To fundraise or not, that is the question in this episode. Angela walks through the decision making process around whether Clinnect should go after institutional money or to bootstrap. Listen to find out what she decided.
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Produced by Jonathan Bowers and Angela Hapke
it's a cute chair. Not a ergonomic chair.
Oh, ergonomics. I, so I've come to the conclusion that money should not be spared on shoes, mattresses and chairs.
I'm with you on shoes and mattresses... chairs, I'm not sold.
we have, their, their retail is like $1,200. The chairs at the office. Yeah. They don't, I don't get them for retail. I
know, but still they're like 400 bucks, $450 for the chairs.
They're pretty pricey, but they are there. They're very, very comfortable.
]I needed something where the, The, the arms could move up and down. Cause I like that that's important to me. And then it's just like a proper arrogance and you can pick and choose the color.
Oh, and a blue bottom
I believe seat and it works pretty good. And then, and then I have an in, at a furniture supply company and she said, no, don't those ones are good, but these ones are way better. And the
Yeah, her price was a little bit more. And now we've got all sorts of colours.
] So Paige's is yellow and gray and mine is red and gray. Yeah.
I like, I just, it here's a pet peeve of mine, corporate gear that is all black, like hoodies, all black hoodies, like, and then just, here's the standard chair. It's gotta be black. Why can't people have a little bit of expression. So we pick the chairs that are, uh, uh, uh, let us pick the fabric,
] You're listening to Fixing Faxes a podcast on the journey of building a digital health startup with your host myself, Angela Hapke.
And I'm Jonathan Bowers and I've started Zach in daycare. Yeah.
How are you feeling? How's Julie feeling?
Uh, it's pretty scary. We were just doing transition. So every, every day, this week I'm going with him for an hour and being with
week, just gets gradually, uh, longer. And I'm, I'm not
And then we start on the, the first, uh, that, uh, the eighth or whatever that first day in September is.
] Oh, it's scary. It's scary. And, and then, then yesterday
] we get a call. Okay. So one of the other, uh, families, has to self isolate. This may have been in contact with COVID and I was like, okay, well, this is the new reality, I
This is your new reality. This is a hard moment in life in an especially hard time. Oh,
He's doing quite well. He, we went the first day. He cried when we went in there. So one of the, one of the strange things that we've noticed about the pandemic and our, trying to follow the rules, so we don't go anywhere, but like, we don't go into buildings, we don't go places and we don't take Zach
And so I can't remember where we went once and he was really afraid to go inside a door. He, he looked at this new space and he didn't want to go inside. And we thought, Oh, this is, this is cause he's deconditioned to going places. And then kind of the same thing at, at
he was. Um, he was okay.
] Kind of going in, but he didn't want to be inside the room and it was a little bit overwhelming and he cried a bit and, uh, he, he calmed down fairly quickly. Um, and then he cried again when one of the when, one of the girls that was there, kind of ran ran at him. He didn't like that very much. but he got used to it and yesterday we just spent the hour or outside
that was, that was really fun. Um, yeah, I think, I think he's going to be okay. He's going to be okay. I know he's going to be, yeah. Okay. Um, but it's, it's hard.
It was about, um, two years ago, right around now is when we drop, started dropping off Nora for the first time. The first time that the actual drop-off happened , I wanted to be the one that did it, I'm going to drop off the girls.
]and then I just sat out in my car and cried. Both times, like I was like, so adamant that I was going to be the one that did it. And then I sat out in my car and cried and cried and cried and then phoned Brad both times like, Oh,
it's hard. So I've been taking him because, um, cause I worked from home and I'm like, it's just. You know, five minute drive away. So it makes sense for me to be dropping him off and picking him up. And Julie works kind of across town, um, in our minds, she had planned on being the one to take them through transition
but they said like, no, it needs to be one parent for the whole, the whole two weeks. And so we decided it makes the most sense for me to get familiar with it because I'm going to be do to dropping things off. So it was, yeah, it was really hard.
] Cause you know, she was kind of geared up to
she was ready. She was
to go and do it and now she doesn't get to and I'm, I'm the one doing it. So, um,
] okay. If you sit in your car and cry after,
I, yeah, I I'm, I am a more emotional about this than I expected to be
and it slaps you in the side of the face and you don't expect it and you're just like what?
]And good for you for taking time off right now. I think for too often, we don't take time off in these. Um, times in our life where there's some like there's change. We always like, Oh, I'll, I'll take time off for vacations. And I must have vacations and holidays and things like that, but we kind of forget that we need space around big change times
I think I recognized it, but I didn't, I didn't realize it was going to be quite as necessary. Like I thought, Oh, you know, I can, I can do half days or something like, no, I'll do the full days. Cause I got lots of like projects. I want to do some reading and some other things that are like just sort of recharged, but.
] Wow. I'm glad I have all morning to just think and stew about taking Zach to his daycare for an hour in the afternoon, and then it's over and done. And then we go play and, uh, it's a lot better.
] Oh, so fun. I love it. That's great. You guys are gonna do amazing.
I hope so. Funding bootstrapping. What does bootstrapping
Should one bootstrap. Um,
one bootstrap? I think I understand what the term bootstrapping means, but I, I feel a little fuzzy on it.
So bootstrapping to me may mean something different than it does to other people. I think bootstrapping, um, is like this broad term. And what I do feel like is it's more what it's not, and it's not venture capital. , it's not going out and fund raising.
Um, it's finding a way to do it, uh, among your tight, small team. In a lot of cases. I think for founders, it's probably just themselves, family and friends, uh, things like that, but it's not going out and doing the flashy venture capital parade.
The parade, the pageantry.
Right. It is a little bit,
so this, so, so CRS and Clinnect is not, um, not venture venture backed, so there's no, there's no institutional money. There's no external money either. I don't
there's no external money. There's no institutional money. There's no venture money. There's no ink angel money. Um, outside of, you know, co-founders, there's, um, There's none of that, but it was a process to get there to decide that. And I think that's more, what I kind of wanted to talk about today was if somebody like understanding what bootstrapping versus investment looks like capital investment looks like, and then why we went the route that we did. I think it's an interesting process.
Well, I mean, walk me through that a little bit. Like the, so it's not venture funded. I mean, there, there, there certainly is I don't want to say pressure, but there is a bit of keeping up with the Joneses-ness to venture funding, where people celebrate how much
And, uh, I remember, I think it might have been like Steve again, Steve Wandler said, you know, you don't celebrate the fact that the chef went and acquired all the ingredients.
you don't celebrate that you celebrate the, the meal.
yeah, not the fact that he went shopping.
no, but way too often, we are celebrating this shopping. you see, so often all these people celebrating these, you know, seed funding series A, series B, closures of millions and millions or whatever it looks like. And it's attractive who doesn't want to go out and get millions of dollars and say that you did.
]Um, but back to Steve's point is. But I also don't want to just celebrate the fact that I went out and got some ingredients who
you still have to, you still have to mix all that stuff together and
] The Pressure to Raise Money
yeah. Still do it. Still make the business makes sense. So did you feel that, did you feel that pressure, that, um, peer pressure to go off and do some external funding.
it's industry pressure. I think it's peer pressure. I think it's Oh gosh. It even comes to like, it feels like a bit of a popularity pressure. Just like all these kinds of things. Yeah, absolutely. It got, I got caught up in that for a little bit. I figured we could. We had a good idea.
]who is to say that we couldn't do that? there was a time when I wanted to go out and fundraise and go down that road. And then a couple of things happened that really changed the course and man Steve Wandler's going to get some shout outs in this episode, but he sat me down and said, um, okay, Angela, First off what's your TAM Tam is your total accessible market. We're dealing with primary care providers and specialists our customers. So it gave them the numbers, kind of Western Canada, Canada. And he just looked at me and he's like, you're not going to get any institutional money with that TAM.
] And it was so embarrassing because I was like, yeah, you're absolutely right. How the hell did I figure that I was going to, like, it was just so obvious.
Um, So, I mean, that was the number one thing where I was like, well, this is like, why would I bother then? so then that was kind of like the fall of last year.
Sorry, can we just, before we go onwards, so the, you looked at the numbers for, for your total addressable market for your TAM and it's, it's too small?
Too small. Yeah. For, for institutional money. So institutional money wants to see high growth, high numbers. They want to see millions of users. They want to see, um, the fact that you can be the horse that wins the race in like the money race. Right. And with a TAM, just at this point, focused on Canadian doctors is not a number large enough for institutional investors to be interested in you.
]And it was a bit, like I said, it was a bit embarrassing because I probably should have figured that out, but it took somebody to kind of like, look back at me and hold the mirror up and go. How do you figure that this would you're right? It won't. So that w that was a big one. It was also becoming, Oh, how, how do I say that?
] It was also becoming, not just a distraction, it was spending so much time trying to learn about institutional money, learn about, um, who was doing what out there, uh, how to do it, how to align, how to find an investor, how to find an investor that aligns with the principles and ethos of your company. And I mean, and that's, you know, we'll get to the kind of that part and the fact that we're a social enterprise and you need that alignment more so than ever.
] I wanted smart money. meaning that I wanted an institutional investor that was, that knew about digital health and understood the product and the market and, and it was just becoming overwhelming, distracting and I was spending too much time.
] Focusing on that rather than focusing on what the, what the hell did the product look like? What were, what were we building? What did the meal look like versus what ingredients did I want?
Yeah. And at that point you didn't have a sense of, um, yeah, there wasn't, there was no
There was no product. We had ideas. We had nothing, and that was the other thing we were going to go out. And what was I thinking? I was going to go out and sell, uh, an idea. Uh, with a small TAM to institutional investors, I would've got laughed out of rooms. that was the first reason that we were just like, no. Up until last year, around this time we had floated ourselves on government funding.
] Uh, we did fine. Like we paid salaries. So that was like, well, some salaries and that was partially paid for people.
To be clear. You haven't, you don't owe people money.
weren't drawing a salary is what you're
We also didn't have, like, it wasn't really employees at that point, they were all contractors. it was a project. If you very much look at like, you know, um, the idea of a project and that's what we were doing, then the next thing I thought was, well, we have to look for venture capital.
] That's what people do in my position at this point. We're running out of money. So what do we do? Well, we go out and find money. Um, so then that, that reality check last fall was a harsh one, but an incredibly important one. And then that's when I decided, well, we need to make this work, um, by bootstrapping.
] And so bootstrapping is in my, in my definition in Angela Hapke's definition of bootstrapping it is you find money. Among your, um, very close group of people. So in my case, it was, um, co founders and, uh, and I think it's typically they're founders co-founders or maybe a small friends and family. I don't even know if that's, is it friends and family round con I guess, would that be considered bootstrapping?
I mean, I would think so.
I feel like it's on the cusp,
your friends and family, certainly they don't have the sophistication to invest like an institutional investor would. I think it's more like, it's more like they're investing in you, not
] the business. So I think that would be.
]Finding Money When You're Running Out
So we got, yeah, so we got to the point where it was about January, February, we were running out of money. I think we had, you know, And I have no problem saying this because it is, it's kind of humorous and I think people need to hear the reality of all of this is I sat my shareholders down and I said, we have, um, one more payroll left in the bank account and that we're done.
] I was like, so I don't know what to do next. I've done everything I can up until this point. And, and now, now I'm looking at you guys to help out. And, uh, that's when we bootstrapped, we got some people from the group that said, yep, we will help fund this, uh, for the next year. It was the best thing in so many ways.
] What it did is it reengaged the group of people that I was, was working with, um, had skin in the game again, and I think for me, what it was too, is these are smart people. And they believed in me and the idea, and that was so empowering and just allowed me to, to kind of have the confidence to make the decisions again and like move forward.
] So it was, it was honestly, the best thing that could have happened for us was to just say, No more going after institutional money. It's not going to be there. It's going to be a distraction. It's going to be overwhelming. You're probably not going to be successful. Your failure rate is high. Um, what else can you do?
] And I was lucky enough to have a few people that were willing to say we can help.
Yeah, I think also, uh, it would be a very strange conversation with a venture capitalist to go in and say, um, our cofounders who are surgeons didn't put in any money of their own.
Now let's be clear. They like everybody had put in money at this point. Yep. Yep. But, um, to, to go to them and say, uh, they're not willing to put in anymore. Maybe, uh, it just would have been a really awkward comfort. Like there's so many reasons it would have been a bad conversation.
Like this so much money that you're a founders and co founders and friends and family can kick
] in. So if you were successful at getting some institutional money that would be maybe multiples or orders of magnitude more money, perhaps. The founders and friends and family are writing much smaller checks than venture capitalists would. So does does not having that in place. What does that change for you and for the plans of the business?
I think for us, it made us focus on the business plan itself, focus on the cashflow models. I ended up having to build out a very detailed three-year cashflow model and understand it so well. And really, really focus on the, um, the minutiae of, of the, the product and the company and understanding that that has helped me make better decisions.
]it's also helped us, hopefully, because we still know are not sustainable, but hopefully create a sustainable business model in the end is B because we are kind of penny pinching. it's forcing us to be really, uh, resilient and really kind of tight with our, with our money, like make really good decisions.
] We're not going out and just hiring a bunch of people.
]I think at the end of the day is the big question is, um, and I, you were alluding to it is, is, does this inhibit the growth of the company does not taking the big check mean that you're on a different trajectory than if you were to take that big check.
] I think it's so individualized to the company, the founders and things like that that, you know, to answer that question, I think for us, I think it would have put us on, um, not a great path. I truly think that the one that we're on is the right one and the one that we should be on.
] I think there's a lot of people out there that don't think you can grow without institutional based money. and I think that's wrong. I, I think, I think there's so many other reasons that you can grow, attracting the right talent, having a sustainable business plan that makes sense. And having a product that people want.
] I mean, the list goes on. It does not have to do with how big, the size of the check that you got was.
we're not trying to be a Facebook or an Instagram where that growth, that growth is so expensive because it's yeah, like you acquire customers one like without even necessarily having a business model. the business model makes sense.
] Right? You're the business model is you're getting money from customers, not, not from somewhere else or some imagined other place that you haven't figured out yet. So that seems pretty clear.
]you're not going to get that hypergrowth, which I don't think you were going to get anyways.
Exactly. I don't think we, we had the model for hyper growth anyway. Why, which would have been another reason that I probably would've got laughed out of rooms. Right? Like it would have just been like, no, thank you very much, but carry on. we're not the pony that's gonna win the money race.
] Right. And that's what, that's what institutional money is really geared towards. There's also a, like for us, we're a social enterprise. We have values and ethos at the epicenter of what we're doing and how hard it would have been to maintain those at the epicenter with, um, a really large check and an expectation with that large check to grow, grow, grow at all costs.
you wouldn't just be taking on money, you'd also be taking on some new bosses
Bingo. Yep. And that's another reason w uh, would have, um, been a really difficult path to find the right person. Um, we would've needed somebody that understood, uh, the industry understood the world that we were kind of in, that also had money that also was okay with us having, you know, security, privacy, and patients at the, at the center of our model.
I think one of the other issues that might be interesting here is that like being in Kamloops, there's very few, there's very few people in Kamloops that are writing checks.
]Um, I can. Count on my hands. The few that I know who might, but they also don't have the experience like, so, so who in Kamloops can one write a check to, has some understanding of operating a digital health company? And three is interested in some of the social side of things.
I don't even, I don't, I don't even know. So no one in Kamloops for sure. BC would be even a question mark. And then getting out of that, I mean, I'm. I haven't been in the tech industry for decades. I don't know all the names of all the people. And so just getting in front of people would have been absolutely hard.
because you're kind of the only founder, I mean, that's not true, like you have other founders, but you're the only one that is, um, operational. Right. So, yeah, you're, you're the one that is building the product, finding customers, managing the whole, the whole thing.
] So then to free you to spend half or all of your time trying to find the, you know, that one or two individual investors who would make a difference, seems like, like a flat. Yeah, like you said, like an extreme amount
an extreme amount of effort. Yeah, exactly. Yeah. And I mean, when I put it, you know, and I put it back to my co founders to say, Hey, We're we're in a really tough spot right now, and this is what it's going to take to get us out of it. Um, and they said, yes, that might have been like, I mean, in this whole journey of Clinnect, that might've been one of the highlights for me the day that we launched the product was amazing also.
] But when they like, literally came back and said, absolutely, we got you. Wow.
]Um, and to be honest on it, then I was scared to ask because it was a big ask and these people, I consider friends and it was a really hard thing to ask, but then I also come back to, well, if I can't ask my co founders and they can't explain it to them , do I think I'm cocky enough to then go walk into a room of strangers and pitch it to them maybe, but like, probably shouldn't if I can't even pitch it to my own, you know, founder group. It's such a tough decision. Like even when you know, Steve was like, I don't even know why you're considering this.
] I was a fit like. But maybe I could, like maybe I could come up with and why I can convince you, you know, but it's such a journey. All of this is such a journey, hoof. This one's been a really eyeopening.
] I have a friend who's also like, so she's a co founder of a tech company in Regina and we are so similar in where we sit.
] Like we are both the co founder the operational co-founder she's. She sits as the CEO also. we both are building a team. We launched our products within two months of each other. Uh, we both have little girls that are like roughly the same age. Like we're just, like I found, I found my, like my, my tech BFF and she went after, uh, institutional money.
] So this has been a really interesting journey. And we like, we have FaceTime coffee every Tuesday and we talk about life and the products and just everything. Like we talked about everything and it's been so interesting to hear her journey around going after the big checks and going after, um, yeah.
] The institutional money. And I tell you the amount of time that she spends doing that is her. Yeah,
Does she regret it?
no, no. She has a product that makes it makes a heck of a lot more sense. Um, uh, but it's been really interesting to like, have our like, compare worlds around that yeah, it's just, it's, it's an interesting world and I'm not, and I, I'm not saying that she shouldn't have gone for that money. I think, I think what the, what it's done is it's made a lot of sense for her. It's introduced her to a lot of people that have helped her too.
] So even the introductions themselves have been amazing. it's so individual, but I think it's so attractive to go after institutional money that sometimes we have to just pause and really understand is this the right thing for the company is the right thing for, for you as the founder too, because it can change everything. Yeah. And I'm glad we I'm glad we didn't. I'm glad we are on the path that we chose.
] Ask me in a year though. Maybe am I still happy with my decision?
Thanks for listening to Fixing Faxes, building a digital health startup.
] I am Jonathan Bowers. My cohost is Angela Hapke. Our music is by Andrew Codeman. Follow us on Twitter @FixingFaxes. You can find us wherever you like to listen to podcasts. We'd love for you to do us a favor and tell a friend. Thanks for listening. boop, boop, boop
We had Nora's birthday, third birthday.
] it was, I would like a rainbow farm cake.
Yeah, of course like a farm that grows rainbows.