When it comes to the tech world, minorities are often underrepresented and underestimated. A quick search about Silicon Valley will reveal that diversity is a big issue from the cubicles to the boardrooms, so it's no surprise that when it comes to seeking investments for our own businesses, we have to fight harder and shine brighter just to prove our value. And it's not just a race thing. In an article on Silicon Valley's diversity problem, Fast Companystated, “when played recordings of the same investment plea read by a man and a woman, people preferred the man's pitch by a two-to-one margin." Ouch.
But the thing about being overlooked is that when you do make noise, people look your way. And one woman in tech is making sure that she's not only talking the talk, but successfully paving the way for others to be heard as well.
Courtesy of Tina Fitch
As it turns out, letting go of an old idea allowed for the birthing of a new one. The opportunity to rebuild her personal connections with family and friends led to a vision of building a platform that would allow people to reconnect in a digital way. While pregnant with her second child, she conceived the idea for Hobnob—a mobile-based invitation app that helps users create beautiful event invites that can be sent via text in less than 60 seconds.
“I could be pregnant on a farm in the Pacific and still be connected, but at the same time I found that even with all of these social networks and all of this advancement, people just seem to be more and more isolated, and it was ironically harder than ever to actually be social."
Recognizing a need for technology that enabled real life moments to be experienced and shared in a unique way, Tina got to work on once again bringing her idea to fruition. But launching a start up, even a second time around, would prove to be no easy feat. For one, she was no longer living in the investor-friendly city of Silicon Valley, meaning she had to put her money where her mouth was in order to prove that she wasn't just a one start-up wonder. And as a minority woman in an industry where our presence may be seen but not always felt, she had an equally difficult challenge of representing the next generation of women entrepreneurs set to disrupt the tech sector.
Photo Credit: Hobnob App
But being a girl boss means making it happen despite any opposition, so it's no surprise that this past February, it was announced that Hobnob raised $2.25 million in seed funding from a handful of notable investors.
In an industry that's quick to evolve but slow to embrace, Tina hopes to see more women and minorities continue to make their voices heard by fearlessly going after the big bucks to help back innovative ideas. We had a chance to chat with the CEO on how to successfully snag seed funding for your business, why starting small can lead to bigger opportunities, and why it's important that we break into spaces that we're not typically invited into.
1. Build It And Let Your Results Speak For You
"We basically started [Hobnob] on our own because I felt like the best approach for me is to feel like you have something tangible that people can interact with and see what your vision is. Everyone has to be a good storyteller as an entrepreneur, but results are also the best storyteller. I take raising funds very seriously, meaning you're basically asking someone else to trust you with their hard earned money and you're committing to delivering for them.
"I wanted to make sure that whatever product that they were investing in we felt was truly viable, and that there was a real need for it in the market. So we basically self-funded it to our first beta version. And then we tested it out in Hawaii and it expanded to the U.S. and once we started really getting traction and we saw such a diverse user base jumping onto it, that was when I started having investor discussions because then we realized there was something there."
2. Talk To Friends And Family First
"Seed funding will normally come after friends and family round. A lot of times we have an idea, but maybe you have savings if you're self-funding and just fund yourself while you're building it. But sometimes if you need a little bit of money you can ask friends and family to buy in on your dream, or trust you and support you."
3. Find The Right Type Of Investor For Your Business
"Seed funding is what I'd consider the first professional round with people who have experience investing, and there's a range of people who can participate. There's what you call angel investors, where individuals invest their funds, and then there's people called Micro Venture Capital (Micro-VC) investors, who are venture capitalists but tend to have smaller funds and they're entirely focused on these seed rounds where they can get in for pretty low amounts of money and still have significant ownership, so they're making small bets with potentially big outcomes.
"Then you have traditional venture capitalists, and we happen to have both angel and venture capitalists in our seed round where they have funds in the billions of dollars, but they still realize that the best outcomes that they have are typically with companies where they got in early. So even large VCs are really interested in the right companies and the right people at a very early stage."
Courtesy of Tina Fitch/Hobnob
4. Decide What Is Best For Your Business: A Loan Vs. Seeking Investors
"There are several differences to obtaining a business loan vs. investors for your business, but I'll focus on the three main ones in my view: A loan requires repayment with interest ('debt'), but doesn't give up equity in your company. An investor gives capital to grow to the company in exchange for ownership (i.e. 'equity'). An entrepreneur may not want to give up any piece of her business since, rightfully, she'll be the one slugging away day after day to build it. But some types of businesses - such as ones that require more capital to grow before they can be cash-flow positive and self-fund, or don't have the assets and collateral to obtain a competitive loan, or can benefit from the reputation or connections from a particular investor - can be bigger with a venture investment than without. In other words, you can have a smaller piece of something large, vs. 100 percent ownership of something small or, worse, bankrupt.
"A loan, just like anything obtained on credit, has a repayment/recovery schedule. You should have a strong level of confidence that you will have the cash flow to repay that loan on the terms they require. A venture investor typically is investing in you as much as the company – and may be more accepting of changes to business plan, as long as she remains informed. An investor is going to feel like a partner in the business, and is ideally in it for the long-term play. On the flip side of that, when you qualify for a loan, all the lender cares about is that you repay per their terms. They don't want to influence your business. An equity partner often will want to feel some level of influence and have some level of ongoing insight to your business decisions. So you have to evaluate any equity partner the way you'd evaluate any long-term relationship – very seriously, and based on multiple levels of compatibility and trust.
"This is the most important in my mind: you should only seek out and accept venture funding if you have the intention of bringing them a significant return on their investment. In other words, you should have a plan in mind that will either reap healthy ongoing dividends or a 'liquidity event' – in other words, a sale or public offering – a way for that investor to get their investment back plus the increased value you've built in the business and their shares over a reasonable period of time. 'Lifestyle businesses' are great – those are businesses you want to build primarily to support yourself and your family, perhaps the community of employees you maintain – but aren't designed to reward investors with a higher return on their investment than, say, if she had invested in the stock market or real estate. You should be able to approach investors with the confidence that you aren't asking them for a favor, you are offering them an opportunity – and you need to be authentic and committed to making that message reality."
5. Repeat Customers Can Be Just As Valuable As Showing Profit
"In the case where you have a product or service where you're selling something, definitely the best thing to have is a happy customers and repeat customers. We picked one of the hardest areas to focus on, which is consumer mobile pre-revenue, meaning we don't even sell anything right now. We're basically a free service, and that's honestly a very challenging space to pitch so I think what a lot of investors are banking on is a product that they can try out themselves and if they see a need for it and they like your approach to a product—they feel like the design is beautiful and elegant and efficient—it's almost like the product is the window into your soul and your perspective.
"Everything we built was really geared towards having a beautiful user experience that really translated in the product, so the investors could see and feel that. Also, at the same time they could see that it's really a broad diverse user base that was coming onto the service, and we didn't do any kind of paid advertising—we didn't buy customers. It's called organic growth where they just recommended it to each other and they invited other people to share in it, and they found it on their own and started using it. So to have straight organic growth from such a diverse user base was something that the investors also saw and were really excited about."
6. Treat Investors Like It's A Marriage
"When you're starving for funds, it's very easy for people to be tempted to take money wherever they can get it, and there's no judgment there. I understand that it can be a real struggle and you want to build your business, but it's really like a marriage. Especially in recent years, there are very few overnight success stories. You have to go into the relationship thinking that it's a marriage and you're going to have good times and bad times and you want to pick a partner that's going to be a solid and supportive partner during those bad times as well, so you do have to be selective and it's not just a question of you pitching yourself to them, they should also be pitching themselves to you or you should be evaluating them in that way."
7. Bring Tech Investors to You
"It's funny because I wondered if people would be reluctant to invest in us or if they'd take us seriously, but I think a few things have happened as a result of being [in Hawaii]. One is I feel like we're able to develop a product without the money mentality. We were able to really build and design for the people that we wanted to reach, and Hawaii being such a diverse community ethnically and culturally, it's really a true melting pot, that I feel like it positively influenced our product and how we were able to reach different types of people on the mainland and elsewhere.
"The other thing that I realized was that for the first time big name investors are also recognizing that diverse teams, and that also means geographically diverse, have a different perspective and so they're really to look elsewhere and take a gamble on companies. But again seeing that you have a solid product and customer base or potential. So I feel like they recognized wow you guys were able to build a really beautiful product that's reaching a diverse user base and it's growing organically and you're in Hawaii, that's probably all related, and that's something interesting and intriguing."
8. Recognize Your Power As A Minority
"Hispanic and African American women are the fastest growing entrepreneurial segments in the country growing at rates of 133.3 percent and 191.4 percent respectively from 1997 to 2007. Combined they represent more than two million of the roughly eight million women-owned businesses in the country and more than $14 billion in gross receipts. Further, African American and Hispanic women are three to five times more likely to start a business than their white counterparts (read more).
"I think the reasons for this are powerful: when you don't see the company cultures or products and services that reflect your world view or experiences, you are motivated to build them yourself. Minority women are woefully underrepresented across almost every executive segment in the country – but we are a powerful demographic. So we are harnessing that power and creativity and creating opportunities."
"There are some great resources to read and readily available online. I wish I had some these standardized Series Seed documents when I started by first tech startup – in the past (and even now) several companies get gouged by law firms when trying to set up their first investment. This doesn't need to happen, and I find that if most honorable investors will agree to these types of standardized terms with only minor adjustments, at times. Being a minority, you should be like, wow, I have a powerful weapon, in that I have a particular advantage.
"If you are interested in raising capital for your business, here are a few amazing resources: Serie Seed, Raising Venture Capital For The Serious Entrepreneur, Small Business Administration, MBDA Grant Competitions, [and] Seed Accelerators & Groups."
Find out more about Hob Nob in the video below:
What would your dream start-up be? Are you making any moves to make your business dreams come true? Let us know in the comments below!