In October 2018 my co-founder Emily and I came up with the idea for Cherry. We moved to San Francisco to go through Y Combinator’s W19 batch. Shortly after, we raised a $700k+ angel round we used to build and launch Cherry V1. Our product solved the engagement problem with employee perks/benefits (historically a 7% engagement rate was ~90% on Cherry). Now, after an unsuccessful attempt to raise a Seed round we’re closing down and sharing our learnings.
This article is part 3 in a 5 part series.
Over the course of the 3 month W19 batch Cherry had gone from 0 (the idea for a company) to launching a working product and acquiring 200 paid users. This, we felt, was a demonstration of Emily’s engineering skills and my sales ability. We had made about $1,000 that month and thought these proof points alone should be enough to convince investors of how much further we could go with additional funding.
The night before Demo Day, YC hosts an “Alumni Day”. It’s an opportunity for founders in the current batch to practice their pitch with a friendly audience (the alumni) — and to raise money from any who have become angel investors.
On Alumni Day, we had raised $205K. Surely indicating we had momentum, and closing the rest of our $2M seed round would be doable over the next few weeks. (Spoiler alert: it wasn’t).
YC let us know that investors would send us a “like” in their private app to indicate their interest to meet or invest. Naturally, the entire batch used this new metric to start benchmarking their success. We had gotten 130 investor likes — further feeding into our false notion that fundraising would be smooth sailing. But when it came time to set up meetings with investors, our process was essentially non existent: we just went down the list, emailed each person who “liked” us, and coordinated dates and times to meet with all who responded.
I can’t stress enough how naive and unprepared we were for these meetings. Emily was focused on maintaining the product we had built, so I took the majority of these meetings solo. I walked in with no deck, product demo, or materials. I thought our pitch on demo day was the pitch, and to be honest, I didn’t really know what to expect from the meetings that followed.
I was inexperienced and didn’t know what I was looking for in a business partner, aside from cash and positive references. I had never met with investors before. But seeing how far we had come in the three months (some batch-mates hadn’t even launched a product yet!) gave me a sense of confidence and optimism. And while I was thoroughly prepared to answer any questions investors threw my way, I didn’t have the context necessary to help me exercise any EQ: AKA asking myself “what might the investor be looking for, or trying to learn from me? What might their concerns be about this and how can I build their trust in me?”
Looking back, I see how I really allowed investors to lead our process entirely, and I didn’t take control. I ended up meeting with over 150 investors during the months that followed YC.
Though, looking back, I see how I was not prepared in a traditional sense, there was an important factor not to be overlooked that helped us to raise money:
I came to every meeting ready to show investors my enthusiasm, and make them understand that I was going to do whatever in my control to succeed. For angel investors, the hustle that Emily & I demonstrated throughout YC was enough to get them to buy in. They believed in the team more than they needed to believe in our traction. Amazingly, we raised $550,000 that Spring.
However, VC firms were another story. We were striking out, bad. Our passion was encouraging but without more proof points, experience, or a better strategy, we were not convincing any of them.
“You’re a little too early for us right now” was the main feedback we got from VCs who passed. When we asked for more clarification, we often heard that more users and more product growth would give investors more confidence to invest. A YC partner offered a more to-the-point translation for us: “they don’t believe you have the skills to sell this product. Prove them wrong. Go out there and sell. Get traction.”
And so this was the end of the fundraising process for us. Seeing that we weren’t getting anywhere with VCs — it was time to focus back up on the product, and on growth. We knew that some founders were able to raise much more money with much less to show — and though we acknowledged that, we weren’t going to be discouraged or dwell. We put our frustrations aside and got right back to work.
The dilemma for us was then was that we hadn’t raised the round we set out to. We weren’t exactly sure where $550K would take us — since it threw a wrench in our plans to hire a full team.