What I've Learned About Raising Capital

Well, it’s been a busy week. If you haven’t already seen, on Tuesday we launched our first ever investment round for our $2M Series A for CROSSNET. If you know anything about our story I take great pride in our founding team legit taking our 401k and entire life savings to start our crazy game and never taking a dollar of outside capital for the first five years.

Hell, we even had a big ass doomsday board that showed all three of our personal bank accounts and we’d subtract daily whenever we bought McDonald's or any single expense. We always said if that board went down to $0 then it would be time to quit the dream and go back to our real jobs and I’m so thankful it never did. Not saying we didn’t get dangerously close! I’m talking $400.

So why an investment round five years into business when the brand and retail distribution is stronger than ever? It’s pretty simple the goals we have for the brand over the next two years simply can’t be accomplished with our cash on hand. We want to expand into new SKUs, retailers are knocking down our door every day, and over the past twelve months we’ve strategically set up distribution centers & partnerships in Australia, Canada, and Europe. If I want our company to 2-4x in revenue & profitability, it has to come at some sacrifice, and diluting myself 3% or so to have our wildest dreams come true is a bullet I’ll have to take.

If interested in supporting & investing in CROSSNET, you can do so here.

So what I have learned over the past about raising investment money over the past few months?

Well for starters I quickly realized I didn't know shit about how investments, private equity, and venture capital actually works.

How Do Your Determine How Much Money to Raise?

The first thing we did was take a look at our projected purchase orders from retailers, the historical sell-thru rate on Shopify & Amazon, and plan out how much inventory and cash do we need to hit our targets. If you’re selling in retail and not asking for forecasted buys or “pre-buys” for 2023 you’re making a huge mistake.

This week alone we have received forecasted plans from Scheels & Dicks, two of our larger national accounts, that allow us to adequately understand how much inventory and cash we need and at what times. We also forecasted what our projected marketing spend & future headcount would cost us.

Next we looked at debt options. If you’ve ever gotten yourself into $140,000 of student loan debt for a film degree you never ended up using (yes I’m talking about myself), then you know you always look at debt as a last resort. However, as you scale a business taking somebody else’s money and using it to make more is just an unavoidable process. Not all debt is bad, but certainly not all debt is good.

Conveniently enough, Kickfurther sponsored this newsletter today, but we actually used them for almost $550,000 earlier this year to get us through a cash crunch and to fund our Sam's Club purchase order. They actually advanced us 100% of the inventory order with no payments until inventory begins selling. This helped us so much with cash flow and then we were able to arrange payments back based on our selling cycle, not some typical 30-day money back process. They've been an incredible partner for a few of these reasons:

• Offer a customizable payment timeline based on when you expect to receive revenue to keep cash flow healthy

• Doesn't act as a debt on your books

• Cost is a small markup on cost of goods that can be covered by volume discounts

• Funding limits scale alongside your growth

I would always recommend taking on “cheap” debt first instead of selling equity as your equity is your most valuable asset.

If you can find a company like Kickfurther to help support your business at favorable interest rates, I’m talking like 4-10%, rather than somebody who’s going to show up to your mother’s house with a baseball bat if you’re a day late, do it all day long. We will be using a combination of Kickfurther + our investment round to get our business to where we want to next year (5000 stores, 49 countries, 10+ SKUs).

Venture Capital

I’ve had nearly 50 meetings with venture capital firms over the past month. All of them have gone exceptionally well. They are impressed with our growth, story, resourcefulness, and 25M+ in revenue. However they keep coming back to these points:

1. We don’t care if you’re profitable. We typically don’t invest in consumer products and are only looking for tech plays that we can 10-50x our money. Some even said if you’re not a unicorn I’m not interested. How many actually see this return as I see every tech & SAAS company around me burn up in flames, who know?

2. You’re not raising enough! WTF do you mean? I’m raising $2,000,000. That’s more money then a farm town kid from Connecticut could ever dream about. Combined with our financing deals with Kickfurther & JP Morgan, this is enough money to build an incredible runway of product innovation and build out the team of my dreams. These venture folks have straight up told me that they’d be interested in the deal if we were raising 5 or 10M, but that would mean us diluting to over 50% and losing control of our own company….NO THANKS!

Family Offices

If you’re building a consumer brand these are the guys for you. From my understanding, they are groups of people/families who have acquired remarkable wealth in their lifetime and are now looking to make strategic investments in brands like CROSSNET that could yield them a nice 4-10x return on their money. Of course, they’d like to get involved in the early day Twitter & Facebook deals, but they may not be exposed to them so instead they get involved in a handful of smart, strategic plays that still return great cash, especially when the public market is in the shitter.

Crowd Funding

Have an amazing brand? A group of loyal customers & supports? Then crowd funding could be an exceptional solution for you. We vetted a handful of companies and our two finalists were Wefunder vs StartEngine. Just like when you’re shopping software vendors, they both claim to be the “best” at what they do and its extremely hard to make a decision when your company’s equity is on the line.

We ended up getting some extremely positive referrals from Wefunder from some friends who have always raised on the platform, really vibed with their team, and trusted our gut.

Once we made our decision we were off to the races. We had our graphic designer make a beautiful investment deck and our video editor whipped up a few 30 second videos to show off to our customers that they can actually invest in CROSSNET and become a part of the team. The Wefunder team then got our listing up in just a few hours and we set it live. A few hours later the craziness began! We raised $100k in just the first few hours. We’ve built an incredible following but damn did I not expect that!

We are now looking to close $1M of the $2M raise completely on Wefunder. The additional $1M will come from the family office or venture route as we work now to secure a lead investor.

We would raise the entire $2M on Wefunder but it would require a very expensive audit that could take 2-3 months and our goal is to wrap this raise up by late September. I won’t pretend to fully understand investment laws, but we are allowed to raise up to $1.07M with just reviewed financials and up to $5M with a full audit. Something to keep in mind from a timing perspective if you’re thinking about launching a campaign.

So what’s next?

Well its business as always! Raising is a full-time job in itself. How can I be the best founder, manager, and leader while working my ass off to make sure we have enough cash in the bank to get us the places we want to go? There’s no easy solution besides bunkering down, grinding for the next month or so, and filling you guys in along the way. Sure Shopify updates and marketing plans may take a tiny backseat as I make this my #1 priority, but it’s important to rely on the rest of the team to grind and close 2022 as our best year ever.

I hope you enjoyed this and I’m happy to answer any and all possible questions on fundraising & debt if you drop me a response back. If you want to invest in CROSSNET you can do so here. Minimums on Wefunder start at just $100, with average check sizes being $1-5k. Thank you from the bottom of my heart for following along and reading each and every week. I’m having more fun writing this newsletter than ever before.

It means the world to this farm boy from Connecticut.

Love y’all,

Chris