Startup series part three: fundraising lessons
What I learned (unsuccessfully) raising money for kahla
I’ll start with the ending - we were not able to raise a seed round for kahla last year. But even though the fundraising process was grueling and unsuccessful, I actually enjoyed it and learned a couple of interesting things. I’ll share those insights below, together with the reasons why I believe we didn’t raise.
Insight number one: start pitching before you start pitching
Once I had a final draft of a deck I was satisfied with, I reached out to a dozen friends (angels that I wasn’t necessarily going to take money from) to ask for feedback. I thought about these meetings as dress rehearsals where I get to test my pitch, gauge the response and update the deck if enough common patterns emerge. The most important caveat here is that you want to take feedback from people you trust and people who get what you’re building. People are well intended in their eagerness to offer feedback, but often, what they have to say can be irrelevant and create confusion, when what you’re going for is more clarity. The feedback you should pay attention to is the one you keep hearing. If eight out of ten people tell you that it’s not clear what problem you’re solving, it most likely isn’t. The stuff you can politely ignore is when people get too excited about other potential ideas you could be working on, or they pick on inconsequential details regarding the style of your deck.
Insight number two: warm intros only
If you want to pitch quality investors (which you should), a warm intro is the only way to go. I was very lucky to know many investors personally, having built relationships over the years, and I also had Emi to help with introductions when I didn’t know someone. In case anyone still does this in 2024, messaging people on LinkedIn, cold emailing, or going to networking events in the hope that you will meet potential investors is not the way to get access. To that end, I am still baffled that people believe networking events lead to any serious business. Working on your product night and day, and building relationships over time are the only things that do.
Insight number three: it’s a numbers game and you gotta play
I put together a list of over 100 investors and reached out to all, out of which about 20 didn’t respond, 25 passed without a meeting, and the rest I met at least once. Most of those meetings resulted in a “no”. I tracked my progress in a spreadsheet every single day, and each time someone gave me feedback - either as the result of a meeting or from an email that said “pass”, I would add the notes to my spreadsheet and then generate word clouds to identify the most common patterns. Rejection sucks and it doesn’t necessarily get easier with time. I had plenty of moments when I felt anxious and depressed to the point of hopelessness. But then I would have a new meeting that led to a second one and so on, and I would, once again, get super excited and hopeful. A useful reminder here is that even if you get a partner meeting, it’s not done until the termsheet is signed. Given how low the rate of success is, the only way to increase your chances at raising is to speak with the largest number of quality investors you can, expect this process to take months and keep going no matter what.
Insight number four: if you’re a first-time (female) founder, grow a thick skin
Should I start with the male VC who told me that it’s not true that women have hormonal issues, they’re just fat because they eat too much pizza? You might ask why did I even contemplate pitching male investors for a women’s health company and the sad reality is that I had to. Yes, there more amazing female investors than ever, but it’s still not enough (see insight number three). To make matters more complicated, I kept hearing that if I went for an all women cap table, that would hurt my business because it would signal that I wasn’t actually able to raise from top tier firms (WTF?!).
I can also tell you the stories of how Emi and I were raising at the same time - him for Ezra and I for kahla, and often (unbeknownst to many) pitched the same investors. We could hear each other’s zoom calls and it happened more than once that the same investor would be super rude to me while being super nice to Emi. If with me some investors felt totally comfortable eating while I presented, or turning their video off so they could do emails while I pitched, yawning or showing zero interest or respect for my time and effort, I did not, once, see this happen to Emi. Yes, he had a proven track-record and his business was much further along, but we had both put the same amount of hard work and dedication into our fundraising efforts.
Everybody knows that most VCs are not particularly nice. They hold the power and they make you remember that at every second of the pitching process. They act like you’re imposing on their time and they have somewhere more interesting to be. Often, they won’t bother to give you feedback and instead hit you with the same tired platitudes: “we wish you all the best in your journey” or “we’ll be cheering for you from the sidelines”. Wow, gee, thanks.
But - you will also meet some incredible people (usually the more successful an investor, the more respectful and insightful) who even when passing on the investment, will take the time to offer honest and valuable feedback. I had the good fortune to meet at least a handful of such investors, and each time, I left those meetings so energized that I couldn’t even be upset for getting another rejection. Again, you need to learn to filter feedback and always remember why you’re building what you’re building. No one can take your drive and passion away from you.
Insight number five: it’s all about that growth
The days of getting deals done with a deck and an idea are long gone (RIP ZIRP era). With kahla, we weren't just a deck and an idea. We had a live product, with users, and still, that wasn’t enough. Part of why we didn’t raise was timing - in 2023 investors were more cautious with their allocations than ever, but their appetite for risk was also lower which meant that they couldn’t get conviction without seeing significant growth and clear product market fit. It used to be that at seed level they’d invest in the “team, mission and vision” trifecta. If you’re building LLMs, maybe you can still get away with just that, but for everyone else, you need to have a product with growth, in a large market. VCs have always cared about growth more than anything, but in the past, seed checks would also fuel and facilitate some of that growth, whereas now the focus has shifted to unit economics and business fundamentals from the get-go.
I believe that raising money as a consumer business is harder than ever, but there’s also a silver lining in that such constraints can lead to building companies with healthier, more sustainable business models. At kahla it forced us to slow down, take our time to pivot and figure out growth on our own terms. If that leads to a healthy business that is ultimately not VC-backable, I’d say that will be a nice problem to have.