Raising ￡2m pre-seed round for Kuai Commerce — Part 1

My co-founders and I managed to raise a ￡2m pre-seed round for a business, with no revenue, no (live) product, and in the worst market for start-ups we have seen in a decade.

And if that wasn’t enough, our business is focused on the Chinese ecommerce market, a market that most European investors know frighteningly little about given its size and importance.

In summary, our business is very easy to say no to in normal times, let alone a year where a Chinese invasion of Taiwan was on many commentators’ lips, not helped by Nancy Pelosi‘s curious jet-setting habits.

So why are we building Kuai Commerce? Simply put, our business?needs?to be built.

We are building a solution for western brands to sell their products D2C to Chinese consumers, using the power of social commerce. This means that brands who never even considered China as a potential market can now enter and succeed using our full-stack solution. This will be a genuine game changer for consumer start-ups all over the western world.

Fundraising for this business was built on two guiding principles that a lot of investors say they look for: Market Size and Founder Fit.

The Market Size of our opportunity is undeniably large. The Chinese ecommerce market is not only the largest in the world, but it is larger than all the world’s other ecommerce markets combined. That is hard to wrap your head around, but if ￡100 was spent on ecommerce in proportion to that market size. ￡51 is spent in China and ￡49 is spent everywhere else.

As for Founder Fit, I challenge you to find a team with a stronger fit than ours. My co-founders both studied Chinese at Oxford and have run an Agency together for the last 9 years doing the marketing of western brands in China.

That Agency has worked with over 120 brands including huge names like Clinique, Foster + Partners and The North Face. They both speak Chinese and one of them has a Masters Degree in Chinese Internet Policy.

Myself, I am an exited tech founder having sold the first start-up I founded, Pouch (joinpouch.com). Post-acquisition that business grew to 7-figure ARR and a team of 25. You can read more about the team?here?if you are interested.

In summary, the team is one of the best-positioned in the world to build this business. We fully understand our edge and have solid previous experience both in China and building from 0–1.

Part 1 — Announcing the raise…and then a war started…

Having exited Pouch and having been through a raise before, we already had a long list of Angels we were planning to reach out to for investment. Our minimum raise was ￡1.2m and our stretch goal was ￡2m. We announced the raise on LinkedIn and quickly got to about 100 people in our CRM to contact for investment. These initial conversations went well and we got close to ￡200k committed in just a few weeks.

But then Russia invaded Ukraine and this changed everything. It wasn’t just the fact we had a war in mainland Europe that made things complicated, it was the shift in geopolitics that made people ask: “If Russia could invade Ukraine, then what would stop China from invading Taiwan?” Whilst this remained highly unlikely, most investors don’t have a detailed grasp of Chinese geopolitics, and this perceived risk made us an easy no.

There is only one way to say yes to investment and 1000 to say no. From market size to tech moats to competition, there are so many things that can make investors say no, and this geopolitical situation was a really easy reason for someone to give.?And we heard a lot of NOs.?Combining this with what was happening in the public markets, especially with tech stocks and rising interest rates, meant there was a lot of nervousness. Those factors made raising money hard, even though we had founder fit and market size covered.

No matter how much you think you have nailed your pitch, you can only really know how good it is when you put it in front of people, and if the same concerns keep coming up you can then address them.

We typically found Angels fell into four categories:

1. People who are bullish on the Chinese market — Easy yes
2. People who are backing us as individuals based on our experience and vision even though they know nothing about the market — Slightly less but still easy yes
3. People who won’t touch China — Easy no
4. People who are curious but want to dig deep and learn more — Slow yes or no

We, of course, spent most of our effort with the fourth category, the most time-consuming one.

Apart from founder fit and market size, investors also look for traction. We had previously built an MVP that allowed western brands to sell via Wechat. The product was sold to 6 brands and generated about ￡500,000 in revenue. But this was a different model and this pilot had taken place a year before. So whilst we counted this as traction or at least a proof of concept, most investors discounted this, especially in this new, more cautious market.

Additionally, our business is one that requires a reasonable amount of cash for setup costs such as setting up the Chinese entity and technology integrations. So it isn’t that easy to spin up a new MVP without a significant cash outlay, hence why we were raising a large pre-seed round, rather than a typical ￡500k round.

After spending March and April 2022 speaking to Angels we had about ￡250k committed, at this rate it would take us 12 months just to reach our minimum target, and as some of you know, the longer fundraising goes on, the less likely it is to complete.

By that stage, I was sure of two things:

1. Raising a round from Angels only would be too limiting in speed and scale, we needed VC money
2. We needed to start signing brands for a service that did not exist yet.

Part 2 — The Middle…coming soon