We had been raising for Handsome for about four and a half months (beginning in late fall, 2019) when investors began pulling out. COVID hit around the end of our attempted fundraise, so we decided to close the round and not raise after all. We went back to work and focused entirely on growing organically, which really worked for us: we grew 1000% after cutting our round short, without any additional investor capital. In October, 2020, we began raising again and closed $1.5 million in February, 2021. Even though we successfully raised in the end, there’s a lot more to our story than just a COVID-induced hiatus.
How we turned fundraising roadblocks into organic growth
Once investors pulled out, we decided to work with the resources we had and went back to the drawing board. We immediately cut all of our costs and reallocated the time we had carved out for fundraising to getting creative with growth strategies. This shift paid off: it allowed us to identify growth opportunities through creative and targeted push messages, cross-promotions, and industry micro-partnerships. One silver lining to the pandemic was that it opened up emails and phone lines. Decision-makers at partnerships who were once hard to get on the phone were now more eager than ever to collaborate and keep the beauty industry alive. In addition, because hairstylists were no longer allowed in salons, the need for digital connectivity soared and people grew increasingly receptive to our business model.
We saw the effects of COVID before any data came out
Right before COVID hit, underrepresented founders had started to have a microphone and a stage. Various initiatives were underway and spotlights were being shined on Brown, Black, and female founders. As soon as COVID hit, though, it ripped the rug right out from underneath all of these founders. At that point, investors needed to go into a “protect and maintain” mode: they had to keep their current portfolio companies alive. These portfolio companies for the most part had white male founders. The focus quickly shifted from widening the reach of fundraising capital to underrepresented founders to a very narrow focus on keeping VCs’ existing startup investments afloat.
In our case, we had commitments from investors that got pulled once the pandemic took hold. These investors told us that their priority was no longer to make new investments, but to take care of their portfolio companies. We understood this, of course–it’s an investor’s duty to make sure their portfolio companies stay alive. However, this meant that investors hit “pause” on any attempts to reach new, underrepresented founders.
We saw the harmful effects of the pandemic on all-female teams before any hard data like DocSend’s Funding Divide Report even came out. It was very difficult to talk about at the time: as minority female founders we were experiencing fundraising challenges, but we weren’t able to map any data to what we were seeing on the ground. We were initially hesitant to talk about being female, minority, and Brown founders because people perceive you as complaining about the system simply because you haven’t successfully closed your round yet. This makes it challenging for minority and underrepresented founders to speak out about problems while they’re actually happening.
It wasn’t until Black Lives Matter happened that the spotlight moved back to what was happening to underrepresented founders. Before this moment, it was very difficult to have conversations about our experiences because people thought the issues we wanted to raise were dwarfed by the deaths caused by COVID. When people were dying and countries were being shut down, people didn’t want to talk about unequal outcomes in startup fundraising.
More time on our business model meant investors were writing us off
Before COVID, we’d get on calls with investors and, as female and minority founders, we already had two strikes against us. And we could tell from how investors interacted with our deck or asked us questions that they already had preconceived ideas about us and our business. We’ve been running Handsome now for three years, and we had plenty of proof of growth in our business but still ran into friction while fundraising. By contrast, we knew that white men in our network were getting funded with nothing more than an idea–men are allowed to have a vision while women need to have proof points.
We had two years of business growth under our belts but still ran into friction when fundraising. Women need proof points like these whereas men are allowed to have an abstract “vision.” Click To TweetIt’s striking that DocSend’s data shows investors spending 48% longer on the business model section of all-female decks. When it comes to our business model, it helps to remember that the industry we’re serving is massive and global. Beauty is a $190 billion industry globally, and in the US it’s $60 billion annually. So it’s a big industry that affects almost everybody and it’s moving very fast: everybody’s getting haircuts, getting nails, or buying makeup. But we’re taking our business to investors who don’t know anything about the beauty or beauty tech industries — we found it was hard for investors to wrap their heads around why a hair stylist would need a professional platform or access to jobs and education. They had a hard time seeing that the industry is as big as it is.
You’d think that investors spending more time working through our business model might mean that it’s a complicated model requiring careful attention. But it’s really not! Investors seemed more willing to discredit our business because of the “beauty” label. We’d bet that a construction tech company with less of a product built out or less of a user base than Handsome might be getting two or three times the amount of funding we’re getting.
It doesn’t seem to us that an investor would spend more time on our business model just because they wanted to better understand it. Any investor who wants more clarity can easily get you on a call. But when it’s a matter of staring at a deck for longer, it seems that they’re looking to identify why your business might not be viable. As minority female founders who aren’t business school graduates or Stanford alumnae, investors who want to de-risk are going to spend more time looking at our deck to make sure we really know how to build a business. In effect, investors have higher standards for us than they would for white, male Stanford-educated business school grads.
We’ve even experienced this phenomenon in person, when investors hyped us up during meetings only to say they weren’t going to invest. Over time, a pattern emerges where investors seem to have written us off before the process has even really started. We believe that, a majority of the time, investors act this way but don’t necessarily know they’re falling victim to biases. They don’t realize they’ve already written you off. Investors may think they’re widening the funnel simply by taking a meeting or providing mentorship over coffee when, subconsciously, they’ve already counted you out.
We got more meetings in 2020, but not all teams were so lucky
In certain ways, COVID allowed us and other underrepresented founders to get in front of investors more easily than before. The requirement for founders to be in Silicon Valley and travel up Sand Hill Road to meet with investors actually disappeared. In the last year, we were able to pitch investors via Zoom and hold more meetings than we could have done in person. So for many people, a major barrier was removed. Because of Black Lives Matter and a general desire to widen the funnel, investors were often willing to accept more meetings.
We were ruthless about our investor reachout strategy, with all our emailing, cold-calling, and asking for interviews. During our raise, we reached out to thousands of investors! But our experience is something of an anomaly, and the fact that some underrepresented teams averaged fewer meetings seems to be an accessibility issue.
Even though the barrier was lowered, there are still so many underrepresented founders out there who don’t have our network and can’t even get access to an initial introduction. That’s why these founders aren’t getting meetings. So even with more investor goodwill, many founders are still unable to access the capital they need to grow their businesses.
Real change happens over time
We’re extremely proud of and grateful for the investors who backed us for our round: 100% of this round of investors are underrepresented, and 76% of our overall cap table is BIPOC and female. These investors are making a change in the systemic fundraising problem. It’s very easy, especially after the upheavals of 2020, to say you’re going to change and take more meetings with underrepresented founders. But taking more meetings doesn’t actually guarantee more funding.
It takes time and effort to enact meaningful changes. The people who are really committed are going to be working on these issues over months, years, and decades. It’s only on a longer time scale that we’re going to be able to tell whether investors promising change have actually delivered. Changing the demographics of the founders you fund requires year-in, year-out consistency.
To learn more about how gender and race can affect early-stage startup fundraising, read DocSend’s Funding Divide Report.
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