A few years ago, Matthew Klein and his brother Andrew saw that the retail landscape was changing and that companies needed more agility than ever.
Both brothers had worked in retail and product design, and they knew how clunky and disconnected the design process could be. Traditionally, designers, product developers and manufacturers had to use a bunch of different programs and methods of communication to get a product to market. Matthew knew there had to be a better way.
“I’m not saying that every brand has to be a direct-to-consumer brand, but those are the stakes that we’re living in,” Matthew says. “Customers want products faster than ever before and subscription models have really pushed on the supply chain, which starts with making products.”
Serendipity in NYC
On the last night of a trip to New York, Matthew happened to run into an old friend at Soho House. They caught up, sharing what they were working on. When that friend heard about Backbone, which was still in a very early phase, he immediately wanted to introduce Matthew to Ken.
Matthew only had to consider it for a moment before cancelling his flight to take the meeting.
Throughout the round, Matthew continued to chase investors in the retail area with unique persistence. Ken helped connect him in that arena.
“That was very much a strategic decision for us, to have that early cap table be very retail focused, until we brought on some larger funds for the Series A,” Matthew says.
“My strategy was to have a great lead investor who wasn’t too large, because we were a growing business,” Matthew says. “I really wanted somebody who was going to be hands on, rolling up their sleeves and helping us with product-market fit strategy. For the rest of the cap table, I wanted it to be built out by very retail-focused investors.”
The connections of your connections = your funders
Matthew’s idea of a round isn’t typical.
“Throughout our career, we never were ‘out’ around the funding,” Matthew says. “It was always, ‘We’re going to be raising a round in two or three quarters.’ And we always found an investor who said, ‘Hey, we want to take this off the table.’”
How do you raise an entire round without publicizing it? Matthew focused his energies on building relationships with the connections of his connections. After Spider Capital took Backbone on, he didn’t do additional cold outreach.
“I really stuck to my guns on that,” he says. “I like a warm lead to another investor. I think that’s really, really important when you’re fundraising. It’s an immediate validation if somebody introduces you to somebody else within the investor community.”
Here’s what he did: Matthew built a list of about 30 target investors. Then he asked his seed and pre-seed leaders to help him narrow it down and start conversations. Matthew took meetings with potential investors, but he focused on forming relationships instead of asking for funds.
“I would still go meet with these folks, and I really started to build a rapport with them,” he says.
Throughout this process, Backbone was starting to get some traction, and Matthew played that buzz up to his advantage. They could point to customers like Stitch Fix, Warby Parker, Chubbies and Outdoor Voices as success stories, but Matthew continued to hold investors off. He told them Backbone wasn’t fundraising quite yet, but would be soon.
“We were starting to work with some exciting companies,” Matthew says. “We started getting a lot of excitement from top funds throughout the country.”
Eventually, investors started asking Matthew if he would consider taking some investments right away. He finally agreed to take enough early term sheets to preempt an actual round.
Whether you have the opportunity to do a preemptive round or not, Matthew’s closing piece of advice for entrepreneurs is to partner with a lead investor who is willing to get their hands dirty.
“What I was looking for in an investor, especially if that investor was going to be on the board, was somebody who’s going to roll up their sleeves and dig in,” says Matthew.
“The one thing you want to ask your investors, especially as you start to grow, is ‘what do the bad days look like?’” he says. “‘What are you going to do when we hit a bump in the road?’
“That’s a really important question, because you want the investor to be somebody who’s going to stick it out with you.”