Sramana: How did you manage the financial engineering of the company?
Maria Haggerty: We raised $5 million in the early stages from angel investors. Our angel investors put money into the company through 2004.
Sramana: Raising $5 million from angel investors is quite substantial. Who did you raise that money from?
Maria Haggerty: We started off with a goal of raising $150 million to let us buy GoodTime Home Video. From our perspective, we backed off of the goal of raising $150 to only raising $5 million. Bill had a pretty long and impressive career with a great reputation. A couple of our investors were friends and family of Bill’s. Another group of our investors were lawyers who worked with us on the business plan to buy GoodTime.
When that purchase fell through, we approached them with our new business plan asking them to be our legal representation. They were quite impressed with the new business plan, and they told us that we had a couple of options. We could let them do our legal work free and have them take an equity stake in the company, they could do the legal work for about $250,000, or we could find someone else to do the legal work and they would invest a million dollars. We opted to find another lawyer and take the million dollars.
Sramana: Why did you need such a substantial amount of legal work up front?
Maria Haggerty: We needed the legal documents, partnership agreements, investor agreements, and other legal structures. We have a complex corporate structure because of the sophistication of the angels that invested in us. We have complexity with shareholder rights, preference to stocks, and various series.
Sramana: We do this in Silicon Valley routinely. I am surprised that this would take $250,000 of legal fees. Essentially you had lawyers who invested in the company, which drove up complexity.
Maria Haggerty: We initially had 13 angel investors, most of whom were lawyers. We have not raised money since then.
Sramana: What was the customer acquisition strategy? How did you acquire customers?
Maria Haggerty: Today our customers find us through word of mouth. New York is a small town in that aspect. When Birchbox was looking to get fulfillment, they asked around for recommendations and heard our name. We have sales people and we do a lot of outreach but 90% of our business is coming via word of mouth.