3 Reasons We Chose Kickstarter Over Venture Capital
In February 2014, my now co-founder, Katie Doyle, and I came up with the idea for Brass. Brass is a women’s clothing brand that sells only online à la Bonobos and Warby Parker. In March 2014 we approached our third partner, John Busch, with the concept. In June 2014 we became equal equity partners and incorporated the business. On September 23, 2014 we launched our site and started selling product.
We designed, developed and produced our first collection of 5 styles in nine months. We had approximately $25,000 in cash and a credit line of $10,000. To some this might sound like pennies, to others this may seem like a mountain of money. For us, it was enough working capital to allow us to do the following:
- Buy flights to China
- Fund our first production run of 5 dresses
- Ship the product via air freight to our studio in Boston
- Set-up a website on a Shopify platform
- Buy packaging supplies for shipping to customers
We spent the vast majority of the money on our product. Needless to say we were bootstrapping. We didn’t have a pile of venture capital money to pull from. We relied on selling product to bring in cash from the beginning. Since the launch in September 2014, we have supported the business solely on incoming sales. Our sales have allowed us to introduce 3 new styles to our collection. We now have 8 dresses available on our site.
In January 2015 we faced the decision of how to get more money. We wanted to expand our line for the Spring and Summer and we wanted to add another five dresses. We needed another $20,000 to put five more dresses into production. We had three choices:
1. Get a loan (most likely from friends and family).
2. Attempt to get investors and venture capital.
3. Pre-sell via Kickstarter.
Most startups face a similar crossroads in the first year of business. As a women-owned startup, the odds are stacked against us for getting funded. The road to funding is much bumpier for women than it is for men. And for that reason, we are sharing our reason for why we chose Kickstarter. Hopefully this information will benefit women out there in similar situations.
1. Venture capital is a boys club.
Only 3% of venture-capital investments go to companies with a chief female executive. There are so many contributing factors to this statistic; almost too many to list. Lack of confidence, access to the right people, and difficulty in proving worthiness or experience are just a few.
I’ve heard Julie Wainwright, founder of TheRealReal, share her experience in pursuing venture capital. The RealReal is an online luxury consignment company which has raised $83 million in funding. In 2011, She was trying to convince young men wearing sweatshirts and sneakers (and made millions in tech) to invest. And she was getting turned down over and over. Wainwright probably wasn’t being outright discriminated against. More likely, these men just didn’t understand why a woman would pay $300 for a used pair of Manolo Blahniks. Human beings tend to associate with people who are like them — it’s human nature. And this seems to be playing out in the VC world, as well.
Understanding the landscape of venture capital helped us make our decision. With only 6% of female partners at venture capital firms it is no wonder that women struggle to get funding. With the odds stacked against us, Katie and I knew that it would take us a lot of time and energy to raise money. We decided that we weren’t yet prepared for this challenge.
2. Crowdfunding is all about the customer.
Back in March 2014 we sent a survey out to all our female friends asking for feedback about their favorite styles of dresses. This initial survey helped us to design our first collection. We have continued to poll our customers for future designs. Our customers are part of our development process and it ensures that we are creating product they will love. In addition to the surveys, we receive emails from our customers every single day. And we respond to every single email. We ask for feedback on Facebook and Instagram, and we listen to every comment and every piece of feedback we get from our customers. We wanted to continue to include our customers in our process. We felt Kickstarter was the best way to do that. The process of seeking venture capital would have removed us further from our customers. It would have put made us beholden more to our investors than to our customers. Our customers and our product are the two most important parts of our business. We will always be in touch with our customers, especially in the beginning stages of building Brass.
3. Crowdfunding is low cost, high reward.
Despite popular belief, running an ecommerce company is expensive. You must push traffic to your site. Most ecommerce companies use pricey, and often ineffective, advertising. This advertising takes the form of re-targeting ads, social media ads, and paid placements. It can cost upwards of $20 to acquire one new customer. Kickstarter, and crowdfunding in general, allows you to expose your brand and your story to a wider audience at a much lower rate. Minus the Kickstarter processing fees, running a crowdfunding campaign is essentially free. If you are able to get your project featured on a national news outlet, you are likely to get a lot of brand exposure at virtually no cost. In our case, almost 70% of our Kickstarter backers are new customers. If we had used standard online advertising we would have spent more than $3500 to acquire these new customers. That would have been almost 15% of our initial investment.
Conclusion
We are confident that we made the right choice in using Kickstarter to grow our capital. It has allowed us to maintain contact with our customers, raise money on the cheap, and avoid the arduous process of raising venture capital. It is the right choice for right now. As the business grows and the needs of the company change, we will likely pursue investors. Thankfully for us, there appear to be more women-led VC firms cropping up.
Katie Doyle and Jay Hallstein are the co-founders of Brass, a new women’s clothing brand sold exclusively online. The company launched in September 2014 with a curated collection of women’s basics. They ran a successful Kickstarter campaign for their Spring/Summer collection. Learn more here.
