The startup world is full of not only excitement but also uncertainty – after all, the early-stage venture failure rates are around 90%, with 21.5% of businesses failing in the first year and 30% in the second year. While there’s no one magical formula for success, we believe there are certain opportunities and hardships that most founders will eventually come across, regardless of the industry they’re in and the solution they’re planning to deliver. And what better way to identify them than by talking to successful entrepreneurs?
When working on our State of early-Stage Startups 2021 report, we sat down for a chat with Kabeer Chopra, the co-founder and CPO of Burrow. We discussed the value of mentorship from investors, as well as the importance of assembling the right team and being flexible in terms of decision-making. So if you’re looking for actionable insights and pro tips from an experienced founder… you’ve come to the right place!
So far, Burrow has raised over $29M in funding over three rounds. What does this mean to the company and to you as a founder?
One of the things we learned early on is that you can try to run a business in two ways. One is launching a venture at all costs, and very few people can pull that off successfully. The other option requires a more sustainable approach: profitability first and growth second. In this scenario, you fine-tune the internal engines and give the right mindset to your team.
In Burrow’s case, the money we raised early on was spent on research, branding, and polishing business fundamentals. Our seed round wasn’t a classic one as we raised funds through safes. It turned out beneficial because we had no idea how much money we needed to raise at that point. We didn’t run a retail business before, so we had no idea about branding or inventory costs. There were simply too many unknowns. However, as we understood better how much we really needed, we were able to pick up larger checks along the way. Eventually, we closed at around $4M to fuel the company’s growth for the next year.
You started fundraising with friends and family’s support, right?
Yes, it all started with investment from friends, family, old bosses, and our network. The breaking point for us was joining Y Combinator, where we got to pick up some more checks. Before, we concentrated on the physical product, but YC helped us shift focus to the sales model. This allowed us to get more traction, and on Demo Day, we turned out to be one of few companies demonstrating revenue. That helped to bring investors on our side. What I’ve described so far was the journey through seed rounds.
Then, we launched Burrow in April 2017 after filling out the pre-orders placed after the said Demo Day. Until December, our monthly revenue grew seven times, and we knew there’s something to this business. This way, we were able to attract a serious investor for Series A – and that was the first proper institutional check we got.
Our mindset changed as we raised a large amount of money of around $15M. We decided to speed up Burrow’s growth with that money, but it was an expensive growth. A half-year later, we decided to focus on profitability first and only then grow. Fast forward from then to now, we’ve gone from cash negative to a fully profitable business. Our revenue has gone twenty to thirty times up in the last three years. It’s been quite a journey, full of ups and downs.
You said that teaming up with Y Combinator in 2016 was a groundbreaking moment for you. How exactly did it help you?
There are many beneficial aspects of that relationship. To begin with, joining YC is a stamp of approval for many investors. Then, once you get in, you get to build a network. For example, it enabled us to pick up a phone and call the founder of Airbnb – and that doesn’t happen every day. Access to such an expert network is fantastic because this community truly gives back.
Y Combinator also shifted our focus from trying to build a perfect company upfront to adopting a more iterative approach. As a first-time founder, you need to realize that your first product, idea, or customer experience won’t be the best. Don’t try to make everything perfect according to your idea of perfection. Start selling, listen to your customers, and then improve. It’s only through user feedback that you can keep improving. Don’t try to go for 99% perfection because once your product becomes good enough, it’ll be too late.
Sell and improve as fast as you can, that’s the best piece of advice we got. Even to date, we’re still taking that advice. That’s what differentiates us: we keep in touch with real customers rather than limiting ourselves to market research. Ultimately, we’re building a product for them.
Most early-stage ventures that operate in the IT industry approach accelerators and investors with a prototype. That’s not the case with you because your product is furniture. Was your lack of a prototype an obstacle in any way when fundraising?
We went into a YC interview with a printed slide of what could be a product, but it wasn’t a dealbreaker. Y Combinator was more curious about the idea and our desire to revolutionize the industry that hasn’t changed in a long time.
The question that YC was interested in more was whether we could pull it off or not. The execution turned out to be more important than the idea itself, so for us, it wasn’t the question of whether we have a prototype but whether we are capable of bringing the vision to life.
Did you know you want to join YC right away, or did you try to get business angels and VCs on your side first?
For us, YC was a dream come true. We didn’t think we’d be accepted, to be honest. Funnily enough, when we decided to launch Burrow, we were at a business school, and we were rejected from every grant back then. We probably got rejected a hundred times before getting the first “yes” from family and friends, which ultimately allowed us to improve.
Every time we met a potential investor, they had a question we didn’t think about before, and by the time we got to YC, we'd identified all loopholes and knew all the answers. It was actually pretty funny to get the first “big yes” from the YC.
Do you have any advice for founders who are yet to engage with an accelerator? What should they prepare for?
From a preparation standpoint, I’d emphasize the importance of having a strong team. When trying to get an accelerator to help you, you should assess the team’s ability to execute. What helped us with that was the awareness of strengths and weaknesses. Thinking about things you don’t know and how you can make up for that gives investors confidence in you being able to pull it off.
And what should the founders look for in an accelerator?
You want to look for somebody who’s here to help you not only from a financial standpoint. The most help we got was from networking, connecting to the right people, and getting the right advice. As an early-stage founder, you want somebody who’ll listen and stick to you in the bad times.
So not only an investor but also a partner and a mentor.
Ideally, yes, although it’s hard to find somebody like that. If you can do that early on, such an accelerator will make a difference in your business.
Do you remember the first pitch deck you created?
Of course. The first we created went through a thousand versions. It was pretty standard: it discussed the problem, the opportunity, the target audience, our solutions, and the reason why we’re the best people to solve this problem. That was the storyline, and it didn’t change much over time. The appendix grew longer as investors we pitched had more questions but the frame of reference still holds because it’s pretty universal.
How not to fall into the trap of perfecting a pitch deck until it becomes too long and boring?
I wouldn’t say we made our pitch deck longer over time, we actually made it more concise. Initially, we tried to say that there are dozens of problems and we’re going to solve all of them. In the end, we focused on one big problem and around four reasons why we’re the best company to address them. When you’re an early-stage founder, you need to focus on one problem, one solution, and one reason. Making your pitch deck concise is the key.
Did you create a pitch deck on your own, or did you consult it?
We sent it around to get advice from everyone, but we took the feedback we received with a grain of salt. Our experience at YC was that we got advice from two successful companies, and the advice would be polar opposites, hence the caution. As a founder, it’s your job to listen to advice. However, at the end of the day, you’re the closest person to the problem, and you need to decide on the path you go down on. As long as it’s logical, you’ll be fine.
Do you think it’s a good idea to outsource the creation of a pitch deck or make use of the external agency’s knowledge?
Outsourcing can work especially from the visualization and storyline standpoint – although the core material needs to come from you. As long as you have a purpose, you can use others’ help to pretty it up or test the message. In fact, we used a branding agency towards the end of our YC journey.
Burrow is funded by almost 30 investors. What do you think is the decisive factor that makes them say yes to your pitches?
I don’t think there’s one reason there are different factors and metrics. Very early on, the investors trust you, not the idea. The more confidence you have, the more likely they are to side with you.
At the beginning, it’s almost impossible to say how successful a business will be like. Even though we’re thriving today, we couldn’t predict it a couple of years ago. It’s hard to promise investors something they can't even predict.
How about things that discourage investors? As you already told us, while Burrow’s been immensely successful, you’ve heard “no” as well.
In some cases, it’s the lack of vertical overlap. The other thing may be not having the right experience or team. Then, the expectations may not overlap, e.g. if you want to make the company public but the investor’s more keen on growing it for a few years. Remember that there are different kinds of investors and, as a founder, you need to decide with whom you’d like to align.
Other reasons for rejection? Well, valuation is undoubtedly a big thing. It might also be arrogance, as opposed to confidence. You need to be open to feedback, listen and be humble – in other words, not come off as arrogant but confident. There’s a fine line between the two.
And when do you think is the right time to seek funding, for example, the early-stage VC money?
We at Burrow raised money because we needed it for prototyping, R&D, branding agency. There were only two of us at the beginning, and we lacked resources. If you can get away with raising just enough or a bit more than enough to get your operations off the ground, at that point, it becomes more reasonable for you to assess what your needs are. And it’s a difficult thing to do upfront.
The other thing about waiting a bit more is that you have more success metrics, which allows you to raise more money at a lower valuation. For the most part, focus on an investor passionate about the idea and try to raise enough money to get you through the first six months. Maybe after that time, you won’t need more, because your company will be already profitable and you’ll decide on slow growth. Money makes things easier, but it comes at a lot of expectations.
The best point to raise money is to do that when you don’t need it. When you’re a profitable company, that’s when people want to give you money. That’s perfect timing because you can demand your terms. You don’t want to be in a position when you need the money and go out to get it because that puts a lot of pressure on you.
Would you recommend raising as much as possible or limiting yourself to what’s necessary and hit this target instead?
You’re always going to underestimate how much you need. We’ve seen that first-hand because you need more resources as you grow. Try to raise as much money as you can but remember about the golden mean. Who knows what may happen. We didn’t realize that the pandemic would hit, so there’s always the use of money.
We’ve already talked about mentorship provided by Y Combinator. Would you consider your investors mentors as well? In what ways did they support you?
Obviously, our lead investor is on our board, and they push us to make hard decisions. For the most part, VCs are not always available for you. They won’t constantly be asking you about how you’re doing or what problems you’re facing. If you need something, you have to go to them. The more open you’re about your problems, the more they’ll help you.
We haven’t leveraged our VC resources much, but we have an advisor network that we do use from time to time. It’s useful to build an advisory board to rely on, especially if it comprises people who are not only veterans in the industry but also see the potential in change. There needs to be mutual respect on both sides.
There’s this term smart money, and we were wondering if there’s something more to it or if it’s just a buzzword?
For the most part, it’s the buzzword. Nobody will run your company for you. They’ll make introductions, but that’s it. Money is money. What you don’t want is bad money from somebody continually interfering with your business.
What would be your advice to early-stage founders looking for financial support?
Know it won’t be easy. It’s hard to get people separated from their money. You need to be able to refine your story, be ok with rejections. The first hundred rejections help you understand your story better. Once you get the first investor in, it’s a positive sign for others to believe in your vision. You can go for big checks first, and that’s amazing. But don’t be disappointed if that doesn’t work out. Starting with smaller checks and using them to build up your business is also fine. The hardest part is rejection, but ultimately, it makes you a better entrepreneur.
So should founders focus on traction?
If you can raise a bit of money and find traction, it’s easier to keep the conversations with investors alive. Be careful of the dangling carrot effect, though. Some investors will keep promising you attention, but in reality, they’ll be just wasting your time to have the best deal possible. Recognize dead ends and cut them out.
Thank you for this interview, and good luck to Burrow in the upcoming months!
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