Working out of a bright blue remodeled school bus parked off the interstate outside of Salt Lake City—or sometimes by Bridal Veil Falls, depending on the day—married co-founders Jason and Natalie Fairbourne have been trying to fundraise for their early-stage company (a peer-to-peer marketplace for used gear and items called Yoodlize), during one the most challenging markets in a decade.
The first time I spoke with the two of them, via Zoom from the inside of their double-decker bus, it was mid-September. The fundraising market had been depressed in most sectors for much of the year. Yoodlize had just opened a seed round two weeks prior, and the founders were aiming to reel in about $3-5 million in capital to expand into five new cities in addition to Salt Lake City—a goal that, coming off a record two years of venture funding, still felt within reach. The energy between the two co-founders was palpable as they told me about how they met skiing more than 24 years ago. They virtually showed me around their bright blue mega-bus as they talked me through their fundraising plans.
“I've got spreadsheets up the wazoo,” Jason Fairbourne, who is CEO, said. He and Natalie, who is Chief Product Officer, had been sifting through lists of venture capitalists they had inherited from peers to make their own—collectively about 650 names—and were deciding who to prioritize when pitching Yoodlize. The two of them had run an incubator in Mombasa, Kenya, and founded several companies previously. Yoodlize—the startup they launched at the end of 2019, where people can rent out items like mountain bikes or lawnmowers for a daily rate, with built-in $2,000 insurance—was starting to pick up traction.
When they were starting the fundraising process in the fall, the startup had garnered 8,700 accounts, and people were listing 2,700 items. The team—now four full-time people and two part-timers, were all working for equity—and were planning a debut in Hawaii. They were coming off of a $420,000 crowdfunding and angel round in 2021, but they wanted to launch in a few new markets—to show they could find success outside of Utah, and start to scale. They needed capital to do it.
But their timing wasn’t ideal, and the next six months would be more difficult than the Yoodlize team had expected. At year-end 2022, the private markets were in a state of freefall, with funding levels down 35% from the year prior. Convincing investors to write a check hadn’t been easy before. In this market, for founders not working on an artificial intelligence algorithm, it was starting to feel near-impossible.
The Yoodlize team invited me to sit alongside their fundraising process, giving me a front-row seat to the early-stage fundraising market during a downturn. In March, Yoodlize ended up closing $800,000 in pre-seed funding. It was far less than the several million in seed capital the team was initially targeting, and they had to make compromises with their investor and undergo legal hassles that hurt their timeline. Yoodlize may be just one pre-seed company in the market, trying to get its start, but it’s also a benchmark of the broader market, where capital is suddenly hard to come by, where investors are getting more defensive on term sheets, and where venture capitalists are reverting to the founders and markets they already know best. While founders may be just as bullish on the companies they are building as they were a year ago—investors aren’t as willing to take a bet on them.
“It's a tough time to raise anything at all,” Fairbourne says. “We're happy to get something.”
Getting in the door
Even for entrepreneurs who had started previous businesses (Jason and Natalie's clean drinking water brand Bamba Water is still selling around 100,000 bottles of water a day, they told me), just getting a VC meeting was tough.
They had warm intros with some investors, but ended up reaching out to dozens of others cold, via email or sometimes on LinkedIn—getting creative in some instances.
Emily Haleck, who does marketing and public relations for Yoodlize, emailed Ben Horowitz hip hop lyrics she had crafted up about their startup to get his attention (in the fashion of the intro to each chapter in his book The Hard Thing About Hard Things)—prompting a review of Yoodlize’s pitch deck from someone on Andreessen Horowitz’s operations team, though the firm ultimately declined to participate.
Founders say it's always hard to raise capital when you’re just getting a company off the ground, in any market. But the last year has marked a pointed slowdown, with investment levels dropping off. In the first quarter of 2023, venture funding has fallen 53% from the year-ago period, according to Crunchbase. Fairbourne had gone into the process expecting no’s—he had fundraised before and knew that people turning you away was just part of the process. But now, he couldn’t even get a response.
As Natalie put it: “We thought we'd be able to get in front of people, and then get a lot of no’s–but even getting in front of people [was hard].”
When Fairbourne was in San Francisco for tech week in early November, several investors told Jason they weren’t taking meetings with founders that weren’t already in their pipeline, he says. Some agreed to get coffee, but were upfront: We’re not accepting formal pitches. Fairbourne had planned a subsequent trip to Los Angeles, where some of the successful consumer-focused startups and marketplaces have congregated, but Fairbourne couldn’t get enough face-to-face meetings to make the trip worthwhile, so he canceled it. “We did a few emails and chats with people from L.A. but nothing went anywhere,” Fairbourne says, noting that investors he reached out to were “more or less, just not responding.”
“I think a lot of VCs are trying to figure out what they're doing and when they're going to invest money [that is] starting to stockpile. But they're still skeptical,” he says, noting that funds he thought may have been a good fit—like Greycroft, Bessemer, and Floodgate—never responded at all. (The firms didn't respond to a request for comment)
While most investors Fairbourne had calls with wouldn’t agree to having a reporter sit in the meetings, I did join a virtual call between Brian Smith, managing partner of Grayhawk Capital, a Scottsdale, Ariz.-based fund, in late Sept. Smith laid out that his fund tended to invest in companies already generating somewhere between $1.5-$5 million in annual revenue, and primarily in SaaS enterprise companies—Yoodlize wasn't quite the right fit at the time. “We like to take a look at companies as early as possible to get on the roadmap... I'd love to keep in touch and hear how you're progressing,” Smith said about 25 minutes in, shortly before ending the call.
The team cut things short before they got through their whole VC list. After about two months of hearing crickets from the 50 to 60 investors they had initially tried to talk to, Fairbourne determined the timing wasn’t right and decided to take a step back and change strategies: Raise a smaller chunk of capital for now and try again later.
“I decided to back off,” Fairbourne says. When they turned back to local investors, asking for a much smaller check, two local Utah-based funds quickly responded to Fairbourne about an investment.
Aloha Yoodlize
The third week in January, documents were underway with a family office in Salt Lake City called Wyssling Capital. Fairbourne had come to initial agreements with investor David Card, who runs a Utah-based consulting and investment firm called Alpine 100 that works with local angels, VCs, and private equity firms, who had expressed interest on behalf of Wyssling and who would be personally managing the investment.
With funding materials still with lawyers—Fairbourne went ahead and paid out of pocket to fly off to Hawaii with three others (including his two sons) for a two-week trip to try to open a new market on the island of Oahu.
“It’s going to be like my college days all over again,” Fairbourne told his team during Yoodlize’s weekly Thursday meeting, right before he flew out, mentioning how the four of them would be sharing a one-bedroom condo for the two weeks. Fairbourne scheduled meetings with local influencers and entrepreneurs and his crew went around the island, knocking on doors, trying to introduce people, and especially Airbnb hosts who were already listing their properties, to Yoodlize and encourage them to list their items.
“It was a grassroots, gritty, hacky market soft-launch generating some buzz and awareness,” Fairbourne said a couple months after he had returned. “The idea was to let that simmer, then turn on some digital marketing.”
It went well: Close to 200 Airbnb owners told Fairbourne and his crew they were interested in listing their items on Yoodlize, Fairbourne says. But back in Utah, the funding round was taking a long time to close—meaning Yoodlize didn’t have the capital to pay for the advertising it needed to build out a supply base and reel in the customers who would rent the Airbnb owner’s items.
“We lost momentum,” Fairbourne told me.
The holdup would ultimately last around two months. Wyssling and Alpine were adamant about doing a preferred stock round, rather than a “simple agreement for future equity,” known as a SAFE, which is an investment arrangement invented by Y Combinator that has become increasingly common in seed rounds, since it allows founders and investors to delay a lot of the more complex (and more-expensive) legal obligations until a later funding round.
"We’re not big fans of SAFE’s," Card says. "They're easy to execute, but Wyssling is more interested in being an active mentor to Yoodlize and an equity partner from the beginning of the relationship."
Yoodlize’s attorney Dan Roberts says he went back and cleaned up some of Yoodlize’s governance and cap table documentation, which took several weeks. Wyssling had also requested he draft up things like legal opinions and securities memos, some of which Roberts says he convinced them to delay. Yoodlize ultimately refused some of the terms, such as the liquidation preferences or redemption rights the investor’s counsel was asking for, as they could have triggered redemptions of the investors’ shares within six months and required Yoodlize to give up a lot of control of the company.
“I don’t think I’ve seen anything that aggressive in six or seven years,” Roberts says, though he noted that investor due diligence demands have increased in general from what he was seeing during record funding levels in 2021. (Card, on behalf of himself and Wyssling, says that Wyssling’s attorney specializes in mergers and acquisitions and is a CPA and that "his desired level of diligence and ask are reflective of this. He backed down on some of the original requests with our advice to him.")
All the back-and-forth led to several weeks of delays in the transaction, according to Roberts. “It was a merry-go-round that normally wouldn’t have happened,” he says.
When all was squared away, Wyssling agreed to invest $800,000 in capital at a $4 million valuation, over tranches, for 20% stake in the company and a board seat for Alpine. Card says he has been attending the management meetings and offering feedback, and notes that he will help Jason with a more structured management style as the company continues to grow. A rather unusual ask in a funding round—the term sheet requires Yoodlize to implement management procedures laid out in the book Traction by Gino Wickman.
Fairbourne says that, for a company still pinching pennies, the legal fees were high, and the valuation was a couple of million lower than what the team had hoped for initially.
“The stuff they were pushing for and asking—I wouldn’t normally do this,” Fairbourne says. “But in this climate, we made sacrifices. At the end of the day, Alpine is taking a bet and believing in us. I’ve seen good companies around here close. I'm glad we were able to raise.”
Fairbourne says the capital could get Yoodlize another 12-18 months of runway if needed, though Fairbourne hopes to open a larger, formal seed round in October to really ramp up the company’s growth efforts—depending on market conditions. “I think we'll… play it out and assess every quarter,” Fairbourne says.
In the meantime, Yoodlize’s team members are putting their own money and time on the line—hoping that venture investors will eventually commit to writing bigger checks, and that the company will start to take off. Head of growth Preston Jackson, for one, told me earlier this year he had been working for equity alone the last two years (and income from renting out items on Yoodlize). He said this small round of funding came as a relief for him as he and his wife just became first-time parents in February, and they’ve been relying on her salary.
“We've made some sacrifices. She's made some sacrifices for sure,” Jackson says. “This is a good time for funding to come in… So that does make it really exciting to see some of the earlier sacrifice come to fruition and have some investors see the potential and want to back us and kind of push to the next level.”
Haleck says she was a bit disappointed Yoodlize couldn’t raise more: “There's been tons of money pouring into these startups for the past few years. I guess I thought it would be easier.”
But the team is optimistic about Yoodlize, and they are moving forward, with eyes already set on the next funding round.
“It's like a big dam… Eventually VCs have to spend that money,” Fairbourne says. “We've raised a small amount, and we have a low burn, so we can still have growth and look sexy in the next six to nine months.”
Fairbourne adds: “I think that's the optimism, the silver lining of it, and we have to take what we can get.”
