Good Karma: How a Swedish Mission-Centric Food App Pivoted its Way to a $12M Series A Round

On a global scale, the cost of food waste is staggering. One-third of the world’s food is thrown away every year, with an environmental impact equivalent to the CO2 emissions of three million cars. If that seems abstract, consider the financial loss, which adds up to $1 trillion.

With a mission of “saving the planet, one meal at a time,” Swedish startup Karma is addressing the problem with a platform that allows restaurants and grocery stores to sell surplus food to consumers at half price.

The value proposition is simple: “We help take care of restaurants’ food waste while they generate more revenue and foot traffic. We also make sure that great food isn’t wasted. It ends up in the hands of hungry people instead,” says Hjalmar Nordegren, Karma’s CEO and one of its four co-founders.

Once a business sets up an account, he says, “it ends up taking less time to post to the platform than to throw it away.”

Since its launch in 2015, the Karma app has grown to include more than 2,000 retailers and 450,000 users in 150+ Swedish cities as well as London. Businesses love it because they can easily recoup costs while attracting new customers, and foodies are thrilled to “rescue” their favorite dishes from the restaurants they follow.

Social enterprise has never tasted so good.

Pivoting despite the naysayers

Karma didn’t initially set out to change the world. At first, the platform was a “crowdsourced Groupon”-style app featuring flash sales and daily deals. Bolstered by its participation in Sweden’s leading accelerator, Sting, and an angel round, the previous incarnation of Karma was moderately successful, but “not fantastic,” Hjalmar says. “We could see that the metrics weren’t going to take off anytime soon.”

It wasn’t until a restaurant posted its leftover meals on the app that Hjalmar and his team saw the potential for a fresh focus. They decided to relaunch as a food-only, mission-centric company.

They pitched the new plan to their existing investors with mixed results. “Some of them were like, ‘if that’s what you believe, then go for it’,” Hjalmar says. “Others were pretty annoyed we shifted directions like that.

“I remember being so frustrated and angry that we didn’t have their support. But that turned out to be one of our greatest drivers going forward — we said, ’we’re going to show them how wrong they are.’ We got an extra power boost from that.”

App-enabled serendipity

After the pivot, “we started to get real product-market fit” in Sweden, says Hjalmar. “It organically spread, not just with the demand side, but also on the supply side. We realized that to take the next step, we could either sit on our hands and wait for revenue, or we could look for funding.”

They embarked on another seed round focused on European VCs, which Hjalmar estimates as “50 percent coming from previously nurtured contacts and 50 percent cold outreach.”

It was a rocky start. “I don’t think we were all that prepared,” he laughs. Several funds that told them it was way too early. “We didn’t really understand how it worked. I don’t want to say we winged it, but now that we’ve raised a Series A, I see that we definitely weren’t structured in the same way. It was very much like running a startup — you learn on the job.”

Karma gained traction with an early investment from German firm e.ventures. “They timed that reach-out perfectly,” Hjalmar says, describing how an e.ventures investor came to Sweden to meet the founders, and wanted to try Karma for the first time. “He bought a cinnamon bun on the app from a nearby cafe. We went to pick it up, and stood outside while he walked in. We could see there was something going on inside.

“It turned out that two other people were there, buying Karma food, and sort of jumped on him, which is a very non-Swedish thing to do. They were like, ‘isn’t this the best platform?’ When our investor came out, you could see he was skeptical. It was a hilarious moment. We were obviously super excited that people were talking about Karma, but he was trying to assess whether we planted them there!”

Hjalmar and his team still laugh about it. “They had decided already to invest, but that was hopefully just an extra push,” he says. “They inherently understood what we were trying to build.”

Good metrics = green light

Fast-forward to Karma’s 2018 Series A round, led by Swedish VC firm Kinnevik AB. The company had planned to fundraise later in the year, but decided to start six months early. “We had metrics trending the right way,” says Hjalmar. It was kind of an opportunist move, but we basically said, ‘let’s go for it.’ You can’t semi-fundraise. You have to go all in.”

The cap table also includes Silicon Valley’s Bessemer Venture Partners, a firm that “was really engaging with us, trying to put themselves in our shoes,” Hjalmar says.

Stockholm-based appliance giant Electrolux is another notable investor. “I can’t disclose too much. We did really cool stuff together that we’re going to announce soon, which ultimately led to the investment,” says Hjalmar.

Now that Karma has plenty of resources, it plans on expanding internationally, he says. “We’re going to put that capital to good use and make sure that Karma is available in a lot more places soon.”

Skype, Spotify, and the Swedish wave

“Sweden is a small country, but we do have a strong belief in entrepreneurship,” says Hjalmar. “There’s a lot of willpower, access to capital, and access to knowledge here. That makes it fairly easy to start your own business.”

He reports that the Swedish startup scene is booming, set off by Microsoft’s acquisition of Skype in 2011, which created a wave of new startups like iZettle, Klarna, and Spotify, which went public this year and created a new crop of investors. “I think we’re going to see another wave soon,” Hjalmar suggests.

What’s his advice for entrepreneurs seeking investors?

“So many times, people said we’re never going to make it. You need to be able to turn that into fuel,” he says.

Persistence pays off in other ways as well. “If you’ve got enough grit to sort of harass people long enough, they will eventually, hopefully, sit down with you. Or block your email. But you’ve made progress.”

Lastly, says, Hjalmar, “don’t underestimate the power of people. It all comes down to the people you inspire to join you on the journey. You’ll never build the next amazing thing by yourself.”

This article is based on an episode of Foundersuite.com’s How I Raised It podcast, which goes behind the scenes with startup founders who have raised capital.