Building an Ecommerce Business, Part 13: Raising Money
I’m the creator of Beardbrand, an Austin, Texas-based ecommerce firm that focuses on beard maintenance and men’s grooming. This is episode 13 in my series on building an ecommerce company from the bottom up. The preceding installments are:
With this installment, I talked with Joshua Bingaman and Brad Day. Bingaman is the founder and creative director of Helm Boots, an Austin, Texas-based producer and vendor of handmade leather boots. Day is the provider’s president. We discussed the process of evolving from a startup , bootstrapped company to one that needs investors, cash, and construction.
What follows is my complete audio conversation with Bingaman and Day, along with a transcript, edited for clarity and length.
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Eric Bandholz: Tell us about yourselves.
Brad Day: I am a former Austin resident. I jumped back to Portland, Oregon. I am excited to be here to share some of our failures and success over the 3 years that I’ve been here with Joshua in Helm.
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Bandholz: So you have been with Helm for three decades, and, Joshua, you started the business about a decade back.
Joshua Bingaman: Ten years in October.
Bandholz: Is Helm Boots entirely online?
Bingaman: We’re solely online when we began. I had opened a café here in Austin in 2003. I then got into coffee roasting. I was in the shoe industry before that. But I began focusing full-time on Helm Boots a couple of years back, and discovered Brad. Then I really began focusing on the site the previous year, year and a half.
We’re basically an online brand, but we have a physical shop here. We’ve got a few wholesale accounts. We have pulled back on that quite a bit; we are not focusing on wholesale at the moment.
Day: We have looked at our business model, and the way we connect with clients across the nation. We believed that a new our size and where we are at, it was very valuable for us to control that dialog. And we can do this by connecting with them straight within our site, and through customer service and telephone calls, and things like this. And sometimes that can get diluted in the hands of a wholesaler. We have also improved the experience of the Austin storefront.
Bandholz: That is very similar to the way we assembled Beardbrand, developing that relationship directly with our clients. Did you begin with raising investor cash, or did you bootstrap (no pun intended)?
Bingaman: I began it using a credit card from a factory in Istanbul. I have some family there. I ran the business from Istanbul, Turkey for the first 3 decades. We then brought production to the U.S., to Maine and Arkansas. We have gone back to overseas factories as we have grown. There aren’t a lot of factories left in the U.S.
Bandholz: In those early days you ran off your credit cards, pumping back everything in. At what point did you opt to raise money?
Bingaman: I began to understand that I couldn’t finance it with money coming in from the coffee shop, which was not a lot. I had maxed out a few more credit cards. I’d refinanced my home and sold a vehicle. I went from owning stuff to leasing stuff. And that was only the simple fact of,”Do I keep using a little company that I believe in, but this will require a while runway to get off the floor. Or do I stop? Do I shut down it?”
So, I started looking into what it intended to raise funds. I had never done that.
Bandholz: Were pitches to family and friends the next stage?
Bingaman: It was like I’d have a buy order, and I would ponder,”We have made enough sales to pay for another P.O., but I can not cover the two or three employees I have. So do I have space to get money from a credit card? Or can we do something sale wise locally from our office to find enough money to then show that we are breaking even?
Then I began to speak to friends who had any money. Like a man with a successful group who loved the boots. Or this guy that has a friend who is in management at this bigger retail company. Things like that. It had been 10, 20, $30,000 here and there.
Bandholz: When you are raising money, can it be debt or equity?
Bingaman: It depends on each individual, each loan. The first round of investors need equity that is secure, and they won’t dilute to individuals from the second and third round.
Each round was different. We are learning as we grow. Even Brad compiling the financials has made a difference. And having people which are actively involved on our board of directors, holding our hands the larger we have grown.
Bandholz: You do whatever it takes to make it work in these early days.
Bingaman: And choosing the investors to be involved and active — gaining as much knowledge as possible from them. Others only need to put cash in. Or friends of friends. It depends upon the round and the investor and on what we need.
Day: Now, we’ve got corporate governance and structure. We obtain board approval for money allocations and stock grants. The whole organization — the board, the investor group — they have rights to say,”we would like to go raise money. Or we don’t need to do so, or we wish to pivot and proceed here. These are what we wish to put money into.”
Hence the flexibility to be an agile little company changes when you transition into a professional type investment and you’ve got proper governance, and you are confined by these rules and regulations. But there is also a whole lot of upside to that.
Bingaman: It is a lot healthier.
Bandholz: Among the things I’ve heard is that you need to expect to provide up about 20 percent of the company when you bring in investors. Is that in the ballpark?
Bingaman: It is based on the evaluation of the company at the time.
Day: And just how much you are raising.
Bingaman: For people who get in early, the evaluation is largely speculation. Then the evaluation is significantly higher another round if you are succeeding and growing.
Day: Every situation is so different. When it’s very early and you do not have a lot to show, generally people are investing in you as an entrepreneur, and as a individual, ” The 20 percent mark or something like this could make sense.
Bandholz: Talk about the shows which are on. I had been a Shark Tank contestant. It appears so straightforward. “Just go out and get cash.” What are hints that entrepreneurs will need to know to successfully pitch their company?
Bingaman: I am not the amounts, business-savvy guy. I’m the creative — the passionate individual who lives, breathes, and bleeds the brand. I’ll do anything I can to bring people to the table which are ready to invest. However, it’s relationship predicated — true relationships that I care about, not just someone putting cash in. I am not going out to a private equity firm.
Bandholz: Best wishes.
Day: We have this terrific story of an entrepreneur who has built his company on the east side in Austin, which is cool. Now that’s changed, and people are taking a look at our company from a financial standpoint. So that has been a significant shift. Sooner or later, the facts matter more when you are talking about the investment. Initially, it is very emotional. Then it changes to an authentic narrative and brand, not just another consumer product.
Bandholz: How did you transition from bootstrapping and putting out fires, to planning, construction, and going after the serious investors?
Day: Every individual involved in the business brings something different, right? How Joshua sees the world is different than how I see it. That is what makes us a terrific team. He comes at it from a purely creative standpoint. Nevertheless, it was clear that the company needed a little structure, and that is how I became involved.
Bandholz: Were you friends?
Bingaman: We had an investor, one of the first people in Austin to get involved. I was working with her and her husband. He and Brad had become friends. It was like,”Hey, Brad’s worked for Adidas for several years. You guys both like footwear” As I was raising money, a possible investor said,”You are going to need to find someone to run this organization. You need to find somebody with enough expertise and the chops to execute construction, and execute processes.”
I had 10 people when we probably had only five. We wanted someone who knew a few numbers and who might put procedures in that would prevent us from burning through money.
So Brad and I met. We got along. Brad was drawn to the challenge but also realized the chance with the brand.
Day: It is not great for the company if Joshua is sitting in front of a spreadsheet, trying to balance a budget. That is not the best use of his mind. He is very good at designing a solution and taking a look at the market. He is brilliant at what he does. He’s this entrepreneurial spirit, which assists.
So we must be certain we’re placing Joshua in the best position to succeed. It is not to handle people and to examine budgets and balance those things. That is why the rest of us are there.
Bandholz: Discuss about handling investors as you raise money. How long and energy does it take? Half your day? Once a week?
Bingaman: It changes. We are no longer actively searching for money. We’ve got an established business model. It has growth capital at this time.
So it is dealing less with the shareholders, and more with the board. Ensuring the board, which the investors have enabled to handle this organization, take good care of the money. So it’s plenty of active reporting, monthly reporting. Keeping an eye on the cash flows and all those things.
Bandholz: How large is your board?
Day: Five members, such as Joshua, not me.
Bandholz: Before we wrap this up, could you address any disadvantages, decisions you wish you’d done differently?
Bingaman: When I return on the four or three companies I’ve begun, I had no clue what was doing. No business background, no schooling. No business plan. None of that. I have started off everything sheer passion and activity.
I should have slowed down and asked, “Who has done this? Who’s ready to take me under their wing?” I wish I had understood more on the way to raise money before I started the company. I have fallen and neglected enough. That is more precious than an MBA, so I have heard.
Looking back on it, I do not think it could have been done otherwise. Everything that’s happened is what is supposed to have happened. But before beginning the business I’d have liked to have learned how to raise capital.
Bandholz: What about you Brad?
Day: It is an interesting question. The things that I’ve learned over the past 3 years is what it means to become an entrepreneur. I commend both of you guys for having started your businesses. Now, we are building this organization. And I have this soul. However, what it requires for you guys to start something from scratch. And the belief in yourselves and this company is remarkable.
I have seen a lot over the past 3 decades. I spent the first 16 years with a enormous company that had the health, and the 401K, and we got bonuses when things worked. So I had this distinct understanding of what it meant to maintain a small organization.
We have pivoted to more of a direct-to-consumer version. We have walked away from wholesale. We have looked at our sourcing. We have looked at how our organization is structured, and the folks we have working for this.
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We have pivoted our company to another structure and style of operation. It has been shown to be prosperous, and that’s why we can return to our investors and say,”We want little bit more money because boots are costly.” However, I wish we’d done a year earlier.
Bandholz: Where can people find you?
Bingaman: Helmboots.com is our Site. We’ve got our physical retail store on East 11th Street in Austin. We might open another one shortly.
Day: We do quite a great deal of pop-ups around the nation. We are in a place called Bridge and Burn, a clothing shop, in Portland, Oregon. We are at Modern Anthology, a furnishing and fashion shop, in Brooklyn. Last summer we were in Oklahoma City, and Raleigh, and Denver.