Accelerators, Founding Teams and The Future of E-Commerce
Episode 56
My guest today is Isabela Chick, Managing Director for Retail and Beauty at Founders Factory. Founders Factory is an investment fund, startup incubator and accelerator focused on delivering hands-on specialist support for founders.
Isabela tells us what she looks for in founders and what makes a business a strong investment for Founders Factory. She shares her insights on co-founding teams and structuring equity and team composition to create a strong foundation for your business. Isabela also talks about the changes in consumer behaviour and arising retail trends that are emerging as a result of the Covid-19 pandemic.
And finally Isabela tells us why now is a great time to be building a business.
This conversation was recorded on 24th September 2020. I hope you enjoy listening!
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This episode was sound edited by Beth Davison https://www.bethdavison.com/. Women On Top is a Let’s Be Frank production. https://letsbefrank.co
EPISODE 56 AUDIO TRANSCRIPT
Frankie Cotton Isabela, welcome to Women on Top!
Isabela Chick Thank you, Frankie. Lovely to be here.
Frankie Cotton Firstly, how are you? How are things?
Isabela Chick Fine. It's been it's been pretty busy about us actually recently supporting US start ups, fundraising, bringing on lots of new businesses on board. And I think we're heading into our busiest time ever. Say a bit of excitement, a little bit of trepidation as well.
Frankie Cotton Yeah, well, that's great. And I love hearing good news stories like that at the moment. I wonder if you could tell us you are the managing director for retail and beauty at Founders Factory. So for context, can you tell us a bit about the Founders factory model and how that works?
Isabela Chick Sure. So the Founders factory model is an accelerator where we invest into start-ups that exist already and a studio where we build businesses from scratch, as well. And I suppose one of the differences of our model relative to the sort of normal investment fund is that normally funds have a fund, so they've got lots of money to deploy and uses a really small team of people to deploy it. So you have kind of a small team of kind of venture partners and associates and so on. And we deploy a little bit less money, but we've employed an enormous teams. We've got 70 people. And the goal of these people is really to support founders in a really hands-on way. So we have hired everyone at an early stage start-up couldn't afford to, or wouldn't be able to attract all the way from kind of product design to data science, and growth marketing, fund and legal support – really kind of what you'd love to have as like a proper series B, series C, start-up, you get it at like pre-seed stage. So it's a slightly different model, much more focussed on hands-on support, and I suppose our thesis is that, you know, you get a linear return on money invested, but you get super linear return on proper hands-on support. So hopefully hat's true for us, but hopefully, it's also true for our start-ups in the portfolio that they can accelerate and really seise that market opportunity quickly.
Frankie Cotton Yeah. And I think that it's such a powerful model because, you know, just having the money, I mean, the money's great. Obviously, it's a resource. But having access to all of this experience and, you know, all of these brains almost on tap, it must be a goldmine for your founders.
Isabela Chick I think what it really helps is to move faster. So if you got money, it's great. But it takes a lot of time to hire people and find the right people. And it's quite a slow and risky process. So I think if we could remove some of that risk and enable you to get started, help you with those hires as well, hopefully, at the end of the time working with us, we try and kind of make sure that you're kind of ready to fly.
Frankie Cotton And my understanding is that you have sort of two programmes, is that right? So you have more of an incubator side of things, which is for earlier stage, and then you have the accelerator. And I wonder if you could tell us – let's start with the incubator. What does that involve, and who are you looking for at that stage?
Isabela Chick So our incubator, now called our studio model, it was previously called the incubator. On the studio side, we've got two good ways of operating there as well. One is where we come up with a business concept. We spotted an opportunity based on our knowledge of the market and we come up with a business concept and then we have to look for a founder. So at that point, we are looking for people that want to start a business, and are excited about the space and the idea. The other way we work is that we find a founder who has an idea and doesn't yet quite know how to build it, either doesn't have enough funding or just needs a team. And we work with those founders, and we call those founder-led studio businesses, but it's exactly the same way just that the idea came from a founder rather than from us.
Isabela Chick The process is essentially that they join factory, we make a first investment of one hundred thousand pounds to build the product. And once we think that there is a semblance of product market fit, that it looks like there's good traction and then they need to accelerate that growth – we put in the second tranche of investment of one hundred and fifty thousand pounds and typically they join the accelerator at that point. So we provide a kind of whole year of support on those businesses, so they start in the studio and graduate to the accelerator. And if we think about the accelerator model, we offer a small cash investment, a large amount of help. And we worked together for six months. It's completely bespoke. So what one start-up might want or need support with could be very, very different. In some cases, it's focussed on growth and fundraising. On others, it might be product design and data science. Essentially, I just sit down with the founders and try to work out what's some good objectives would be before the end of six months that we could both be proud of having achieved. And that forms our kind of blueprint for how we engage with them.
Frankie Cotton And which sectors, in particular, are you working and where are you supporting founders?
Isabela Chick So I work on the retail and beauty sectors, but I would take it businesses that affect those sectors. But it's not kind of purely things that you would see in a retail environment or necessarily beauty brands. So it can be anything from marketing technology that's really helpful for beauty. It could be things around supporting beauticians and the professional side of that industry to earn more money or facilitate their bookings. There could be lots of different ways of kind of looking at it. So it's more things that could address those two sectors.
Frankie Cotton Great, and in terms of the sort of day-to-day of your role and how involved you are with all of the various start-ups, as I imagine there's quite a large portfolio that sort of sits under your remit. What does that look like for you? Is there a typical day for you as M.D. of retail and beauty?
Isabela Chick I mean, I think the only thing I can draw from on my typical day is I spend 90 percent of my time working with founders to help them resolve some problem. I'm not able to solve all of the problems. So sometimes I'm just trying to figure out what the problem is and find out
Frankie Cotton Yeah.
Isabela Chick who could solve it, and other times I'm trying to solve it myself. If it's something about kind of strategic partnerships or fundraising deck or a narrative. But every day is different because every founder is different and every business is different to every day. So I'd say there's a good part of meeting founders, we're not yet invested in supporting founders that are currently either in the accelerator or the studio programmes and also supporting our portfolio because there's a lot of relationships existing with the businesses that have been through maybe a year or two ago, even up to four years ago when we were founded in 2015, so where coming up to our five year anniversary. So it's founders at different stages of their journey.
Frankie Cotton You just mentioned there that the Founders Factory was started in 2015 so coming up to five years. What are some of the key wins or, you know, businesses have spun out or really just experiences that come to mind for you when you reflect back on those years?
Isabela Chick Well, I first I should say that while Founders Factory was started in 2015, I didn't join until about a year and a half ago. So I can't reflect back all the way. But I think, I mean, it's hard because I suppose where also a start-up and five years seems like a long time, but actually we're just seeing a lot of the businesses that we've invested in or build kind of pass their series A now, we're sort of just at that hurdle. So I feel like it's actually it's too early to tell. And the best experience, I think, has just been to see these businesses flourish. So in any number of ways, I think there's probably an overly strong focus on fundraising metrics and, you know, a business that has raised a huge amount of mone, I don't know if that's more successful than a business that has raised less money, but has brilliant revenues and really happy customers. So I'm not even sure I know what the right metric would be other than founders seem to like working with us and recommend other founders to work with us. And therefore, for me, that's the biggest endorsement that we're doing something, right? And I don't think that we can take credit for the fantastic success of some of the businesses in our portfolio. That is down to the founders and the teams working on those businesses day-to-day for years. We're just a tiny bit on that journey.
Frankie Cotton Well, I'm sure you're more than a tiny bit on the journey, but yeah, I appreciate where you're coming from. As you say, having that sense that the founder really appreciates that support and that experience. And to recommend other founders, as you say, is a great way of measuring that experience, because, as you say, yes, we can all look at fundraising metrics and, you know, it's very newsworthy and the media likes to focus on those things. But actually, you know, that's not the be-all and end-all of what the process is about.
Isabela Chick And I think if a business is out to raise money, they're out for the wrong thing. They should be out to build a business to make their customers happy, just as my business Founders Factory is to make founders happy, and successful. So I think that's kind of the one thing is just focus on your customers.
Frankie Cotton And Isabella. I'm really curious. So when you looking at either filling a role so with your studio concepts and you're looking for an entrepreneur in residents, or when you're looking to bring in a start-up and a founder, what is it about that found that you're really looking for?
Isabela Chick I think founders have to be fairly resilient people. I think if you are quite resilient, what it enables you to do is to experiment a lot and to have the stomach that not all your experiments are going to work out, but you optimise for the potential of success rather than minimising risk. And I think that's probably the biggest hallmark. You know, there's lots of different founder archetypes, you know, more extroverted, more introverted, more tech focussed, more growth focussed. And they can all succeed brilliantly in different ways. But I think a sort of optimism that the world can be better or that they can have some major impact, and the resilience to just keep experimenting is, I think for a lot of the time, it feels at the early stages, like you're just trying to batter down a wall. I think optimism and resilience are probably the two hallmarks of the founders that we work with.
Frankie Cotton And is there a certain level of experience or, you know, some a founder having been through something or be a particular stage or do you invest in founders sort of that are really green and, you know, super experiences their range, what does that look like?
Isabela Chick So it is a range. And I think we look at how committed are they to build the specific business, whether it's their own start-up or one of the ones that we've created. And I think that can be people that are really experienced or people that are really green. I think part of the benefit of the support that Founders Factory gives is that it makes it a slightly smoother experience for a first time founder. But interestingly, when we are speaking to founders for the studio side specifically, we find it very appealing to second or third time founders who have firsthand knowledge of how hard it was and the first bit, and quite like the idea of having a sort of a sounding board, some support on tap. So it's funny, I think we're probably more geared towards quite young first time founders and all of that support is kind of on paper, perfect for them. But I think the people that see the value in it the most are actually the people that have been through it on their own before.
Frankie Cotton There's so much irony in that.
Isabela Chick Maybe we should think about how we communicate that better.
Frankie Cotton I just don't think that there's anything that sort of, you know, the experience of starting your first business or building something from scratch for the first time, I just feel like it's an unmatched experience that once you've sort of gone through it and come out the other side or even haven't come out the other side, just have started that, it's you have a whole new appreciation for what that experience actually is. And Isabella. I wonder I'm really interested to hear your perspective actually on cofounding teams because I feel like that's always a really interesting one for founders is will do I do it alone and do I then bring on a team or is it a 50/50 split? And what does that co-founder dynamic look like? Because, you know, if there is a if there is a break-up or a disagreement that can cause issues to the business later down the line.
Isabela Chick Yeah, I suppose maybe a sort of glib answer are very pro founders. And I think in order to support founders, it is important to recognise it can be incredibly lonely when you're building a business on your own. And in that regard, a co-founder can provide that kind of constant strategic sounding board, some reassurance that what your doing it isn't crazy. And I think there's a lot to be said for having somebody to bat ideas off. I think I've been quite lucky that I haven't seen it go wrong many times, but we do have this conversation a lot, particularly on the studio businesses, where we're working with founders who are thinking about what the composition should be of their founding team. And there is quite a range in terms of what people would consider their co-founder. And you can see kind of on the cap tables, that could be reflected by either a 50 50 equity split, a proper kind of co-building it together, co-owning co-founding, all the way through to a highly incentivised founding team member who is a kind of, two, three, five percent equity.
Frankie Cotton Yeah.
Isabela Chick I think, if I had to give any advice to cofounding teams, what I have learnt from the most successful ones is that they just spend a lot of time together and really they have to build a strong trust in one another just as human beings, not just professionals. And be very clear about roles and responsibilities and who makes the ultimate cool on certain areas. And I think with that clarity, it shouldn't go wrong that much. I think where things maybe I've heard of things going wrong is where it wasn't clear who was responsible for something and there's a feeling that somebody is dropping the ball, or not but it's just a sort of maybe a more intense relationship that you would have in a cofounding team anyway. And maybe that's the other thing we're starting to see much more, not just two co-founders, but the whole cofounding team starting to emerge so maybe three or four people. And that's something that I'm starting to see more and more.
Frankie Cotton Yeah, that's really interesting. And I guess it’s the key to it as well, really having those differentiated roles and having a really clear idea of who's responsible for different aspects of the business. I guess that's a key part of it, too, right?
Isabela Chick Yeah, I think that's I think that just helps for the kind of smooth running of the relationship, so, you know, that you are entirely responsible for what you're responsible for, and other people are there to support. And in other cases, they're responsible. And I think where those responsibilities are clear, you also know what your role is in terms of you just informing their opinion. Will you really respect whatever they decide? Or are you going to fight it at every turn? I think that becomes a real waste of time and a huge duplication of work. So I think just clarity of what everyone's kind of superpower is. What is it that you do brilliantly? And if that's the case, you want to ensure that that person is able to deliver. Whether able to deliver the most value for the business. So I think that is an interesting point in terms of what the composition of the team looks like. We often see also founders who start off as sole-founders and eventually bring in a co-founder.
Frankie Cotton Okay.
Isabela Chick As the business starts to take shape. So it doesn't always start from day one. And I think that is also quite interesting in terms of really practical advice. Leave a big enough, I suppose you can incentivise people properly, and I think that's kind of, you know, at the really early stages, it's really important that you don't know quite where the critical points are going to be in the product or in the business. And it's just really important to to be able to incentivise it when you find that brilliant person to join your team, whether that's a sort of senior high or a co-founder. Everyone needs to be incentivised for the long term to really build a budding business.
Frankie Cotton Yeah, absolutely. I think that's great advice. And Isabella, I wonder in terms of the expectation that Founders Factory has from its founders and from its portfolio companies, what is that? And have you had any experiences, and of course, you don't have to go into detail on this, but have you had any experiences where actually there was a mismatch in terms of those expectations and actually, a founder or a company that you had to split with and it didn't work out. And if so, what was the reason for that?
Isabela Chick So I think if there's one thing that we ask of founders, it's like a willingness to experiment. But it's great to have your objectives of where you want to get to. But it's not always a straight path from kind of zero to one. And we do encourage quite a lot of experimentation. I think where some of the things that haven't been quite as smooth have been where founders are very clear on how they think, one should get to those objectives, and asking for our support on a on a journey that they've already set out. And at that point, I think our support is probably less valuable to them in that way, because actually, if you want to just execute very specifically according to a plan, rather than finding kind of new ways of doing it, you're probably better off working with somebody who's going to challenge you a bit less. So I think kind of being open-minded to experimentation, there's never just the one way of getting there. And that is, I think, really important.
Frankie Cotton Yeah.
Isabela Chick For the way that we work, at least it's not necessarily the be-all and end-all. It's just how we do things.
Frankie Cotton Yeah. And that that definitely makes sense because, you know, you might have an idea or a way in your mind that you think that you can solve a problem for your customers. But practically as you learn along the way and you collect data and, you know, that could mean a huge shift change in the way that you do that unless you're open minded enough to even consider that. And as you say, to be challenged, you know, you could get yourself down a path where you really, you've gone too far and it's not really going to innovate or isn't really going to address a customer's problem in the way that you could. And that you perhaps should.
Isabela Chick Yeah. Exactly. Exactly. I think that's very accurate.
Frankie Cotton And Isabella, I'd love to ask you specifically some questions around beauty and retail. So, you know, obviously 2020 hasn't been the year we were expecting it to be back in sort of January, February time. And I wonder what you're seeing right now in in retail and in beauty and who is winning? What strategies are winning in those sectors?
Isabela Chick So I suppose if you look at it from a kind of macro perspective, you've got this rapid acceleration of e-commerce. We haven't been able to go into shops and therefore we have to buy online. That has meant a huge amount of changes, not so much for the direct to consumer brands, but for those more kind of mass market brands or the luxury brands where normally you're kind of testers and trials and everything are in store. And I think what's happened is that it's emerged that the kind of current eCom experience is slightly suboptimal. It's based on making a transaction rather than shopping. It's not that enjoyable, like it doesn't really replicate the sort of fun of going into a store. So I think there's quite a lot of businesses poised for success that are trying to reinvent that model and making it a little bit more interactive. Either in the discovery or in the kind of eCom experience itself. And I think that will benefit the brands hugely because they can continue that customer relationship, which they've lost today, either because everything everyone's buying their products on Amazon and they've lost that relationship completely or even on their website. But they're not really getting that kind of feedback that you got in store or in person. So I think that's probably the biggest trend that goes across retail and beauty. And then the other thing that we're seeing in beauty, which is, that a lot of people have been quite frustrated by the way that salons are being forced to stay closed by the rules that mean you can't get quite as many customers through as you'd like to in a day. And we're seeing an increasing number of people looking at going freelance. So in the US, this is a really established behaviour, and in the UK it's gaining speed really quickly. So I think that is from a, how do you get a beauty treatment done? That's changing drastically. So, you know, we've had kind of at home beauty services for a while, the likes of kind of Ruby or Blow, et cetera. But I think we're going to start to see more and more people be self-employed and choose where they want to work, whether that's from a space of their choosing, whether that's kind of in a mobile service or potentially even video and tele consultations for some of this stuff, because we've seen quite a big uptick in people doing more kind of DIY self care.
Frankie Cotton Yeah.
Isabela Chick So I think whole world has exploded in terms of how you can deliver your service to a customer and we're going to see a lot of start-ups emerge to address that need.
Frankie Cotton And I find it really interesting what you were saying there about Amazon as well and this sort of sub optimal e-commerce experience. And I think, you know, for me, certainly my experience as a consumer buying online during Covid is just having this frustration, still, that e-commerce just seems to be predominantly just stuck and it doesn't feel like it has moved on. I mean, there are large players, right? As you the Amazon system works, ASOS works. And it's tends to be this real sort of focus on delivery and the speed of delivery and the speed of returns. And do you still think that that is sort of the primary in terms of the customer experience, or do you think customers are looking for other things? You know, is sustainability an important factor or is it still speed and delivery and the ease of the movements of goods?
Isabela Chick Yeah, so I think those have come like hygiene factors, it has to be, pretty much free or fast delivery and free returns. That was kind of Amazon's big play and now they've educated us as customers to just expect that from everyone. So those have become the hygiene factors, and I think that actually where people can differentiate is in the actual shopping journey, from discovery through to the purchase experience and on the sustainability side – is there any kind of circularity to it? Is the packaging sustainable? Because I think, you know, you want it fast, but you don't want to feel more terrible than you need to about your fast fashion habit or something. So I think people are starting to care a lot more. But if you think about it as a kind of pyramid of Maslow's hierarchy of needs, I'd probably say that like speed of delivery and free returns, are that kind of baselayer, and sustainability probably sits kind of, you know, somewhere on the next one or two rounds. And I think we're starting to see a greater desire for that interactivity, as well, so that's kind of, you know, maybe that's kind of a slightly higher order benefit of I'd like enjoy e-commerce, not just not just get the products.
Frankie Cotton Yes, so. And would that be more of a sort of social element? Is that kind of what you expect?
Isabela Chick Yeah, I think a little bit more social or just more entertaining. So we've seen a massive boom in live streaming, live shopping, and we've got a start-up doing brilliantly in our portfolio, which enables brands and retailers to just have like a shop assistant or one of their staff do a livestream and it's kind of instantly shippable, so things that are just a bit more engaging.
Frankie Cotton Yeah, that's super interesting.
Isabela Chick Because I think the retail experience has always been a bit more than just buying the product.
Frankie Cotton Yeah.
Isabela Chick And I think when you're parting with your hard earned money, especially like going into recession it just needs to be something, a slightly more emotional relationship.
Frankie Cotton Yeah, absolutely. I couldn't agree more. Well, Isabella, I've got to say thank you so much for everything that you've shared with us and for telling us all about Founders Factory and how the process works. And I wonder, I've sort of got a question that I'd like to leave on, which is quite open ended, really. But do you have any advice for our listeners or perhaps is there something that we haven't covered that you'd like to sort of pass on? So whether that's something that you've learnt through your experience as an investor or, you know, working with founders, what would you like to share really with the listeners?
Isabela Chick I think if I had one thing to share, it would be that it's a really good time to be building a business don't be put off by the fact that fundraising has taken a bit longer, it's speeded up again now, we've got used to the fact that we don't get a meeting people in person very often, and life is cracked on. And that I'd really love to see more female founders and more founders from underrepresented backgrounds. There is a huge financial uncertainty when you leave a job to start your business. Please come and get in touch about a studio programme. The one thing that we offer is the ability for you to draw a salary. I think that does enable entrepreneurship to be accessible to people who still have bills to pay and don't have the luxury of saying, oh, you know, I'll build something and just survive for the next 18 months until I've got really a great product to market and I can raise some money. Do come and work with Founders Factory or other studios, it's still worth doing, you'll still playing for much bigger upside than you can in a day job, and it doesn't need to be risking everything you can just risk a bit. Yes, you're risking your time and your commitment. But there are systems to provide some of that financial support and emotional support as well, which is really important. And I would really encourage people that are nervous to explore some opportunities. There are you know, Founders Factory is I think, really good. But there are other people out there as well. It's a brilliant time to start a business, so don't fear.
Frankie Cotton I love that. And I think that's such a great positive note to end on. And also, I just find it really funny. I mean, maybe it's not funny, but, you know, this idea of, you know, taking or raising huge amounts of money and doing it all from your spare room and never having met somebody. Isn't that just amazing? Something that we would never have considered before and now it's happening. And isn't that incredible?
Isabela Chick Totally. It is absolutely incredible. You can work with teams from anywhere in the world. We're all on Zoom now anyway, so you've got the flexibility of who you work with. There's a lot of experimentation to be done. I mean, we thought we had a good way of working and start-ups had a very kind of a particular type of office generally. And that's all changing. And I think we're going to see more flexibility in that style benefiting a lot of people that couldn't do the other style. So I'm excited to see who else comes up with brilliant business ideas and come to the table. I'm excited to support different founders working in different ways.
Frankie Cotton Amazing. Well, you heard that you first. So if you're sitting on an idea and you've got something ready to go, then yeah, definitely go and get in touch with the team at Founders Factory. Well, Isabella, thank you so much. It's been great chatting with you.
Isabela Chick Thanks, Frankie.
Frankie Cotton Isabela, welcome to Women on Top!
Isabela Chick Thank you, Frankie. Lovely to be here.
Frankie Cotton Firstly, how are you? How are things?
Isabela Chick Fine. It's been it's been pretty busy about us actually recently supporting US start ups, fundraising, bringing on lots of new businesses on board. And I think we're heading into our busiest time ever. Say a bit of excitement, a little bit of trepidation as well.
Frankie Cotton Yeah, well, that's great. And I love hearing good news stories like that at the moment. I wonder if you could tell us you are the managing director for retail and beauty at Founders Factory. So for context, can you tell us a bit about the Founders factory model and how that works?
Isabela Chick Sure. So the Founders factory model is an accelerator where we invest into start-ups that exist already and a studio where we build businesses from scratch, as well. And I suppose one of the differences of our model relative to the sort of normal investment fund is that normally funds have a fund, so they've got lots of money to deploy and uses a really small team of people to deploy it. So you have kind of a small team of kind of venture partners and associates and so on. And we deploy a little bit less money, but we've employed an enormous teams. We've got 70 people. And the goal of these people is really to support founders in a really hands-on way. So we have hired everyone at an early stage start-up couldn't afford to, or wouldn't be able to attract all the way from kind of product design to data science, and growth marketing, fund and legal support – really kind of what you'd love to have as like a proper series B, series C, start-up, you get it at like pre-seed stage. So it's a slightly different model, much more focussed on hands-on support, and I suppose our thesis is that, you know, you get a linear return on money invested, but you get super linear return on proper hands-on support. So hopefully hat's true for us, but hopefully, it's also true for our start-ups in the portfolio that they can accelerate and really seise that market opportunity quickly.
Frankie Cotton Yeah. And I think that it's such a powerful model because, you know, just having the money, I mean, the money's great. Obviously, it's a resource. But having access to all of this experience and, you know, all of these brains almost on tap, it must be a goldmine for your founders.
Isabela Chick I think what it really helps is to move faster. So if you got money, it's great. But it takes a lot of time to hire people and find the right people. And it's quite a slow and risky process. So I think if we could remove some of that risk and enable you to get started, help you with those hires as well, hopefully, at the end of the time working with us, we try and kind of make sure that you're kind of ready to fly.
Frankie Cotton And my understanding is that you have sort of two programmes, is that right? So you have more of an incubator side of things, which is for earlier stage, and then you have the accelerator. And I wonder if you could tell us – let's start with the incubator. What does that involve, and who are you looking for at that stage?
Isabela Chick So our incubator, now called our studio model, it was previously called the incubator. On the studio side, we've got two good ways of operating there as well. One is where we come up with a business concept. We spotted an opportunity based on our knowledge of the market and we come up with a business concept and then we have to look for a founder. So at that point, we are looking for people that want to start a business, and are excited about the space and the idea. The other way we work is that we find a founder who has an idea and doesn't yet quite know how to build it, either doesn't have enough funding or just needs a team. And we work with those founders, and we call those founder-led studio businesses, but it's exactly the same way just that the idea came from a founder rather than from us.
Isabela Chick The process is essentially that they join factory, we make a first investment of one hundred thousand pounds to build the product. And once we think that there is a semblance of product market fit, that it looks like there's good traction and then they need to accelerate that growth – we put in the second tranche of investment of one hundred and fifty thousand pounds and typically they join the accelerator at that point. So we provide a kind of whole year of support on those businesses, so they start in the studio and graduate to the accelerator. And if we think about the accelerator model, we offer a small cash investment, a large amount of help. And we worked together for six months. It's completely bespoke. So what one start-up might want or need support with could be very, very different. In some cases, it's focussed on growth and fundraising. On others, it might be product design and data science. Essentially, I just sit down with the founders and try to work out what's some good objectives would be before the end of six months that we could both be proud of having achieved. And that forms our kind of blueprint for how we engage with them.
Frankie Cotton And which sectors, in particular, are you working and where are you supporting founders?
Isabela Chick So I work on the retail and beauty sectors, but I would take it businesses that affect those sectors. But it's not kind of purely things that you would see in a retail environment or necessarily beauty brands. So it can be anything from marketing technology that's really helpful for beauty. It could be things around supporting beauticians and the professional side of that industry to earn more money or facilitate their bookings. There could be lots of different ways of kind of looking at it. So it's more things that could address those two sectors.
Frankie Cotton Great, and in terms of the sort of day-to-day of your role and how involved you are with all of the various start-ups, as I imagine there's quite a large portfolio that sort of sits under your remit. What does that look like for you? Is there a typical day for you as M.D. of retail and beauty?
Isabela Chick I mean, I think the only thing I can draw from on my typical day is I spend 90 percent of my time working with founders to help them resolve some problem. I'm not able to solve all of the problems. So sometimes I'm just trying to figure out what the problem is and find out
Frankie Cotton Yeah.
Isabela Chick who could solve it, and other times I'm trying to solve it myself. If it's something about kind of strategic partnerships or fundraising deck or a narrative. But every day is different because every founder is different and every business is different to every day. So I'd say there's a good part of meeting founders, we're not yet invested in supporting founders that are currently either in the accelerator or the studio programmes and also supporting our portfolio because there's a lot of relationships existing with the businesses that have been through maybe a year or two ago, even up to four years ago when we were founded in 2015, so where coming up to our five year anniversary. So it's founders at different stages of their journey.
Frankie Cotton You just mentioned there that the Founders Factory was started in 2015 so coming up to five years. What are some of the key wins or, you know, businesses have spun out or really just experiences that come to mind for you when you reflect back on those years?
Isabela Chick Well, I first I should say that while Founders Factory was started in 2015, I didn't join until about a year and a half ago. So I can't reflect back all the way. But I think, I mean, it's hard because I suppose where also a start-up and five years seems like a long time, but actually we're just seeing a lot of the businesses that we've invested in or build kind of pass their series A now, we're sort of just at that hurdle. So I feel like it's actually it's too early to tell. And the best experience, I think, has just been to see these businesses flourish. So in any number of ways, I think there's probably an overly strong focus on fundraising metrics and, you know, a business that has raised a huge amount of mone, I don't know if that's more successful than a business that has raised less money, but has brilliant revenues and really happy customers. So I'm not even sure I know what the right metric would be other than founders seem to like working with us and recommend other founders to work with us. And therefore, for me, that's the biggest endorsement that we're doing something, right? And I don't think that we can take credit for the fantastic success of some of the businesses in our portfolio. That is down to the founders and the teams working on those businesses day-to-day for years. We're just a tiny bit on that journey.
Frankie Cotton Well, I'm sure you're more than a tiny bit on the journey, but yeah, I appreciate where you're coming from. As you say, having that sense that the founder really appreciates that support and that experience. And to recommend other founders, as you say, is a great way of measuring that experience, because, as you say, yes, we can all look at fundraising metrics and, you know, it's very newsworthy and the media likes to focus on those things. But actually, you know, that's not the be-all and end-all of what the process is about.
Isabela Chick And I think if a business is out to raise money, they're out for the wrong thing. They should be out to build a business to make their customers happy, just as my business Founders Factory is to make founders happy, and successful. So I think that's kind of the one thing is just focus on your customers.
Frankie Cotton And Isabella. I'm really curious. So when you looking at either filling a role so with your studio concepts and you're looking for an entrepreneur in residents, or when you're looking to bring in a start-up and a founder, what is it about that found that you're really looking for?
Isabela Chick I think founders have to be fairly resilient people. I think if you are quite resilient, what it enables you to do is to experiment a lot and to have the stomach that not all your experiments are going to work out, but you optimise for the potential of success rather than minimising risk. And I think that's probably the biggest hallmark. You know, there's lots of different founder archetypes, you know, more extroverted, more introverted, more tech focussed, more growth focussed. And they can all succeed brilliantly in different ways. But I think a sort of optimism that the world can be better or that they can have some major impact, and the resilience to just keep experimenting is, I think for a lot of the time, it feels at the early stages, like you're just trying to batter down a wall. I think optimism and resilience are probably the two hallmarks of the founders that we work with.
Frankie Cotton And is there a certain level of experience or, you know, some a founder having been through something or be a particular stage or do you invest in founders sort of that are really green and, you know, super experiences their range, what does that look like?
Isabela Chick So it is a range. And I think we look at how committed are they to build the specific business, whether it's their own start-up or one of the ones that we've created. And I think that can be people that are really experienced or people that are really green. I think part of the benefit of the support that Founders Factory gives is that it makes it a slightly smoother experience for a first time founder. But interestingly, when we are speaking to founders for the studio side specifically, we find it very appealing to second or third time founders who have firsthand knowledge of how hard it was and the first bit, and quite like the idea of having a sort of a sounding board, some support on tap. So it's funny, I think we're probably more geared towards quite young first time founders and all of that support is kind of on paper, perfect for them. But I think the people that see the value in it the most are actually the people that have been through it on their own before.
Frankie Cotton There's so much irony in that.
Isabela Chick Maybe we should think about how we communicate that better.
Frankie Cotton I just don't think that there's anything that sort of, you know, the experience of starting your first business or building something from scratch for the first time, I just feel like it's an unmatched experience that once you've sort of gone through it and come out the other side or even haven't come out the other side, just have started that, it's you have a whole new appreciation for what that experience actually is. And Isabella. I wonder I'm really interested to hear your perspective actually on cofounding teams because I feel like that's always a really interesting one for founders is will do I do it alone and do I then bring on a team or is it a 50/50 split? And what does that co-founder dynamic look like? Because, you know, if there is a if there is a break-up or a disagreement that can cause issues to the business later down the line.
Isabela Chick Yeah, I suppose maybe a sort of glib answer are very pro founders. And I think in order to support founders, it is important to recognise it can be incredibly lonely when you're building a business on your own. And in that regard, a co-founder can provide that kind of constant strategic sounding board, some reassurance that what your doing it isn't crazy. And I think there's a lot to be said for having somebody to bat ideas off. I think I've been quite lucky that I haven't seen it go wrong many times, but we do have this conversation a lot, particularly on the studio businesses, where we're working with founders who are thinking about what the composition should be of their founding team. And there is quite a range in terms of what people would consider their co-founder. And you can see kind of on the cap tables, that could be reflected by either a 50 50 equity split, a proper kind of co-building it together, co-owning co-founding, all the way through to a highly incentivised founding team member who is a kind of, two, three, five percent equity.
Frankie Cotton Yeah.
Isabela Chick I think, if I had to give any advice to cofounding teams, what I have learnt from the most successful ones is that they just spend a lot of time together and really they have to build a strong trust in one another just as human beings, not just professionals. And be very clear about roles and responsibilities and who makes the ultimate cool on certain areas. And I think with that clarity, it shouldn't go wrong that much. I think where things maybe I've heard of things going wrong is where it wasn't clear who was responsible for something and there's a feeling that somebody is dropping the ball, or not but it's just a sort of maybe a more intense relationship that you would have in a cofounding team anyway. And maybe that's the other thing we're starting to see much more, not just two co-founders, but the whole cofounding team starting to emerge so maybe three or four people. And that's something that I'm starting to see more and more.
Frankie Cotton Yeah, that's really interesting. And I guess it’s the key to it as well, really having those differentiated roles and having a really clear idea of who's responsible for different aspects of the business. I guess that's a key part of it, too, right?
Isabela Chick Yeah, I think that's I think that just helps for the kind of smooth running of the relationship, so, you know, that you are entirely responsible for what you're responsible for, and other people are there to support. And in other cases, they're responsible. And I think where those responsibilities are clear, you also know what your role is in terms of you just informing their opinion. Will you really respect whatever they decide? Or are you going to fight it at every turn? I think that becomes a real waste of time and a huge duplication of work. So I think just clarity of what everyone's kind of superpower is. What is it that you do brilliantly? And if that's the case, you want to ensure that that person is able to deliver. Whether able to deliver the most value for the business. So I think that is an interesting point in terms of what the composition of the team looks like. We often see also founders who start off as sole-founders and eventually bring in a co-founder.
Frankie Cotton Okay.
Isabela Chick As the business starts to take shape. So it doesn't always start from day one. And I think that is also quite interesting in terms of really practical advice. Leave a big enough, I suppose you can incentivise people properly, and I think that's kind of, you know, at the really early stages, it's really important that you don't know quite where the critical points are going to be in the product or in the business. And it's just really important to to be able to incentivise it when you find that brilliant person to join your team, whether that's a sort of senior high or a co-founder. Everyone needs to be incentivised for the long term to really build a budding business.
Frankie Cotton Yeah, absolutely. I think that's great advice. And Isabella, I wonder in terms of the expectation that Founders Factory has from its founders and from its portfolio companies, what is that? And have you had any experiences, and of course, you don't have to go into detail on this, but have you had any experiences where actually there was a mismatch in terms of those expectations and actually, a founder or a company that you had to split with and it didn't work out. And if so, what was the reason for that?
Isabela Chick So I think if there's one thing that we ask of founders, it's like a willingness to experiment. But it's great to have your objectives of where you want to get to. But it's not always a straight path from kind of zero to one. And we do encourage quite a lot of experimentation. I think where some of the things that haven't been quite as smooth have been where founders are very clear on how they think, one should get to those objectives, and asking for our support on a on a journey that they've already set out. And at that point, I think our support is probably less valuable to them in that way, because actually, if you want to just execute very specifically according to a plan, rather than finding kind of new ways of doing it, you're probably better off working with somebody who's going to challenge you a bit less. So I think kind of being open-minded to experimentation, there's never just the one way of getting there. And that is, I think, really important.
Frankie Cotton Yeah.
Isabela Chick For the way that we work, at least it's not necessarily the be-all and end-all. It's just how we do things.
Frankie Cotton Yeah. And that that definitely makes sense because, you know, you might have an idea or a way in your mind that you think that you can solve a problem for your customers. But practically as you learn along the way and you collect data and, you know, that could mean a huge shift change in the way that you do that unless you're open minded enough to even consider that. And as you say, to be challenged, you know, you could get yourself down a path where you really, you've gone too far and it's not really going to innovate or isn't really going to address a customer's problem in the way that you could. And that you perhaps should.
Isabela Chick Yeah. Exactly. Exactly. I think that's very accurate.
Frankie Cotton And Isabella, I'd love to ask you specifically some questions around beauty and retail. So, you know, obviously 2020 hasn't been the year we were expecting it to be back in sort of January, February time. And I wonder what you're seeing right now in in retail and in beauty and who is winning? What strategies are winning in those sectors?
Isabela Chick So I suppose if you look at it from a kind of macro perspective, you've got this rapid acceleration of e-commerce. We haven't been able to go into shops and therefore we have to buy online. That has meant a huge amount of changes, not so much for the direct to consumer brands, but for those more kind of mass market brands or the luxury brands where normally you're kind of testers and trials and everything are in store. And I think what's happened is that it's emerged that the kind of current eCom experience is slightly suboptimal. It's based on making a transaction rather than shopping. It's not that enjoyable, like it doesn't really replicate the sort of fun of going into a store. So I think there's quite a lot of businesses poised for success that are trying to reinvent that model and making it a little bit more interactive. Either in the discovery or in the kind of eCom experience itself. And I think that will benefit the brands hugely because they can continue that customer relationship, which they've lost today, either because everything everyone's buying their products on Amazon and they've lost that relationship completely or even on their website. But they're not really getting that kind of feedback that you got in store or in person. So I think that's probably the biggest trend that goes across retail and beauty. And then the other thing that we're seeing in beauty, which is, that a lot of people have been quite frustrated by the way that salons are being forced to stay closed by the rules that mean you can't get quite as many customers through as you'd like to in a day. And we're seeing an increasing number of people looking at going freelance. So in the US, this is a really established behaviour, and in the UK it's gaining speed really quickly. So I think that is from a, how do you get a beauty treatment done? That's changing drastically. So, you know, we've had kind of at home beauty services for a while, the likes of kind of Ruby or Blow, et cetera. But I think we're going to start to see more and more people be self-employed and choose where they want to work, whether that's from a space of their choosing, whether that's kind of in a mobile service or potentially even video and tele consultations for some of this stuff, because we've seen quite a big uptick in people doing more kind of DIY self care.
Frankie Cotton Yeah.
Isabela Chick So I think whole world has exploded in terms of how you can deliver your service to a customer and we're going to see a lot of start-ups emerge to address that need.
Frankie Cotton And I find it really interesting what you were saying there about Amazon as well and this sort of sub optimal e-commerce experience. And I think, you know, for me, certainly my experience as a consumer buying online during Covid is just having this frustration, still, that e-commerce just seems to be predominantly just stuck and it doesn't feel like it has moved on. I mean, there are large players, right? As you the Amazon system works, ASOS works. And it's tends to be this real sort of focus on delivery and the speed of delivery and the speed of returns. And do you still think that that is sort of the primary in terms of the customer experience, or do you think customers are looking for other things? You know, is sustainability an important factor or is it still speed and delivery and the ease of the movements of goods?
Isabela Chick Yeah, so I think those have come like hygiene factors, it has to be, pretty much free or fast delivery and free returns. That was kind of Amazon's big play and now they've educated us as customers to just expect that from everyone. So those have become the hygiene factors, and I think that actually where people can differentiate is in the actual shopping journey, from discovery through to the purchase experience and on the sustainability side – is there any kind of circularity to it? Is the packaging sustainable? Because I think, you know, you want it fast, but you don't want to feel more terrible than you need to about your fast fashion habit or something. So I think people are starting to care a lot more. But if you think about it as a kind of pyramid of Maslow's hierarchy of needs, I'd probably say that like speed of delivery and free returns, are that kind of baselayer, and sustainability probably sits kind of, you know, somewhere on the next one or two rounds. And I think we're starting to see a greater desire for that interactivity, as well, so that's kind of, you know, maybe that's kind of a slightly higher order benefit of I'd like enjoy e-commerce, not just not just get the products.
Frankie Cotton Yes, so. And would that be more of a sort of social element? Is that kind of what you expect?
Isabela Chick Yeah, I think a little bit more social or just more entertaining. So we've seen a massive boom in live streaming, live shopping, and we've got a start-up doing brilliantly in our portfolio, which enables brands and retailers to just have like a shop assistant or one of their staff do a livestream and it's kind of instantly shippable, so things that are just a bit more engaging.
Frankie Cotton Yeah, that's super interesting.
Isabela Chick Because I think the retail experience has always been a bit more than just buying the product.
Frankie Cotton Yeah.
Isabela Chick And I think when you're parting with your hard earned money, especially like going into recession it just needs to be something, a slightly more emotional relationship.
Frankie Cotton Yeah, absolutely. I couldn't agree more. Well, Isabella, I've got to say thank you so much for everything that you've shared with us and for telling us all about Founders Factory and how the process works. And I wonder, I've sort of got a question that I'd like to leave on, which is quite open ended, really. But do you have any advice for our listeners or perhaps is there something that we haven't covered that you'd like to sort of pass on? So whether that's something that you've learnt through your experience as an investor or, you know, working with founders, what would you like to share really with the listeners?
Isabela Chick I think if I had one thing to share, it would be that it's a really good time to be building a business don't be put off by the fact that fundraising has taken a bit longer, it's speeded up again now, we've got used to the fact that we don't get a meeting people in person very often, and life is cracked on. And that I'd really love to see more female founders and more founders from underrepresented backgrounds. There is a huge financial uncertainty when you leave a job to start your business. Please come and get in touch about a studio programme. The one thing that we offer is the ability for you to draw a salary. I think that does enable entrepreneurship to be accessible to people who still have bills to pay and don't have the luxury of saying, oh, you know, I'll build something and just survive for the next 18 months until I've got really a great product to market and I can raise some money. Do come and work with Founders Factory or other studios, it's still worth doing, you'll still playing for much bigger upside than you can in a day job, and it doesn't need to be risking everything you can just risk a bit. Yes, you're risking your time and your commitment. But there are systems to provide some of that financial support and emotional support as well, which is really important. And I would really encourage people that are nervous to explore some opportunities. There are you know, Founders Factory is I think, really good. But there are other people out there as well. It's a brilliant time to start a business, so don't fear.
Frankie Cotton I love that. And I think that's such a great positive note to end on. And also, I just find it really funny. I mean, maybe it's not funny, but, you know, this idea of, you know, taking or raising huge amounts of money and doing it all from your spare room and never having met somebody. Isn't that just amazing? Something that we would never have considered before and now it's happening. And isn't that incredible?
Isabela Chick Totally. It is absolutely incredible. You can work with teams from anywhere in the world. We're all on Zoom now anyway, so you've got the flexibility of who you work with. There's a lot of experimentation to be done. I mean, we thought we had a good way of working and start-ups had a very kind of a particular type of office generally. And that's all changing. And I think we're going to see more flexibility in that style benefiting a lot of people that couldn't do the other style. So I'm excited to see who else comes up with brilliant business ideas and come to the table. I'm excited to support different founders working in different ways.
Frankie Cotton Amazing. Well, you heard that you first. So if you're sitting on an idea and you've got something ready to go, then yeah, definitely go and get in touch with the team at Founders Factory. Well, Isabella, thank you so much. It's been great chatting with you.
Isabela Chick Thanks, Frankie.
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