Ceremonia's Babba (Canales) Rivera is celebrating her Latinx roots

In 2019 I launched Startup Standup here on LinkedIn. I had been a mentor to a lot of entrepreneurs that came to me for advice on raising money and just general startup tips. It was baffling to see that women had a really hard time raising money - especially when their business plans were on par (or even better in many cases) than male-founded companies.

In an effort to get the word out and learn from each other, the concept of Startup Standup was born. In Season 3 we'll hear from seven tenacious founders who are navigating the funding stage - whether it's Lexi who is still completely bootstrapped or Neha who pivoted her company and is ready to secure that next round of institutional funding. Make sure to click subscribe so you don’t miss an episode!

I'd love to hear what you think and if there are any other female founders I should get to know. Oh yeah, and let's all support these phenomenal founders! :)

Enjoy,

Marc 

Meet Babba

This week I'm talking to Babba (Canales) Rivera. After helping launch unicorn brands like Uber and Away and creating bybabba, a brand and marketing agency, Babba wanted to get back to her roots. In October 2020, she launched Ceremonia – a clean hair care brand rooted in Lantinx heritage. As a young girl, Babba was an immigrant living in Sweden with her Chilean parents. Her father was a hairdresser working out of their living room and spent his free time braiding her long hair. After moving to the United State, those memories countered with the lack of Latinx representation in the beauty industry inspired Babba to create change.

We chat about our love of Sweden, the need for greater representation within the beauty industry – and beyond, and how to use timing to your advantage when raising venture capital. We also discuss the most important metrics when building a DTC brand and how to showcase your knowledge and understanding of those numbers to investors, even when your business is still in the early stages.

Babba is one of only 58 Latina founders who have raised over $1M+ in venture funding and is determined to inspire other diverse entrepreneurs to go after their dreams. Take a listen!

Babba: Hi, Marc. It's great to meet you.

Marc: Hi.

Babba: ... and thanks for taking the time. I'm really excited to tell you a little bit more about Ceremonia and I will just dive right in and you can interrupt me anytime.

Marc: Okay, great.

Babba: I think we should start with a little bit about a founder story. Who am I? I am a Swedish-Latina and I was born in Sweden but in a very Hispanic family and both my parents are from Chile and they immigrated to Sweden during the Pinochet dictator and so they came to Sweden thinking it was a temporary thing and actually never learned the language because they kept thinking that they would eventually moved back to Chile.

Marc: Okay.

Babba: Long story short, we never moved back to Chile and my parents to this day actually don't speak any other language besides Spanish. So eventually I embarked on my career in the tech industry. I moved to Stockholm where I helped launch Uber and I had an amazing time at Uber. This Swedish market became the fastest growing market for Uber at the time and sort of put me on an interesting trajectory within the company. So eventually I was relocated to the New York office, ended up in the US, fell in love with New York and left Uber after four years to join another startup called Away. Are you familiar with Away?

Marc: I know Away, I know the founders, yeah.

Babba: Yeah, another unicorn brand and I joined them really early on as director of brand marketing and then later on I left to start my own company. I started a brand marketing agency and during that time it just became clear to me how still being in a country like the US where there are so many Hispanics, so many people like me, I still couldn't find myself represented in the business world or in the products that I consumed. Where are the brands that cater to LatinX and where are the left the LatinX founders? Well, it turns out that they're not that many of us, there are only 58 Latina founders who have ever raised over a million dollars. I happened to be one of them.

And that's crazy because Hispanics are the largest and fastest growing minority in the US, so we are introducing ceremonia.com, the future of LatinX haircare. We're in the earliest stages of our business, we soft launched with pre-orders at the end of October and started to officially ship products on November 10. And I find ourselves to be in a very unique position, we are positioned for disruption between mass and class, between drugstore and DTC. We offer clean formulas at an accessible pricing while still maintaining 78% margins. We have an appealing brand with authentic values and trusted products that is accessible to the masses. This is the Ceremonia Ritual. When we launched in October, we introduced our first product, the one you see all the way to the left the yellow one, Aceite de Moska and yesterday we introduced our second product that Pequi Curl Activator.

And these are all products that we already have in product development and that are ready to drop on a monthly basis. Since launch, we have acquired 25,000 Instagram followers, 25,000 email subscribers. We have over 100 Raving Product reviews of five-star reviews. And we have cultivated an internal community that we call the Ceremonia Familia insider community. And these are women with LatinX backgrounds that help us to co-create, they test our products in sampling phase, they get pre-access to products, they create photo shoots with us and they're really sort of an extension of our brand. We've seen great success with PR. We received over 50 press mentions since launch, including amazing outlets such as Vogue, Forbes, Alure, Fast Company. In December alone, we were included in 10 gift guides and this is really interesting. 10% of our revenue since launch has been driven by PR directly.

We have seen great sales, we reached a $100,000 in sales in the first month of business. We increased our average order value to over $40, which is really interesting when you think about our price point, our products are priced between 16 and $25 and we lowered our CPA to $34. We're now looking at an omnichannel strategy. We have self commitments from leading fashion retailer to lead international expansion. We have received inbound from leading US beauty retailers and we have interest from one of the biggest clean beauty players on Amazon and we have already sold 3000 units to Birchbox. This is 2020 at glance with just about two months in business. When we look at 2021, our plans are to expand into wholesale, launch in Europe with a strategic e-tail partner, expand our product line with monthly drops, accelerate our e-comm growth through SEO, affiliates, paid and PR. And increase repeat rates through subscriptions, loyalty programs and gift cards and continue to increase our average order value through smart bundles and limited edition merch. Thank you or gracias.

Marc: Great, thank you so much for going through that. I have a bunch of questions but let's start with just... I'm curious to hear your questions.

Babba: Yeah, so I basically have one big question for you and I closed a pre-seed round and in Q2 of last year and we raised one million dollars and that was meant to carry us through launch and we have run rates through July so we have time, but we have great momentum right now. We obviously are off to a great start and what's really interesting is that our January sales have actually already surpassed our December sales, which is very unique for a month in business in January and in the e-comm world which I'm sure you're aware of.

I feel like we should use this momentum to go and raise our next round since we are going to need it eventually and better to do it before you are in need, but there has been so many shifts in the D2C space. I think we've seen a lot of not so successful IPOs and D2C models pumping in money and having inflated valuations with no exit plan and so I'm trying to stay cautious of learning from peers, but at the same time not hold back and I'm curious to hear your thoughts on how would you approach just fundraising strategy in general for this type of category?

Marc: Yeah. I'm always of the mind that you try to raise as much money as you can, that it's always very hard to raise money and the market shifts, sometimes it's easy to raise money and sometimes it's really hard, depends on market conditions. It's been a particularly good run for startups to raise money that could change especially if your runway is July that's really six months away so I would definitely raise if you can. And you're talking about raising what probably a couple of million dollars or something?

Babba: Yeah, I was thinking 1.5 million.

Marc: Yeah, okay. 1.5 but if you could raise more, raise more. I always tell with this, raise what you can. The dilution is not going to matter if you create a really successful business-

Babba: Yeah, because that was going to be my next question. I guess the only reason dilution would matter for me is ownership, more so control of the company more so than the dollars.

Marc: Well, the thing about control first time entrepreneurs or even serial entrepreneurs, don't always fully appreciate that control of the board has nothing to do with ownership. So you can control the company with a very small percentage of the company where you can not have control and have a very large percentage of the company, it's all about who controls the board and what rights the investors have and so what I always like to do, especially in the early stage like this, is trying negotiate even a lower valuation for control and basically just say, "No, I want X number of board seats to your one board seat, because I want to maintain control," and that'll work well because I think at the end of the day, they'd rather have a better valuation than have control for the most part.

Babba: Yeah.

Marc: I would separate those two. If you think about it instead of like percentage ownership, I like to focus on share price, what's the share price to... You're raising money at a dollar a share, great. If I raise even more money at a dollar a share, my ownership goes down but now I have more capital to get from one dollar to two dollars, two dollars to three dollars, three dollars to four. It's just like owning any stock, if you think you can raise money and increase the share price, you do it. And the share price takes into account dilution because there's more shares outstanding and so if you raise more money and that causes the share price to go down because you can't invest it at all in any way that makes the share price go up, then that's probably not smart, but it's very rare that that's the case. Usually you raise more money, you can grow the share price faster.

Babba: And how would you go about board in general? So right now I am the board of the company. We had a pre-seed round, I would like to not go out and build a board too soon.

Marc: Yeah you don't have to build the board. You could have three seats and then give the investor's seed round one seat. So you have one of the four seats, you control the board but you don't have to fill the seats because it gets more cumbersome.

Babba: Exactly.

Marc: Keep them open and in the future one day maybe you'd put independents in there or people you trust but in the short term no, you just control three of the four seats. That's how you keep control.

Babba: Yeah, very valuable.

Marc: And if you go to additional rounds, if you're doing well, you could add more seats to yourself so that you continue to maintain control. So let's say you did a seed round, you gave away a board seat, you did an A and a B and you gave away two more seats, you gave away three seats and you had three. Well, now it's 50-50 but you could actually give yourself another seat or two so you have five and they have three. Depends on how well the business is doing and also depends on your leverage. If you give a better valuation, sometimes you can keep control and stuff so it depends on what's important to you. It sounds like control is important so I would focus on that.

Babba: Yeah, that's super valuable input because I feel you in the sense that it doesn't matter how much percent is your own if the company's not worth anything, then congrats you own a 100% of nothing. But I feel like the control part has definitely been something that has been bothering me that's why.

Marc: And the more money you raise, naturally, the higher the valuation is. So that's another little thing that people don't fully appreciate is if you go out and raise a million and a half, just to make the math easy say six pre-money, 7.5 post-money that's 20% dilution. If you go out and raise five million, maybe you would do that at a 10 pre and yeah it's a third dilution, but the dilution is not that much more you get an extra three and a half million. So it's not that you'd have to raise five million at the same six million pre, the more money you're raising the higher the pre money and post, because the more you can do with the money.

The more money, the more value the company is so it's circular argument. When I do startups now I like to raise like a100 million to start, just like seed because as long as you have a big enough idea to support it, the valuations got to be a lot higher than a 100, right?

Babba: Yeah, that's interesting.

Marc: You have money to put to work.

Babba: Yeah, because that's the other thing is when you are... I'm a sole founder too, so when I go out and fundraise that compromises ops, you can't be doing a 100% fundraising and a 100% percent ops so you don't want to be fundraising too often, ideally.

Marc: No, absolutely, that's another good point. Yeah, and also when I think about fundraising, I'm always thinking about the next round, not the current round I'm raising for but the next one. And so wanting to make sure that the investments that I bring are the right investors, that they're getting in at the right valuation so they can see momentum and they can see a step up in the valuation for next round because the investors you have, if you get the right investors, could be the ones to lead the next round, totally keep their pro rata. And so thinking about the next round, when you're thinking about the investors in this round, is really important. Not all investors are created equal.

Babba: If you think about the deck that I just walked you through, is there anything there that you think is unnecessary or something that you wish I should have included? If I were to go out and pitch you on this?

Marc: I have a few things. One, I love the story that you told upfront but right before the story, I still would want to know what one slide like what is this company and where are you? I have no idea what round, how many employees, how long you've been in existence, those basics. And then also, what exactly is it? Is it an app? Are you a retailer? Are you D2C? Do you make products? Very simply, almost like you're talking to a 10 year old. This is what it is, just to say that this is what it is, this is where you are and then you can tell the story with more context. I was listening to the story but I didn't know where it was going because I didn't even know what the business was at that point. I think that's something.

I think another thing that's missing is the vision. What you are hoping to create in 10 years, if everything goes to plan, do you want to just take those products you showed me, those six products, seven products whatever and sell a lot of them and that you'll be happy in 10 years or do you have a bigger vision? Is it a more holistic vision? Is it... Paint me a picture of how ambitious you're thinking about company long-term to get me as an investor excited that this is venture backable, because venture capitalists they're looking for that. They want to make sure they can come in and get a 20X at this stage.

Babba: Yeah, of course.

Marc: If you're coming in at a seven, 10 valuation, they want to make sure this is a multi 100 million dollar company. So I think painting the vision, you did size up the size of the Hispanic market relative to the overall market but I didn't see any numbers, like numbers, like size. And then what is your TAM? How big is the market that you're targeting more specifically? And what share do you think is reasonable given some of the other players share and some other things, paint a picture for me that comes after the vision that tells, "This is my big grand vision and by the way, this is the size of the market. This is the piece we think we can take. This is a multi 100 million dollar revenue opportunity here." Something of that magnitude.

The other thing that I didn't see there, I think is really important in these B2C businesses, is the unit economics. So basically you talked a little bit about your cost to acquire a customer but I'd want to know more about that and what you think the lifetime value of a customer is based on some early repeat rates. Even if you don't know exactly you can still paint a picture for me on like this is what you think the revenue is going to be on the next five years per customer, this is the profit, this is how the profit compares to the cost to acquire a customer and there's a really nice multiple. Your five year profit, I'd like to see at least three to four times the CAC or the cost to acquire a customer.

And if you got that well aligned and I feel good about the relationship, show me how you can scale marketing and spend more dollars at the same CAC. Have you done any tests? Do you know that you can spend more money at that CAC? Convince me of that. That would be a key part of it and also you went through a lot of slides on defining the problem. I think it could be even tighter, I think they're all really good parts of the problem but I think you could probably get that on one or if not two but ideally one slide, that just really framed up the most important elements of the problem the way you framed it up.

Babba: Yeah, super inspiring. I've been taking notes, this is super inspiring and I really appreciate the feedback on the deck. I feel like you want to tell a tight story but then you also want to make sure that you're not leaving out important components and I think having you with a fresh set of eyes and with your experience give this advice is super, super valuable. I'm sure it's obvious things to you but it's actually really, really valuable to me. So I really appreciate it.

Marc: Great, and don't be afraid to be transparent about things like you don't have the repeat rates right now because you don't have the products and just the more transparent you are, it gives the investors confidence. Because right now they're taking a bet on you in this round, this pre-seed, it's like a bet on you and the size of the market and your ability to execute and so not every round that's the case, in later rounds it's not as important but in the early rounds being transparent and sort of like that you get it, you know it's all about LTV and CAC relationship, you know where the repeat rate needs to get to, this is why you're confident, you're thinking about it. I think that's really important.

Babba: ...to be there today, I can show. Yeah, that's a good one.

Marc: Just your knowledge on it and that you're respecting that that is the whole game, as opposed to, "We don't have the numbers yet. We're not really looking," it seems not as strong of a-

Babba: Yeah and I can. The thing is, it's not like our numbers are bad. It's just that I think they can be way better because we've only dropped a second product so only realistic repeat rate is, people bought the first product now buying into the second product. Whereas when we have a more full routine and replenishment products, we'll start to see that take up for real.

Marc: Exactly. All right, well, it was great talking to you. Good luck.

Babba: Thank you, I really appreciate it.

Marc: I really enjoyed it too.