development. We have just made some serious progress; 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—it's awesome!

All right, Vanessa.

Yeah, my name is Vanessa Papariga, and I am the co-founder and chief creative officer of Gold Belly. As Kat said, we did winter 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 Bakery in New York, or brisket-style barbecue in Texas, and we ship it to you no matter where you're located. We recently raised ten million dollars in Series A and yeah, we're doing pretty well right now.

Erika?

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 four million dollar 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. We're currently on a multi-million dollar run right now.

Awesome! I wanted to do one really quick survey in the audience: how many of you raised money?

Okay, how many of you raised a Seed Series A today?

Okay, Series B?

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, with founders, how hard do you think raising your seed was on that scale?

For us, it was probably a four.

Okay, not the hardest.

For me, I feel like it was more like a nine raising a seed, because it's fundraising. It's not something that you want to do. You didn't start a company to fundraise. 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. Everything beyond that was kind of a four.

How far along were your products when you first raised money?

Well, 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 in a design and an early prototype and a founding team. We had customers, and we were demonstrating growth, and we were generating some good revenue, so we were super early. Our first money in was Y Combinator actually, and we had nothing. We didn't even have a website. After Y Combinator, we built a website, got initial customers, and had some revenue. At that stage, we really raised our angel round.

So, you mentioned that getting that first check was really hard. How many investors did you have to talk to, or what was that experience like before you closed?

Erica?

I talked 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 "right." 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.

So 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 YC. We were pitching to our peers; we pitched to PG. He gave us some amazing tips on some things that we should really put out front and center. So, it was mostly talking to people who were going through similar fundraising instances that we really learned how to do it.

So you tried to talk to as many other founders as you could to get feedback?

Yeah, we wanted to focus on things that people were reacting to and that they were nodding to. You wanted them to respond with a question, not just have glaze—they’d be like “uh-huh” if it was not a good thing what we were saying.

What did your kind of practice process look like?

Part of the challenge here, and for many of you, is 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, and they're not women who have periods. So how did you own that messaging? How did you get to the right 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, an evolution of trying to understand what would resonate with investors as an audience. What we ultimately came down to was really describing the business. Instead of being very focused on what's most exciting to me, which is enabling breakthrough research, that was not, you know, that got people excited about it, but it wasn't, to them, something that they really wanted to invest money in. What really resonated with people was when they understood the market size and 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. They could really see that the economic benefit of Science Exchange was so compelling that this could create a truly billion-dollar business, and that's where we were able to start to raise significant financing.

Did it take you a few tries? Did you pitch to a few investors who, you know, you were pitching your science to and your other scientists with someone from your background? The things that excite you, as you said, are the things that excite investors. Did you sort of have a couple people to practice on or did you make a few mistakes before you got the right message?

Made a lot 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!" 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 there and actually developed much more of an economic-based pitch, which resonated much more strongly.

Erika, you're going to have to tell us how you pitched a serious product. How did you get comfortable doing that?

I don't know that I owned control here. It was just something that we really believed in. If we didn't talk about it with everyone, we knew that we wouldn't see it come to life. So it was something that we had to talk about with everyone. Like you said, a lot of 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 don't understand it. We really focused on—in the best advice I feel like I can give—is to focus on building a really incredible business that speaks for itself and that they can't avoid. At that point, the product kind of becomes irrelevant. Although we definitely had conversations where they were like, “I can’t even tell you guys how many times I’ve heard, ‘Let me ask my wife,’ or like, ‘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?

Actually, at the time that we were pitching, the hyper-local delivery space was pretty crowded, so we really wanted to make it very clear that you were getting specialty things from someplace else. What we did is that we made sure that we had food present, you know, to illustrate what we were trying to do. 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, 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, some "fad hacker." By the time they arrived at the meeting and sat down, they saw the food item and understood what we were trying to do, so we didn’t have to go through all of this explaining anymore. The other thing we used to do was follow up with another food item delivered to them. 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, if Sequoia is your super-hot dreamboat, 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 what metrics do you need to see in a company at my stage and 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 what our metrics were and more about 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 what were the KPIs that were really relevant that would make 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 will give you benchmarks for where you need to be when you're going to each rate of round of fundraising.

So how has it changed as you, you know, you went to raise a seed, you know, 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 in that time as well. So I think when we started Science Exchange in 2011, it was right at that bubble when people were starting to think about becoming entrepreneurs, but definitely not available of interest. What we've seen is a huge number of people in the audience today, so that's amazing to see so many people wanting to become entrepreneurs. 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 three or four million dollars, and that was great—that was totally normal back then. Now, I think the median is close to ten million, so it's a very different type of expectation around where you should be, what stage the company 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 product-market fit?" In our Series C, that was very critical. You had very large enterprise clients that were actually using this platform extensively, and they had genuinely proved out the business model in the cost of acquisition and all of those components that investing this money would actually immediately go into creating an ROI for those investors.

So, you know, as you know, you've all gone through the fundraising 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 faced specific challenges because you're women?

[Laughter] Sure, like absolutely! We face unique challenges being women. I think I really struggle with this question because raising money is hard—hard stop. It is hard for anyone, and you don’t want to go into a negotiation or into a meeting thinking, "Oh, this is going to be harder for me because I'm a woman," because you’re giving that person the upper hand. 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? Um, 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, as long as we're focusing on growth and we're showing, you know, demonstrating product-market fit, we're going to do well. I didn't feel like my gender had anything to do with where we are today.

Yeah, 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 quite quantitatively show that your business is at a point where it deserves 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.

I think we were very fortunate; I also have a co-founder who’s a man. I don't know if that helped us 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 trumps any kind of weird gender issues.

That's 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 a network of investors who can help you through the later stages of the process.

So for folks that, you know, are maybe raising their first—you know, their Seed, their A—what do you have as 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 a lot of 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. By the time we had our meetings, we already had all of the information that they were going to ask. We weren’t 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 just studied up and prepared before we had our first Series A meeting.

So that's an echo of something that Eileen was saying—you have to know those numbers cold, by heart.

Yeah, 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 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. There's so much research that you can do. There are so many—I mean, all of you in this room, there are so many people you can talk to about what has their experience been, 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.

So how do you identify those people that you want to talk to, right? How do you figure out who might be interested in funding a feminine care product?

Well, there aren't many that fund women's care products, but look for companies that are similar—not in your category, but similar to what you're trying to achieve. So, like, we have a feminine hygiene product, but we're also an e-commerce company, so like what investors have 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 in consumer brands and marketplaces, so we did a lot of research about who could really give us some great advice.

Where did you go? Isn’t it like anecdotally CrunchBase or AngelList?

Yeah, you can literally stock investors, look at doing LinkedIn. What words are they on?

Yeah, I mean, if you're part of the startup community, you already know what kind of firms, you know, focus on different industries.

And how much did fellow founders help you out? Did some good folks offer to introduce you to their investors, or did they say, "Hey, I know someone?" Did that ever work—reaching out to folks in your community?

One thing that I'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 specific who's connected to whom. So, yeah, we would just ask for a personal intro.

How did you divide responsibility on your team? A lot of you know when you fundraise it takes so much of your time and focus, so how did you keep the company running while you were out there pitching investors? What did that break down?

Remember Clay? You know, that's definitely very challenging at the earliest stages. And again, I think there's something to 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 really strong metrics going into the fundraise. If it's just, you know, three co-founders and two of you are fundraising, you're going to have a dip in your metrics because you're doing nothing else except fundraising. 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, I think Series A was so much easier from that regard.

But I think it would be great to hear how you guys handled that.

For our Seed round, everything slowed down, right? Our entire team was focused on somehow helping raise a round. But by the time we did the Series A, our CEO Joe, he basically did the round while I focused on operations. I made sure that we were still running and that we were still growing, sticking to our goals and 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?

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 helps speed up the process. If you've already worked out your unit economics and you become profitable, then, you know, you have a little bit more leverage to have, you know, I feel like a faster fundraising process.

So probably I would say just a couple of months. But I was basically involved in the day-to-day for our product and our marketing and business development as he was focusing on talking to investors.

Erica?

Yeah, similar for us. We had three co-founders. Our CEO Lauren really focused on fundraising, and we always say I kind of stayed home and made sure that the kids were still growing, which meant keeping the company running and keeping up the traction that we were showing investors and making sure that it was continuing.

If you could go back in time and give yourself a piece of advice when you were first starting a company, you know, first starting the company, what would you tell yourself? It 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, your all, into your work, into your product, into what you're trying to build. 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 but 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 no idea how hard being a founder was going to be. Not about the advice, but more so, I wish I could have met more founders in the beginning to have talked about it, to learn from them and just like be able to vent about everything that you have to go through because it's hard.

It's really hard. I hope you all use each other!

But I do.

Yeah, I know.

I definitely think that learning process of trying to get advice earlier, trying to not be afraid to talk about the challenges you're facing. Everyone is always crushing it and doing so well on the outside. At times these, you’re like, "Well, maybe I'm not doing well enough." And you don't know who you can really talk to about it. I think the reality is everybody feels like that. If you were just really honest about that, people would say, "Oh, yeah, you know what? I had the exact same thing, and I’m so worried about it as well."

You can realize that every single company is so messed up. I remember Jessica talking about this at one of the female founders conferences, and I was like, “It'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!
[Applause]