Two Sides of the Capital Coin

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It’s easy for founders to fall into thinking that the grass is greener with more capital. But does more capital always equal greater success? In this episode of Commerce Chefs, Tom and Kyle sit down with experts Derek Rubenstein—VC Investor and Founder of Ives Capital, an investment firm focused on lower-market niche consumer brands—and Cameron Martel—a serial entrepreneur and the General Manager of A07 Online Media. They discuss all things capital and explore how DTC brands can begin to secure funding, or whether it’s wise for them to embark on that journey at all. They touch on common mistakes made by brands when raising capital for their business, and the best way forward once they do.

LEARN MORE ABOUT OUR GUESTS:

Derek Rubenstein, VC Investor and Founder of Ives Capital

Cameron Martel, serial entrepreneur and General Manager of A07 Online Media

Transcript

Announcer Tom Faster than a start up's burn rate, stronger than your papa's moonshine, able to scale brands in a single round. The air of a railroad tycoon is now a titan of the tech industry. It's a Christmas miracle. It's a bitcoin. No, it's Captain Capital. 

Kyle Oh, wait. I thought we were doing the Superman episode. You said he'd help me expand my superhero repertoire beyond Green Lantern. 

Tom Just let me finish, man. Also. Is that really the only superhero you know?  

Kyle Yes. Yes it is. And Ryan Reynolds is a legend. OK, I'll let you finish. . 

Announcer Tom OK. Captain Capital is best in a position to use their powers for founders and brands in a never ending adventure to help them grow and grow and grow. That's right, Kyle. Captain Capital has assumed the disguise of the appealing advisor next door, an affluent and powerful partner in the fight against incremental growth. Now, that's a Captain Capital with a capital C. It's actually it's two capital Cs for Captain Capital. 

Kyle Yeah, yeah. I got confused. 

Announcer Tom Just like Ryan Reynolds agreeing to do Green Lantern, right? 

Kyle Yeah, he's no Superman, but he's a super man. Mm hmm. 

Tom Welcome to Commerce Chefs, a quirky and thought-provoking show for future focused commerce leaders. We're going to pit the world's most brilliant, inspiring and driven D2C visionaries, the commerce chefs with riveting questions to uncover their secret ingredients at the intersection of passion, performance and leadership and practice. 

Kyle For the past decade, we've led teams of designers, strategists and digital wizards at one of the leading eComm agencies in the country to help brave brands become enduring classics. 

Tom And we're here to indefinitely borrow the strategies and pro tips that will make us all better leaders and make the brands we lead better too. 

Kyle I wonder how we could make Captain Capital better. 

Tom Well, definitely rocket wings, maybe a light sword of truth and, oh, an unlimited supply of dark matter.

Kyle Whoa. Science. Nice. So, Tom, today we're unpacking a burning elephant in the room. Is that a thing? 

Tom It is now. 

Kyle OK, so a burning elephant in the room, the thought that every founder has at one point or every few minutes, if only I just had more money, more capital, then I would be more successful. 

Tom But it does beg the question, when do I go about seeking funding? And more importantly, should I seek funding in the first place? As a D2C brand we know can be hard to look at the apparent successes of fast growing brands around you. 

Kyle Founders often look at big tech companies raising their seed. A, b, c, d, e, f, g. 

Tom OK. 

Kyle Oh yes. They raise all these rounds and it can seem so glamorous, so easy. But should we actually be glamorizing the raise? After all, capital doesn't always ensure success. 

Tom We sat down with expert Derek Rubinstein, a VC investor and founder of Ives Capital, an investment firm focused on lower market niche consumer brands that have untapped growth potential. He also founded Tactical Marketing and has been featured in Forbes and Inc magazine. We wanted to better understand where D2C brands need to start when it comes to deciding if and when they should seek out capital. 

Derek I think it's going to be all environmental. What's the current landscape of the business? What's the current landscape of the objectives of the business? There's a whole list of different reasons why a founder or an operator would say to themselves, I need to go out or I want to go out and raise money. I think it's really important to understand and be honest and transparent with yourself around what those reasons are to then make the appropriate decision around, quote unquote, when is a good time. Right. Is the competitive landscape really heating up? And you feel like it's important to kind of scale quicker to maintain the brand equity that you have in this space? Or do you feel like you and maybe other other people on your team have kind of reached the limit of what the value that you could inject into the business in certain portions of the business? And maybe there's things that you're trying to solve for that require more than more than just money. And that's something I think a lot of people kind of lose in this whole action, if you will, is when when you're getting funded. It's not just you taking in a check. There's just so much more value to be extracted around the network, the people and the resources that are then kind of being given to you and would be at your disposal. And I think the earlier you can recognize where the holes in your business are and if there are portions of your business that you feel like can be solved for outside, that that that don't require just having more money to throw at the problem. That's what I feel like gives people a clear vision of when and where the best time to bring on money is. Because if someone's going to come to me and say, listen, we really need to raise X amount of money because we want to dump more money into paid media and scale quicker, probably the fastest, fastest way to get me to end the conversation. So, you know, at least for me, certainly within this new world that we live in, specific, direct to consumer, I think if you are just of the opinion that you need money to dump into paid media because you have the rest of the levers figured out, A, I would tell you that you're probably being pretty ignorant. And B, I would say, listen, there's plenty of equity free funding options and one, right in your backyard, Clearco that is very happy to to fund your business and say, you know, we'll just take a percentage of your revenue. I have friends that run small businesses, entrepreneurs that have used Clearco and have had amazing experiences. So I think it's the best option just based on the fact that they're just basically giving you money and kind of taking some froth off the top of the revenue that you drive. It's not something that I would necessarily advise in the majority of these cases. I'm sure it's a good fit for some people. But if you feel like that there are more systemic, structural, foundational pieces that need to be grown in your business and then you understand what those are. I think it's important to consider other other forms of funding. And I would say, you know, when you are considering those other forms of funding, it's important to do just as much due diligence on who you're considering to take money from as it is that those people are doing on you. Not every investor is the right fit. Not every investor has the right network, the right attitude, right track record, portfolio thesis, etc.. So it's important to understand that you're choosing a partner. 

Kyle One of Derek's points that really hits home is that impactful partnership which capital can and should be. And it needs to start with being self-aware and being honest, 

Tom like what you're good at and what you're not and what you need. 

Kyle Example, Ryan Reynolds is good at acting Deadpool. He's not good at acting Green Lantern. What he needs is Deadpool 4 to be green lit, not Green Lantern 2. 

Tom I don't think that's quite what the takeaway is here, but I thank you for those thoughts. Kyle. If you're unclear about the reasons you need to raise in the first place and what you'll specifically do with the money, chances are you need to take a few steps back. As an aside, Kyle are we done with the recurring Green Lantern shtick? 

Kyle The Internet never forgets, Tom. 

Tom So if you're a D2C brand and you're not sure that the equity investor route is right for you, what are the other options out there? 

Kyle Cameron Martel, a serial entrepreneur who secured many types of funding and now the general manager of A07 Online Media, which specializes in acquiring founder led online businesses in various spaces like automotive, lifestyle and wedding. He's played both sides of the capital game and he walked us through a few options he thinks are best for D2C brands to consider. 

Cameron I'm going to start off with like I want access to any non diluting capital, I don't want to necessarily bring in equity holders. I'm not looking to give away parts of my business. Right. So nondilluting capital could be a grant is a good example. So the first thing I always do is as soon as you've exhausted your personal accessible pool of capital and I don't mean I know the story is like you take on the risk, go into debt and screw that. I mean, you can do that. I get it if you really believe in something or have no other options. But I think you do have other options that don't require you leveraging yourself to the hill while still showing you have skin in the game in the best interest right, nondiluting stuff, grants, loans, that kind of thing. Right now, getting loans from traditional lenders is hard these days, you know, so I'm not saying walk up to CIBC and say, know, give me a loan for my my concept. Right. But there are firms that exist, there's incubators that exist specifically for that. Speaking of incubators, I've talked about nondiluting capital. Another way, a great way to access nondiluting capital and actually do so with very limited risk? Crowdfunding. Everybody crowdfunds, everybody does now. And so there's perception, I think among entrepreneurs that crowdfunding is either played out difficult or saturated. And it may, in fact, be all of those three things. But every market that I enter into from a an SEO point of view is already a saturated, crowded market. And I still find a way to hack it like I really believe it goes back to, like my personal life model. Always add value, right? Bring authenticity back to the equation. So if you have a good product, a good service and your crowd funding it and more importantly, what you're offering the prospective risk takers, the early backers of your business, make sure the rewards worth it. Right. 

Tom Cam sort of took the opposite order to Derek here, which is to actually avoid equity based investments for as long as possible. 

Kyle But what they are saying is that each type of investment has its purpose. An equity based needs to be absolutely more than just capital. It needs to be meaningful partnership. That one plus one equals three beyond just the cash money. So, Tom, is there a chronological order to what funding D2C founders should try to attain? What do you think about that? 

Tom I don't necessarily know if there is a right way or a wrong way. I mean, sort of like what Derek was talking about. But one thing that I would say for sure that would be wrong. So maybe there is a wrong way, but is if you're going to give up too much without receiving enough in return and this could be in both non-equity or an equity arrangement. Remember, equity can lead to a powerful partnership that non-equity maybe doesn't provide the wrong way, could look like sacrificing kind of the long term goals or ownership that you have of your own company for the sake of getting some funding now. And I think another wrong way could be not knowing what you need that capital for in the first place. We talked about this idea of just, oh, well, in order to be more successful or to grow my company, I need a capital injection. And if you don't know exactly what you need it for and how you're going to use it and why, that's probably a wrong step to take. But I also know between Derek and Cameron, they talked about a few ways that you could look at getting funding for your brand. So maybe, Kyle, can you can you talk us through a handful of those? 

Kyle Yeah, and I know this is probably no unfamiliar territory for many people, but there's definitely kind of typical ways that people tend to go about it you know starting with friends and family or starting with their own capital, you know, looking at grants or looking to traditional loans from from traditional lenders. One of the things that was really interesting was this idea of crowdfunding. So many D2C founders especially, don't look at crowdfunding and the power that it can have beyond just the money. And so it's definitely there's a capital component, but it also brings things like product market validation and also kind of drives customer acquisition and customer engagement. And you see this in like brand new brands. So we talk about this this brand called Wello, who they raised, I think it was like twenty thousand dollars through crowdfunding, but it was it was less about the money that did help, but it was more about the product market fit and kind of help get some new people into what this new brand was trying to deliver, which was this sustainable, like no waste deoderant. And then on the inverse side, Taylor and Stitch, which is an established company, uses crowdfunding, but they own the platform. It's less about the dollars that's raised from it, but more about the engagement with the current customers and building that community. If you go back to our community episode of really trying to find ways to to make this more than just a transaction. So definitely lots of different ways that you could slice it. But understanding, like you said Tom, the what and why can help you understand whether it's equity investments or friends and family or it's crowdfunding or whatever it looks like. Use that strategically. And so once you have the funding, whether it's from a grant or whether it's from a crowdfunding or an equity investment, what do you do with it? 

Tom What is the best thing to spend it on or invest it in? I think Cam shed some light on this. 

Cameron I view capital as the great accelerator. You can do anything without capital as long as you're willing to let that ball roll downhill long enough right to pick up momentum. But also, if you throw the ball, it's going to go faster, quicker. You get more, you get more meaningful data like is it windy or not? And does that change the trajectory of the ball? Like so capital accelerates everything that you're going to do as a startup. Case in point, you want to start a direct to consumer clothing label. Without capital, you are forced to use templated products, which are very commoditized. Right. You are forced to use the same providers as every other direct to consumer apparel brand. Again, very commoditized. As a result of all of this, you're by default in a price product box, users who see a similar product from other sites aren't going to be stoked if you are 50 percent more expensive because you think your design is that much sham-wow. Conversely, if you actually do have a unique product which you are able to do because you have the appropriate capital to actually put together a minimum order quantity of, let's say, ten thousand, blah, blah, blah, blah, is to get that fancy Whiz-Bang, whatever you wanted. Now you've got a differentiated product from the market. Right? It's easier because that's the kind of stuff that on Reddit gains organic traction, the unique stuff. My personal view is you've got to take personal risk off the table. As an entrepreneur, you're subject to risk always. You've got to take as much personal risk off the table as possible. For me personally to feel comfortable bringing in external capital partners, whatever. So what does that mean? When you take personal risk off the table, it means you have a minimum viable product. This isn't a pipe dream. You're not acquiring capital for a thing you haven't built or tested. You have some data. You have reason to believe that it's going to work. OK, so I look at capital growth for business and injections for business the same way that I would look at leveraging yourself for investment, you know. So thinking out loud here, when are you ready to acquire capital? When you've moved beyond just having an idea for a product or even a minimum viable product, and you're now moving into the processification phase of your business. Right. If things are becoming processified, product defined, you're looking at how to scale, capital is probably going to be part of the answer to that equation, because usually scaling either means people, processes or technology and automations. Right. All of that requires capital. 

Tom Clearly, capital plays a role when it comes to high growth, 

Kyle So does deciding to bring in capital ultimately come down to the league you want your business to play in or is there more to it? 

Tom OK, so today we're going to take a short break to talk super hero trivia. 

Kyle Yes. See, I knew we'd get to the part of the episode where you teach me the super ways like a young Jedi. 

Tom I mean. I mean, yeah, I'm just going to leave that one, actually. OK, so I'll ask a not so skill testing question and you will provide a breathtaking answer, sound good Kyle? 

Kyle Sounds great, I'm ready. 

Tom OK, here we go. Easy, easy peasy ones, who has superspeed and wears a flashy red suit? 

Kyle Yep, the red gave it away. Green Lantern. 

Tom Oh God, OK. It was literally in the question. The Flash was the answer we were looking for. The Flash. Close though. 

Kyle Ohhhh  ok. 

Tom OK, ok, we'll go easier. Which newspaper does Peter Parker work for? 

Kyle Easy The Onion. 

Tom Well sort of an onion could be a snack. And he works for the Daily Bugle. Bugles and a snack too. So. All right. 

Kyle That's not a real paper either. 

Tom No, you're right. OK, this one's got to be easy. What is Superman's Kryptonian name? 

Kyle Oh, it's easy because I just bought some last night. Etherium. 

Tom OK, close. Yep. Yep. Kal-El, also known as Etherium. 

Kyle Yeah. OK, ok. OK. 

Tom All right. I'm starting to maybe think that you won't get this but I'll give it a shot. Yeah. What is the name of the special unbreakable metal that was grafted onto Wolverine's bones. 

Kyle I know this because I saw the spinoff series. Kimmy Schmidt. 

Tom So far off. We were looking for adamantium, adamantium. 

Kyle OK, that's not it. 

Tom Who does Captain America refer to as Earth's best defender? 

Kyle David Suzuki. 

Tom I've often heard that David Suzuki is referred to as the Iron Man. 

Kyle Yeah, there's a lot of fossil fuels in iron, I think. Think about that, Captain America. 

Tom All right. Last question. We're O for I don't even know O for six here. 

Kyle I got this one though. 

Tom OK, this one. You know, this one. You know who is my favorite superhero? 

Kyle Easy. Ready? I got this. Celine Dion. 

Tom That's actually true. 

Kyle Yes, I nailed it. 

Tom And we're back. All right, circling back to the question we were asking before, is there more to bringing in capital than just determining how big you want to make your business? 

Kyle Derek discussed this in relation to what founders are not thinking about when trying to secure funding. 

Derek I'm a little biased here, but I'm of the opinion that they're actually not realizing how much that they are getting not that they're giving up. Being proactive and communicating in an honest, transparent, vulnerable, be vulnerable way about what's not going well in the business where you need help, problems that you're having, not things that are going well, problems that you're having that are not just simply solved by money, someone investing in your business again, just as much interest in it succeeding as you do. So they deserve to have all the facts, all the information at hand so that they can assist you and make the right decisions, but give you the resources to do it. If you're withholding or you are hesitant because you don't want to paint. You want to paint a rosy picture because you feel like there's a dynamic between you and an investor. You're not doing anyone good, most certainly not doing yourself good. So I believe founders are much too quick to shy away from really cultivating relationships and communicating with their investors post funding. That's that's where the good stuff is. I mean, listen, like the you already got you already got the check. I mean, it's not like I'm going to call that money back unless there's something very, very ugly situation, which is counts for a very low percentage of time. But let's let's work together. I mean, let's let's be honest and transparent with each other because we both want to see the same thing. And if I'm not operating with the same set of facts, the true honest set of facts that you are, no, I'm not going to be one hundred percent capable of helping you and you then there may be things that I would recommend that that I maybe would not. And then you're missing out on a big swath of the value that you would have been receiving. 

Tom So when bringing in outside capital, it's not just about the number it needs to be about all that they're bringing to the table, their expertize, their experience, their network, 

Kyle but how do you know when you're ready to bring in outside capital? 

Tom Cam chimed in on this. 

Cameron One mistake that I made early on in my business is I actually took a small, small amount of capital and I didn't spend it. I wasn't ready to take on the cap. As a result, I took this cash and I sat on it for 18 months. And then I gave it back and I gave them an extra twenty five percent on top of it because that's what I agreed to do. I did nothing with the capital. It was a massive opportunity mistake. I was not ready to take that risk. Today would be very different. You give me that capital, I'm going to go in hire designers, I'm going to hire. I'm going to hire. I'm going to build because I'm going to take your 10 grand and make it a hundred thousand that's what I'm going to try and do when I receive that capital, I was literally paralyzed because it was a friend's mom and I went, if I screw this up and she's out 10 large like like I don't know how I'll be able to see these people again. How do you know when you're ready, when you're willing to spend somebody else's money and not care if you screw it up. Right. I was I was actually talking with the VC person. He said, Cameron, like, I give out 10 investments, I expect nine are going to flop. But the one that doesn't the investor knows that when they take on the risk. 

Kyle So when you get it, make sure to spend it. But like Derek said earlier, you need to spend it strategically. 

Tom Exactly. No plan is perfect, but it's critical to have a smart one and it's critical to execute on that plan. The job is just beginning once the capital arrives. 

Kyle Another big part of this equation is understanding that when considering bringing in funding, sometimes it can shift your entire business. 

Tom You need to be ready and embrace the shift, 

Kyle As Cam mentioned to us. If you can't embrace the shift necessary to take your business to the next level, it may be a sign to let it go. 

Tom So on one side of the Capital coin, you have Captain Capital and all of their strengths, and on the other side, their kryptonite. After all, we know that every superhero has a weakness. 

Kyle Capital certainly can be seen as this grand and benevolent superhero swooping in to save the day. There's a perceived glamor and glory, a feeling of acceptance and faith in you and your idea. 

Tom And while that can be true, it can also be a distracting, shiny object to D2C founders. It's not some silver bullet or secret express elevator to the top. Capital comes at a cost. 

Kyle Look at what you're giving up and what you stand to gain. Is it a real chance of success or could you end up giving up more than you get? Does the cost truly yield exponential reward? 

Tom If you're looking for capital to solve your operating challenges or internal problems, you might want to steer clear, look for capital to amplify the best qualities and successes of your brand. Use it as an accelerant and a growth catalyst. 

Kyle Don't stop innovating. Don't lose your grip. Don't relax and take your foot off the gas. And whatever you do, don't leave it up to the flip of a coin. Don't leave it up to chance. I mean, unless, of course, your name is Chance than it should be your choice to be accountable for your choices...

Tom  Anyway, know why you want it and what you need it for and never lose sight of your vision and purpose along the way. 

Kyle Or to paraphrase what Uncle Ben once said to Peter Parker, with great capital comes great responsibility. 

Tom There you have it, that's episode 11 of Commerce Chefs. Thanks so much for listening. 

Kyle We hope you've gained a helpful look into the world of capital when you want to raise and what you may need to give up in the process. 

Tom If you're looking for even more insights and recipes for success, make sure you follow us on social at Commerce Chefs. 

Kyle And remember to join the Commerce Chefs community launching this fall. 

Tom Save your spot and join now at CommerceChefs.com/Community. 

Kyle In the meantime, we're currently cooking up the next episode of Commerce Chefs, so tune in on July 8th for the last episode of season one. Oh, it's been a whole season already?

Tom Well, you know what they say, Kyle. Times fun when you're having flies. 

Kyle That they do. 

Tom Lastly, if you liked this episode and you want to support us, make sure to hit the subscribe button and leave us a five star rating and review. Until next time. This has been a dash of Tom 

Kyle and a pinch of Kyle will be cooking with you in two weeks. 

Tom He said pusseeved. 

Kyle I know! 

Tom There's a pusseeved glamo and gwory, a feeling of acceptance and faith in your idea, 

Kyle just that we could fix it in ATS or whatever

Tom  I'm just going to keep talking and pretend like I had an R in there.