By Thang Vo-Ta, CEO and Founder of Callaly
The investment industry has taken a hit during the pandemic. Every new deal is being viewed with caution and the brakes are being put on by both VCs and angels as uncertainty pervades the markets.
Like all businesses, huge numbers of startups have felt the pressure over the last few months. Of course, we’ve seen some sectors flourish. Subscription model and DTC companies have created some positive news - at Callaly we saw a 238% new UK subscriber growth between March and June.
But many fast-growth startups are loss-making and rely heavily on cash injections and funding just to keep the wheels turning. During the pandemic, government funding has helped many with furlough payments, but the COVID support packages aren’t designed to help high-growth, R&D intensive companies like ours in the long-term.
For many, as the VC tap dries up, there might be concerns about where the money is going to come from. But I want to argue against VC funding too early, and instead urge you to consider the alternatives.
We made an active decision that as a consumer brand taking institutional money too early won’t be right for us. There are plentiful reasons why, but fundamentally, VCs rightly chase overnight growth by any means - mostly by spending on social advertising and driving conversions - and we are playing the long game, building brand value, a solid community of customers and, critically, innovating to improve the industry from the ground up.
In order to chase growth that VCs demand, you’re often forced to sacrifice quality and spend beyond your means (not on R&D or brand value). For consumer brands, it’s bad economics, it screws up the incentive structure and demands that you chase more funding - and so the cycle goes on.
VC cash is right for a lot of companies. Plus, securing institutional money is a stamp of approval, its validation and frankly a huge ego boost but for us, the sacrifices remain too great. So instead, we’ve secured funding from alternative sources.
Like many, we started with some loyal angel investors. Of course, this isn’t a door that’s open to everyone. My background in investment banking and property acquisition gave me a solid foundation to go out and find cash. And when you’re seeking funding as a first-time founder, your network is everything.
As a general rule of thumb we're always on the lookout for funding that can be non-dilutive. This can come from the government in the form of R&D tax credits, grants and loans. Critically for us, we’ve capitalised on the fact we invented something the world needed - the tampliner, the first meaningful upgrade to the tampon in 80 years.
It’s one thing to invent a product, but for full and successful commercialisation there has to be significant R&D and capital spend to build bespoke machinery to produce an invention consistently, economically and at speed.
If you want to build something right, to the highest standards and without any compromise, while keeping all your research and product development here in the UK, you need patient partners. Innovate UK has supported us in this regard through SMART grants and Innovation loans (which we have benefitted from to the tune of £1m) and have been vital for us as they help companies develop their innovation and scale-up without demanding an instant return (and, as a bonus, in relation to loans are low-interest).
Most recently, we’ve maintained the decision to sidestep VCs and take our fund-raising requirements to our community and to launch a crowd-fund during the pandemic. Why? Because our customer loyalty has never been stronger and our dedication to purpose speaks volumes to a consumer that is conscious and highly engaged with the brands they buy from.
People are looking for meaningful products and sustainable impact and this
marks an opportunity for companies built on innovation and purpose. People are voting with their wallets and wish to own a piece of the companies they already support.
What all this means is that we’ve taken decisions about where to seek funding based specifically on Callaly’s strongest assets and what it needs to thrive in the long-term.