Lessons learned after raising ~$10M

Will Nitze is the founder and CEO of IQBAR, a brand of brain and body nutrition products including plant-based protein bars and adaptogen coffee. Since launching in 2018, IQBAR raised over $10M in funding and became a national brand with ~$25M in revenue. In this episode of Founder Secrets, Will takes us behind the scenes of:

• Using Kickstarter to "de-risk" the business and raise funds at a higher valuation.

• Getting into over 3,000 CVS stores within just six months of launching.

• Lessons learned after raising ~$10M.

• Why he distributes IQBAR "every which way" instead of focusing solely on DTC.

Doing a Kickstarter to “de-risk” the business

In 2018, Will created a prototype and a test batch for IQBAR. However, he lacked the capital for full-scale production. One of the most challenging positions for a founder is having an idea but lacking the funds to bring it to life. And when you’re early, raising funds involves giving away a significant percentage of your ownership. According to Will, crowdfunding platforms like Kickstarter are one of the best ways to avoid that.

He explains, "A lot of people think about Kickstarter the wrong way. Kickstarter is not how you fund a business. Gross margins are terrible because you're manufacturing in low quantities, you're giving away 5% to Kickstarter and you're not getting out of that with a lot of profit. You have to look at it as a way to generate a proof point, make your asset more valuable, de-risk it for investors, and then raise money at a higher valuation than you otherwise would have with just a pitch deck.”

That's exactly what Will did at IQBAR. He launched a successful campaign, sold $90k worth of products, and only then raised funds from angel investors. But we love Founder Secrets for the practical and actionable advice, don't we? Here is the exact step-by-step strategy used by Will:

• The Kickstarter Algorithm: When launching on any platform (be it Kickstarter, Product Hunt, or Wefunder) the goal is to become a featured product on their homepage with the support of your existing network. That’s how you will get noticed by the algorithms. And that’s how after bringing in $45k in investments, IQBAR became a featured Food and Beverage product on Kickstarter, allowing Will to raise an additional $45k organically.

• The $1 Reward: One of the main criteria used by the Kickstarter algorithm is number of backers. That's why Will gave people the option to buy a $1 eBook of vegan recipes. As Will explains, "A lot of people want to support you, but they might not even want the product. You should have an option for them. Getting a $1 backing is still a win because it's boosting the algorithm.”

• Cross-promotions: One thing that worked well for Will was to cross-promote their Kickstarter with other founders who were running their own campaigns.

• Mailing List: Will also used email marketing to nurture potential backers. However, there was a problem: Will didn’t have an existing mailing list. But he managed to find a hack for that. He recalls, "I went to Harvard undergrad and found these Harvard yearbooks with thousands of email addresses. I compiled a massive mailing list and sent emails to people.” One might say that you shouldn't do this, but if you do, we understand why! Just make sure to be authentic and relatable with your copy.

• Facebook Ads: It’s challenging to convert FB ads into backers due to the uncertainty and longer time frame associated with crowdfunding campaigns. However, the end goal is to bring in enough money to be noticed by the algorithm. Will explains, "You can almost run this side of the campaign at break-even because the organic side [Kickstarter's audience coming from the algorithm] is going to be highly profitable.”

• Thunderclap: Will also used a tool called Thunderclap to allow people to pre-commit social media posts that could then be released all at once. However, all those tools were shut down after Facebook blocked them in late 2018. However, you can still build a community of supporters and send them a pre-written post to publish on the launch day!

• Copy-paste to Indiegogo: Right after the Kickstarter campaign closed, Will “copy-pasted” it to Indiegogo and redirected all Kickstarter’s visitors to the new campaign, bringing in an additional $16k.

Getting into 3,000+ CVS stores

There is an old saying that relationships are the currency of business, and it's true. That's how, after just six months in business, Will secured a deal that got IQBAR into 3,000+ CVS stores and brought the company to $1M in revenue.

Just a few months after launching IQBAR, Will met an entrepreneur who had successfully placed a product in CVS. The entrepreneur informed Will that CVS was creating dedicated sections in their stores for healthy product options.

Will got introduced to a CVS representative who was responsible for product selection and merchandising for the initiative. After a successful pilot, CVS started distributing IQBAR to 3,000+ stores, increasing the company's revenue almost overnight by 10x.

Running a startup doesn't leave much time for building your network. However, as Will's story demonstrates, taking the time to cultivate relationships can pay off in big ways.

Raising $10M from angels and VCs

Since launching in 2018, Will has raised ~$10M from both angel investors and VCs, experiencing the pros and cons of both. According to Will, you shouldn't go after VC until you need to raise a significant amount of money.

He explains, "Objectively speaking, VC is the worst place to get money because that's where the worst terms are. Your uncle is where the best terms are. If your uncle isn't rich, then think of other rich people you might know. If you don't know any of them, try to meet some. That's how you get the best terms. That's how I started, and I wouldn't do that differently."

Will raised two angel rounds of $600k and $1M respectively, before securing ~$8.5M from venture capitalists. But let's take a step back to discuss how he obtained his very first check:

• A Warm Intro: It was an introduction from a fellow entrepreneur. Again, relationships are the currency of business.

• A Check After Six Months: Will received a $200k check six months after pitching the investor, who closely monitored his progress during that time. Even if you are not currently fundraising, building relationships with angels from day zero will give you an edge. Pitch them the vision, ask if they want updates about the company's progress, and when the time is right, they will be ready to invest.

• He Wasn’t a Full-time Angel: Will's first angel was a CEO and wealthy individual, and not a full-time investor. According to Will, that's how you get the best terms. And to be clear, that doesn't mean you are offering them a bad valuation. You are just getting fair terms, which isn't often the case with full-time angels. We saw in last week's episode how Kim refused a ridiculous deal on Shark Tank and was then offered $1.2M from LinkedIn's CEO at a 6x valuation.

• He Referred Another Angel: After witnessing their progress, their first investor introduced another investor who also invested $200,000. And after securing these initial investments, it became relatively easier to secure the remaining funding.

Of course, IQBAR's ability to deliver results was crucial, and by mid-2019, they had achieved a $2.1M run rate, raising an additional $1 million from angel investors.

In 2020, towards the end of the year, they closed a deal to raise VC funding. Will says, "Honestly, and I'm not keeping any secrets about it, if I could keep raising from angels forever, I would. But eventually, you reach a point where you can't find enough people to write $300k checks, and even if you could, it would take a full year and be super distracting. The risk-reward ratio is now out of whack, and you just need someone to write a very big check.”

Within an arm's reach of desire

When asked about how the company distributes its products, Will responded with a straightforward and direct: "Every which way." This includes distribution via Amazon, their own warehouse which supports their DTC efforts, brick-and-mortar distributors, direct shipments to retailers, and even food services. "We distribute every possible way that you can distribute," says Will.

According to Will, there is a common misconception with CPG brands that the focus should be solely on DTC, because "you'll own the data and the customer relationship." While this might work for some companies, this advice is not necessarily the best approach.

Will explains, "If your product has substitutes, you should probably also be on Amazon because otherwise you are losing revenue. If someone types 'plant-based protein bar' and we don't show up, they will buy an alternative.”

This applies to brick-and-mortar stores as well. If an IQBAR customer thinks of protein bars while shopping for groceries, and IQBAR is not available, they will likely choose an alternative. This is precisely why Robert Woodruff, Coca-Cola's president from 1923 to 1985, promised to put Coke's products "within an arm's reach of desire." It's one of the main reasons why The Coca-Cola Company is a $250B+ giant.

This takeaway applies not only to physical products but also to software. In the case of SaaS, your potential users should be able to access your product "within a click." If they have to wait a week to schedule a demo, get pricing, and start using the product, they will likely find an alternative that can solve their problem right away.