Building an Ecommerce Business, Episode 13: Raising Money
Launching an ecommerce business takes perseverance, passion, and, typically, money. Raising that money can be time-consuming and frustrating.
I am the founder of Beardbrand, an Austin, Texas-based ecommerce business that focuses on beard care and men’s grooming. This is episode 13 in my series on building an ecommerce business from the ground up. The previous installments are:
- “Part 1: Choosing Partners,”
- “Part 2: Selecting Platforms,”
- “Part 3: Early Days,”
- “Part 4: Copywriting Matters,”
- “Part 5: Paid Acquisition,”
- “Part 6: Hiring Employees,”
- “Part 7: Shipping and Fulfillment,”
- “Part 8: Customer Service,”
- “Part 9: YouTube Strategy,”
- “Part 10: Apparel Sales, Manufacturing.”
- “Part 11: Selling on Amazon.”
- “Part 12: Acquiring Companies.”
For this installment, I spoke with Joshua Bingaman and Brad Day. Bingaman is the founder and creative director of Helm Boots, an Austin, Texas-based manufacturer and seller of handcrafted leather boots. Day is the company’s president. We discussed the process of evolving from a start-up, bootstrapped company to one that needs investors, money, and structure.
What follows is my entire audio conversation with Bingaman and Day, and a transcript, edited for length and clarity.
Eric Bandholz: Tell us about yourselves.
Brad Day: I’m a former Austin resident. I relocated back to Portland, Oregon. I’m excited to be here to share some of our success and failures over the three years that I’ve been here with Joshua at Helm.
Bandholz: So you’ve been with Helm for three years, and, Joshua, you launched the company about 10 years ago.
Joshua Bingaman: Ten years in October.
Bandholz: Is Helm Boots entirely online?
Bingaman: We were solely online when we started. I had opened a café here in Austin in 2003. Then I got into coffee roasting. I had been in the shoe business before that. But I started focusing full-time on Helm Boots a few years ago, and found Brad. Then I really started focusing on the website the last year, year and a half.
We are essentially an internet-based brand, but we have a physical store here. We have a few wholesale accounts. We’ve pulled back on that quite a bit; we aren’t focusing on wholesale right now.
Day: We’ve looked at our business model, and how we connect with customers around the country. We felt that a brand of our size and where we’re at, it was very valuable for us to control that conversation. And we can do that by connecting with them directly over our website, and through customer service and phone calls, and things like that. And sometimes that can get diluted in the hands of a wholesaler. We’ve also enhanced the experience of the Austin storefront.
Bandholz: That’s very similar to how we built Beardbrand, developing that relationship directly with our customers. Did you start by raising investor money, or did you bootstrap (no pun intended)?
Bingaman: I started it with a credit card out of a factory in Istanbul. I have some family there. I ran the company out of Istanbul, Turkey for the first three years. Then we brought production to the U.S., to Maine and Arkansas. We’ve gone back to offshore factories as we’ve grown. There are not many factories left in the U.S.
Bandholz: In those early days you ran off your credit cards, pumping everything back in. At what point did you decide to raise money?
Bingaman: I started to realize that I couldn’t fund it with cash coming in from the coffee shop, which wasn’t a lot. I had maxed out a few more credit cards. I had refinanced my house and sold a car. I went from owning stuff to leasing stuff. And that was just the reality of, “Do I keep having a small business that I believe in, but that is going to take some runway to get off the ground. Or do I quit? Do I shut it all down?”
So, I started looking into what it meant to raise funds. I had never done that.
Bandholz: Were pitches to friends and family the next stage?
Bingaman: It was more like I would have a purchase order, and I would ponder, “We’ve made enough sales to afford the next P.O., but I can’t pay the two or three staff I have. So do I have room to get cash off of a credit card? Or can we do something sale wise locally out of our office to get enough cash to then show that we’re breaking even?
Then I started to talk to friends who had some cash. Like a guy with a successful band who loved the boots. Or this guy who has a friend who’s in management at this larger retail company. Things like that. It was 10, 20, $30,000 here and there.
Bandholz: When you’re raising money, is it equity or debt?
Bingaman: It depends on each person, each loan. The first round of investors want equity that’s protected, and they won’t dilute to people in the second and third round.
Each round has been different. We’re learning as we grow. Even Brad compiling the financials has made a difference. And having people that are actively involved on our board of directors, holding our hands the bigger we’ve grown.
Bandholz: You do whatever it takes to make it work in those early days.
Bingaman: And picking the investors to be active and involved — gaining as much knowledge as you can from them. Others just want to put money in. Or friends of friends. It depends on the round and the investor and on what we need.
Day: Now, we have corporate governance and structure. We obtain board approval for cash allocations and stock grants. The entire organization — the board, the investor group — they all have rights to say, “We want to go raise money. Or we don’t want to do this, or we want to pivot and go here. These are the things we want to invest in.”
So the flexibility to be an agile small business changes when you transition to a professional type investment and you have proper governance, and you’re confined by those rules and regulations. But there’s also a ton of upside to that.
Bingaman: It’s a lot healthier.
Bandholz: One of the things I’ve heard is that you should expect to give up about 20 percent of the company when you bring in investors. Is that in the ballpark?
Bingaman: It’s based on the valuation of the company at the time.
Day: And how much you’re raising.
Bingaman: For people that get in early, the valuation is largely speculation. Then the valuation is significantly higher the next round if you’re succeeding and growing.
Day: Every situation is so different. If it’s very early and you don’t have a lot to show, generally people are investing in you as an entrepreneur, and as a person, The 20 percent mark or something like that could make sense.
Bandholz: Talk about the shows that are on. I was a Shark Tank contestant. It seems so easy. “Just go out and get money.” What are tips that entrepreneurs need to know to successfully pitch their business?
Bingaman: I’m not the numbers, business-savvy guy. I am the creative — the passionate person who lives, breathes, and bleeds the brand. I will do anything I can to bring people to the table that are willing to invest. But it’s relationship based — sincere relationships that I care about, not just someone putting money in. I’m not going out to a private equity company.
Bandholz: Best wishes.
Day: We’ve got this great story of an entrepreneur who’s built his business on the east side in Austin, which is cool. Now that has shifted, and people are looking at our business from a financial perspective. So that’s been a big shift. At some point, the facts matter more when you’re talking about the investment. In the beginning, it’s very emotional. Then it shifts to an authentic story and brand, not just another consumer product.
Bandholz: How did you transition from bootstrapping and putting out fires, to planning, structure, and going after the serious investors?
Day: Every person involved in the company brings something different, right? The way Joshua sees the world is different than the way I see it. That’s what makes us a great team. He comes at it from a purely creative perspective. But it was clear that the organization needed a bit of structure, and that’s how I became to get involved.
Bandholz: Were you friends?
Bingaman: We had an investor, one of the first people in Austin to get involved. I had been working with her and her husband. He and Brad had become buddies. It was like, “Hey, Brad’s worked for Adidas for many years. You guys both like footwear.” As I was raising money, a potential investor said, “You’re going to have to find somebody to run this company. You have to find somebody with enough experience and the chops to implement structure, and implement processes.”
I had 10 people when we probably needed just five. We needed somebody who knew some numbers and who could put processes in that would stop us from burning through cash.
So Brad and I met. We got along. Brad was attracted to the challenge but also realized the opportunity with the brand.
Day: It’s not good for the company if Joshua is sitting in front of a spreadsheet, trying to balance a budget. That’s not the best use of his brain. He’s very good at designing a product and looking at the market. He’s brilliant at what he does. He has this entrepreneurial spirit, which helps.
So we have to make sure that we’re putting Joshua in the best position to be successful. It’s not to manage people and to look at budgets and balance those things. That’s why the rest of us are there.
Bandholz: Talk about managing investors as you raise money. How much time and energy does it take? Half your day? Once a week?
Bingaman: It varies. We’re no longer actively looking for money. We have a proven business model. It’s growth capital at this point.
So it’s dealing less with the investors, and more with the board. Making sure that the board, which the investors have empowered to manage this organization, take care of the money. So it’s a lot of active reporting, monthly reporting. Keeping an eye on the cash flows and all those things.
Bandholz: How big is your board?
Day: Five members, including Joshua, not me.
Bandholz: Before we wrap it up, could you address some pitfalls, decisions you wish you had done differently?
Bingaman: When I look back on the three or four businesses I’ve started, I had no idea what was doing. No business history, no schooling. No business plan. None of that. I’ve started everything off sheer passion and action.
I should have slowed down and asked, “Who has done this? Who is willing to take me under his or her wing?” I wish I had known more on how to raise money before I started the business. I’ve fallen and failed enough. That is more valuable than an MBA, or so I’ve heard.
Looking back on it, I don’t think it could have been done differently. Everything that has happened is what’s supposed to have happened. But before starting the business I would have liked to have learned how to raise funds.
Bandholz: What about you Brad?
Day: It’s an interesting question. The things that I’ve learned over the last three years is what it means to be an entrepreneur. I commend both of you guys for having started your companies. Now, we’re building this company. And I have this spirit. But what it takes for you guys to start something from scratch. And the belief in yourselves and this business is remarkable.
I’ve seen so much over the last three years. I spent the first 16 years with a massive company that had the healthcare, and the 401K, and we got bonuses when things worked. So I had this different understanding of what it meant to be in a small business.
We’ve pivoted to more of a direct-to-consumer model. We’ve walked away from wholesale. We’ve looked at our sourcing. We’ve looked at how our company is structured, and the people we have working for it.
We’ve pivoted our company to a different structure and mode of operation. It has proven to be successful, which is why we can go back to our investors and say, “We need little bit more money because boots are expensive.” But I wish we had done that a year earlier.
Bandholz: Where can people find you?
Bingaman: Helmboots.com is our website. We have our physical retail store on East 11th Street in Austin. We might open another one soon.
Day: We do quite a lot of pop-ups around the country. We’re at a place called Bridge and Burn, a clothing store, in Portland, Oregon. We’re at Modern Anthology, a furnishing and style store, in Brooklyn. Last summer we were in Oklahoma City, and Raleigh, and Denver.