The toucan and the egg

Episode 21: 19/08/2022

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Sometimes, you realise the molehill you are strolling up is actually a mountain but it is far too late to turn back. The mission to finish El Toco’s website was like that. In April 2022, we scaled that mole-tain in the end. And when, gasping and sweaty, we reached the summit, two things were revealed from the dizzying heights.

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One of them was the good news that we definitely don’t need to build anything else before El Toco can go live. What a relief, glad that’s out of the way.

On the other hand, there isn't enough money left to switch it on.?

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This means that the moment has arrived to proudly present the El Toco search engine to the world, and find some proper investors. It is time to jump into the sharks’ den.

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This is a different kind of fundraising from our first one in 2019. Back then, we had only the prototype and a roadmap for how to turn it into a product. Three years later, we now have that product, and this puts El Toco in a weird position.

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Since it isn’t live yet, we are still at what the startup community calls the seed stage. This puts us in the same broad bucket as many founders with an idea and a PowerPoint presentation. Reading around the subject, I discover that some early-stage investors choose founders carefully but don’t even care about the idea part. Amazingly, they seem to work on the principle that if you add one part founder to ten parts money and throw the resulting mixture at a wall, some of it will inevitably stick.

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There is a vast gulf between that kind of seed stage and El Toco as of spring 2022. Measured in time, it is a gulf that is six eventful years long. Of course, we all know that it's probably only so long because of all the stuff that went wrong on the way. But this doesn’t detract from the achievement. Against all the odds, we have delivered the minor technological miracle of creating a brand new search engine, on a shoestring budget.

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This makes it rather galling to read on many investors’ websites that, after all this blood sweat and tears, they put us in the same class as a lot of other companies which basically don’t exist yet.

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We need to stand out. I concoct a plan.

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The pitch book

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Investors receive pitch decks electronically all the time. Many have forms on their websites to streamline the process. It's all a bit too easy.

The cornerstone of my plan is to go old school. Rather than send out the pitch deck electronically, we will send it out physically.

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Let’s immediately acknowledge that this is a really bad idea! It greatly increases the cost per outreach, compared to mass-emailing PDF files. But, hopefully, it’s such a bad idea, it is actually a good idea, because so few other startups will have taken this expensive route.

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We’ll put a lot of effort into the graphic design, and print our pitch book on high quality paper. Even if the recipient doesn’t read it, if the result is eye-catching enough, it will sit around on desks, or in bins, and maybe somebody else will have a flick through.

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Having worked as a financial analyst, I am used to making presentations, which typically take less than a day. El Toco’s pitch deck takes six weeks. It is the longest I have ever spent on a presentation by a huge margin. For six weeks, I write the business case, collect the supporting data, agonise over the word choices, and then delete it and start all over again.

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By April, the pitch is pretty stable. Our graphic designer Ali Berry switches from our website to beautifying the pitch deck. She does a great job of making every page interesting and pleasant to look at, without being repetitive or distracting.

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The actual printing of the pitch book is another one of those chores that sounds like nothing but is actually a minefield of fiddly details. Just another day on the farm, in other words.

Local print companies in London turn out way too expensive, so eventually I find TradeDigitalPrint.co.uk. You upload a pdf file, select your paper quality, and they do the rest.

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Well, in theory. In practice, you still need to know about all the minutiae of printing. Details like how many millimetres to add to the margins, which depends on how the book is bound, and the differences between CMYK and RGB colours. It takes weeks of trial and error to gradually master all these details.

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PowerPoint carefully bides its time, then sticks the knife in at the most embarrassing moment. I take the finished book to a meeting with friends. Great presentation, they say. Also, what do the random numbers mean?

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PowerPoint decided to insert automated page numbers, slap bang in the middle of each page. But in a very light grey, so they are invisible until printed out. An urgent email conversation follows, marking the first time in my life I have to say “stop the presses” and mean it literally. Unfortunately, it is not fast enough to prevent the first full print run, which is delivered the next day and goes straight into the recycling bin of history.

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It takes well over a month but we get the printing right eventually. On an emotional 6th June 2022, the first batch of pitch books is mailed out.

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The waiting

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I create a monitoring list in Excel and settle down to wait.

The recipients come from a wide range of angel networks and venture capital funds. The main criterion is that they mention early stage investments somewhere on the About Us page of their websites. Most are in the UK but some are in far flung places, like Munich and the Cayman Islands. Where it’s an organisation, I’ve personally addressed it to a specific person who looks like they will be interested in the idea, but also have enough time to actually consider it.

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While waiting, I practice the pitch, endlessly. I’m fundraising full time now, so rehearsing gives me the feeling of having done something constructive while waiting. I do at least two runs a day, sometimes up to five, memorising it to the point where I can start on any page and not be thrown off.

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A week goes by after the initial mailing. For the first time in six years, I start checking my LinkedIn profile. We have been far too busy actually making El Toco to go on about it on social media yet, so there’s nothing on LinkedIn to see right now. But random people start viewing my profile, which can’t be a coincidence. None of them reaches out directly.

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Friends and family, hoping I will pop up on Dragon’s Den at any moment, regularly get in touch to ask how it’s going. It’s early days yet, I tell them, but there is some movement on LinkedIn.

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Weeks start to slide by. On most days, I practice the presentation. I find more investors and mail out further batches of El Toco pitch decks. Between all these tasks, I flick between work email and LinkedIn profile, hoping for bites. None appear, yet.

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There is only so much outreach you can do in one day. In the afternoons, I watch the short-lived Star Trek: Enterprise series on Netflix. They get sent on a mission alone, into unchartered space, to stop the activation of a doomsday weapon which will destroy Earth. There is no support, no resupply, they are on their own.

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It reminds me of the initial European mariners who set out on sailing expeditions to the New World. You got on a boat, pointed it in the right direction, and hoped. I am beginning to have some idea how they felt.

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The vaccum

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Mid July arrives and there are still no leads. On the one hand, it’s only been about six weeks. On the other hand, total silence is pretty much the worst case scenario. Why is it going wrong?

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Alone and with no feedback, I can only guess. In February Russia invaded Ukraine, triggering a wave of geopolitical uncertainty. Inflation has really kicked off, as have interest rates. All this together makes risky investments like startups look a lot less attractive, at least in the short term. But none of it suggests ideas for how to make our fundraising succeed.

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I cycle through different types of investors. I’ve already done the obvious ones like angel investors, and venture capital funds. I also contact the non-obvious ones, like other successful founders, in the hopes they might be interested in some sort of partnership.

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A brief ray of sunshine is provided by several London-based startup incubators, who do reply. We have a number of video calls, which allow me to road test the high definition webcam I bought which has been gathering dust until now.

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Unfortunately, it soon becomes clear that the incubators aren’t replying out of charity. They are selling office space. If you take it up, they promise miraculous networking opportunities will unfold before you. This whole thing seems expensive, vague, and unhelpful.

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The electronic submissions

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I begin wondering if the hard copy approach was a bad idea. So I do a second pass through the recipients up to now, uploading the pitch deck onto their websites. They can’t pretend they didn’t get it this time.

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While doing this, I pore over their websites, to see if they offer any clues. They do not. But some light relief is provided by the pages which explain their investment philosophy, which generally includes some variation of the phrase “different approach”.

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As an ex-financial analyst, I recognise this type of deliberately vague phraseology. If you sat down in a restaurant and they told you they had a different approach to cooking chicken, it might be a concern. In finance, it is a selling point, as it hints at a secret formula for picking the best investments.

The thing is, no more details are given. So it could just as well be stapling all the pitch books to a really big wall and chucking darts at them to decide which ones even get opened. What actually is a different approach? Perhaps they enter through the window. Perhaps they assess how well founders respond to pressure by asking them to pitch from within the rusty innards of a car crusher.

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Sometimes, the website says that they have a “genuinely different approach”. This specific word choice suggests that some investors think that other investors are lying about their different approach.

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The irony is that, despite all their different approaches, there is clear herding behaviour in the themes these investors settle on. I have to ignore many of the tech-focused ones because they are only interested in crypto exchanges, or companies promising to revolutionise industry X by doing stuff on the blockchain. You can well imagine that, when the next trend gets going, all of the fluff about blockchain vanishes. It will be replaced with fluff about artificial intelligence, because, having approached that subject differently, they have decided that they all need to invest there instead.

At the moment we don’t have the luxury of choice, because the investors aren’t replying. This makes unique selling points, like their approach to investing, rather academic.

I am still finding new people to contact, so switch entirely to electronic submissions. Maybe playing the numbers game will help. Doing things electronically is faster, but only up to a point. They ask you to upload the pitch book, but also manually type in answers to random questions, which are already answered in the pitch book that you spent months making.

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After a while, rejections start trickling in, by email. Even here, there are still no hints as to what is wrong, as none of them contain individual feedback. A few times I get the impression an actual human has written them so ask for it anyway. Which also doesn't work.

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Submitting the pitch electronically to every corner of the internet reminds me of the joyless process of applying for graduate jobs. Many large employers, like HSBC, Lloyds and so on, suck in graduate applications via an online application form which always comes from the same IT provider. The company logo changes, the questions are reworded slightly, but otherwise it’s the same form.

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As a graduate, you fill in this form so many times that, after a while, you stop seeing the identity of the companies you are applying to. And then you realise, if their approach to recruitment is so industrialised, that’s probably what it’s like to work there, too. A lifetime of corporate drudgery stretches out, an irrelevant cog in a pointless machine, and you decide it’s probably not worth bothering.

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Admittedly, at this point in the fundraising story, I’m getting a bit jaded from the lack of success. But even if we try to be objective, it’s unclear whether the website form approach ever harvests those plump ripe startups that investors want. Presumably there are some founders somewhere who upload their pitch, get the dosh, and chuckle about how easy it was, as they go on their merry way. But they got the cash, so their opinions are even less objective than mine.

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Ignoring both viewpoints, you’re still left with the suspicion that the electronic submissions are likely to result in a process-driven treadmill, where neither the sender nor the recipient gives a damn.

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Then, after weeks of fruitless electronic submissions, I manage to bag the first investor call.

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The call

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The call is not due to anything I’ve done so far. This particular fund has a calendar service, allowing you to book ten minutes to speak to one of their investors, without them seeing your pitch first.

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By this point, I can recite my pitch upside down while being roasted alive by starving investors, undistracted by the sounds of their sharpening knives. I'm eager and ready for the call.

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The call lasts for precisely ten minutes. The investor is very young, younger than me. Immediately it feels like a nonstarter. You can tell in job interviews if the other party doesn’t care, because they never come out of first gear when asking questions. This is exactly that. Six years of work is compressed into a handful of concise answers and it’s over before we’ve started.

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Afterwards, it is with equal parts amusement and annoyance that I open LinkedIn to find that the investor added me as a contact and sent some messages an hour or so before the call. He looks very different on LinkedIn to how he looked on the webcam.

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Then I read the messages. The investor never held the call at all. It was his work experience kid, or some such flunkey. I went through the call calling him “John” and trying to build a rapport, but the person on the other end wasn’t called John and decided it would be easier not to correct me.

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Fair play. There is an argument to say that a going-places founder should be addicted to social media, so I should have seen his messages first. I failed that little test. But, really, the whole experience was just a box ticking exercise, wasting everybody’s time. Here’s me, expecting to discuss the business I’ve spent six years building with a potential investor. There’s them, absolutely uninterested in this, and so disorganised that they can’t even communicate changes to the meeting via the channel that they used to book it.

The automated rejection message which arrives a few days later contains, unsurprisingly, no explanation of their decision. But I guess this is because the system didn't have an box for "you didn't get our name right".

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The second potential tail wind is an article in The Times. One hypothesis I’ve had is that the investment community just isn’t thinking about search. Google’s market power is cemented, nobody has any original ideas, let’s move on to this other startup which is going to revolutionise strawberry farming by doing it on the blockchain.

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The argument for our business case is handily supported by a random article which appears in the Times. Apropos of nothing, it has a dig at the bad quality of Google’s search results.

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We scan the article and include it in later mailings of the pitch book. If they didn’t believe we have a business case, they will now.

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It matters as much as a gram of sugar in a Haribo factory. Nobody replies.

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The mentor

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Summer gets into full swing in Lille. It's a real scorcher. The parched leaves of the trees rustle in the warm breeze. The temperatures rise and my spirits fall, in close negative correlation.

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Some little voice at the start of this process told me that it wouldn’t be easy. The world of startup investing seems especially cliquey and is mainly populated by ex-consultants from companies like McKinsey. You've got no idea what they think, how they make decisions, whether they even look at pitch books. And even less of an idea when it comes to angel investors, who barely even have their own websites. Bereft of useful contacts, I’m reduced to cold-calling, which was always going to be a rough ride.

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Every day, I get up and nervously open my email client, to be greeted with automated rejections, or simply nothing. Blindly experimenting with different tactis isn't making a dime of difference. By August, those options have run out, and so have my ideas.

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There is a screamingly obvious problem with El Toco’s pitch. You may well have spotted it, just from reading the story up to now. But I can no longer see the wood for the trees. It will take somebody else to point it out. That person arrives exactly on cue.

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London South Bank University is running a business mentoring programme. It provides free mentoring for entrepreneurs, at any stage of their business journey. Coincidentally, this is funded by the European Regional Development Fund, which was the source of El Toco’s grant back in 2019. I discover it while casting around for any sort of feedback on the pitch and am assigned Giuseppe Salvati as a mentor.

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Giuseppe is Italian. I do not know many Italians but my manager in my previous job also happened to be an Italian called Giuseppe. Talking to my new business mentor, I immediately feel at home. It takes us just one call to diagnose the issue.

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El Toco has no sales.

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All the startups which get funded, even if they have the most unoriginal or whacky ideas, already have somebody buying their product. No matter if they’re selling light-up collars for chihuahuas, they will still get funded, because somebody somewhere has demonstrated demand for their idea. Yes, technically, some companies can ignore this, like medical startups which must jump through regulatory hoops first, but they are the exceptions that prove the rule.

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With El Toco, we’re in a toucan and egg situation. We need funding to launch and make sales. But we can’t get funding if we don’t have any sales.

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By hook or by crook, we need to get the service online somehow, in order to show that people will use it. It’s not Giuseppe’s job to figure out how this happens. He has shown me the path. I have to walk down it.

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The end?

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This sounds like progress but we’ve only moved one step forward. The puzzle of what’s wrong with the pitch has been replaced with the puzzle of devising a new business plan.

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We need to show that El Toco is a viable company, but I’ve only got about ￡20k left to do it. If we were plastering houses or selling home-made jewellery, we’d be laughing. But El Toco is a search engine. Any delay in gaining traction and it will chew through that money, just on the server costs. Then I am literally bankrupt and it’s game over.

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There is only one option, which is to find some specific use case where El Toco works. If we can prove it in just one market, then the options open up again.

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But that use case could be literally anything that people search for online. Where do you even start?

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This is the nadir of the entire El Toco story thus far. Many moments have been more acutely stressful. I am putting a brave face on it, but the outlook has never been bleaker than it is right now. It is at this ultimate low point that, out of nowhere, the cavalry comes storming in.

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My friends and family have been following the story of El Toco right from its origins. This was initially with mild horror. Even if the aim isn’t to “beat” them, waltzing into Google’s back yard is a bold move. It is also a move that came at a huge cost to me personally, because you can’t set these things up in your free time, so I had to leave a reasonable-if-not-stellar career in finance. It is, all in all, an expensive gamble.

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As the years passed, I tinkered with the technology without seemingly achieving anything. But while that was happening, those same friends and family started to notice all the times when they searched for things online and couldn’t find them. Despite the fact that the big search engines are drowning in advertising revenues, nobody seemed to be doing anything about it. Little by little, they began to understand the business case.

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And so they are paying close attention when one day, while complaining about fundraising over the phone, I mention in passing a little detail. That detail flicks on a bulb, which throws the whole problem into a new light.

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The detail is this. Because it has no employees, offices, or any other overheads, the El Toco we’ve ended up building has almost no operating costs. It took a big investment to set it up, but that is already in the past. Provided it can break even on the servers and the marketing, it instantly becomes profitable.

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That, as any accountant or economist will know, is the foundation of a sustainable business.

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My friends and family twig this before I do. They also realise that, if they club together, they can pool enough to get El Toco to that breakeven point. They put together an offer, which I accept.

Fundraising, at least for now, is over.

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In the end, I never met a single external investor. The leather portfolio which my girlfriend gave me for in-person pitch meetings never came off the shelf. It will take about twelve months to let go, but I will eventually chuck the few remaining pitch books with their colourful pages and high quality paper into the recycling. But this doesn’t really matter, as our brave little startup continues on its voyage into the unknown.

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This episode is dedicated to El Toco’s first round of investors, who believed in it before anybody else. Or just paid to stop me complaining.