In VC, investors want to win big — that’s why they love highly scalable tech companies so much. But today’s founder, Jaclyn Fu, is selling actual things. Her startup, Pepper, makes real bras in a very real factory. There’s no tech except that you can buy her company’s stuff on the internet. So how do you convince investors that the opportunity is massive, when there’s nothing scalable about your startup?
Today's investors are Maia Bittner, Elizabeth Yin, Sheel Mohnot and Charles Hudson.
Here is Elizabeth's Twitter thread about debt vs VC financing for startups.
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In VC, investors are always looking for startups where if they win, they win big! That’s why they love companies like Dropbox, Airbnb, and Slack. When a tech company gets a flood of new customers, mostly they just have to spin up a new server.
But today’s founder Jaclyn Fu is selling actual things. Her company makes real bras, in a very real factory. There’s no tech except that you can buy her stuff on the internet.
So the question is, how is she going to convince investors that her bra business will be big bucks.
From Gimlet, this is The Pitch. I’m Josh Muccio.
Let’s meet the investors.
I’m Maia Bittner
Maia is making her debut appearance on the show today. She’s the founder of two financial tech companies, and she sold them both. Now she’s out scouting startups for Sequoia, one of the biggest VC firms in Silicon Valley.
I’m Elizabeth Yin
Elizabeth is a managing partner at Hustle Fund. And so far she’s has invested $30M in over 250 startups. One example, a company called Nerdwallet.
I’m Sheel Mohnot
Sheel has sold 3 startups for over $50 million dollars. Now he’s an angel, invested in several companies worth billions today.
I’m Charles Hudson
Charles started Precursor Ventures, where he’s invested $45 million in over 100 startups to date.
The Pitch for Pepper is coming up in just a moment.
Jaclyn: Hi I’m Jaclyn.
Sheel: Hey, Sheel.
Jaclyn walks into the room with a plain brown box. She’s confident! Like she knows she can make the investors love what’s inside.
Jaclyn: I’m Jaclyn. I’m the cofounder and CEO of Pepper. Who in here has ever felt self-conscious about any part of their body?
Maia: I have!
Jaclyn: Okay. So sounds like everyone in this room. Well 91% of women who wear small cup sizes say at one point they wish their bust was bigger. And this is because we live in a world where, at a young age, girls already feel the pressure to develop during puberty. In middle school, they’re teased for being flat. As an adult, they walk into the biggest retailer of bras in the mall and are humiliated when a sales associate gives them a push-up bra to look two sizes bigger. And bras never seem to fit. These women deal with awkward cup gaps from not being able to fill in the cups all the way because they’re too deep. Or they have to deal with unnatural bulky pushup padding. This was my experience and the experience of so many other women that we found, and is what inspired us to create Pepper.
And it’s not as simple as just whipping up a bra in a smaller cup size. Jaclyn says that you have to reimagine the bra from the underwire up.
Jaclyn: We make bras that finally fit and celebrate women with small cup sizes. Turns out this is a $5.1 billion industry that’s anything but small. Since we went live, our Kickstarter campaign was 100% funded in the first ten hours. Since our official launch last year, we’ve already grown 8x. And this year we’re making $3 million in revenue run rate. I’m here today...
Jaclyn: ...to raise 1.5 million to grow our community and expand even faster with more products.
Elizabeth: That’s amazing.
Maia: Do you know what the terms of the round are?
Jaclyn: Yes. So we’re doing a $9 million cap. Let me show this to you.
Elizabeth: Have a box of, I think, 3 bras. It looks like a pretty normal bra. It’s got a wire frame. Some pretty good padding with lace.
Maia: What is it about your bras that makes them fit better?
Maia: Cos I'm like looking at it and it's not immediately obvious to me how, how…
Jaclyn: So the number one pain point we were solving for is cup gap. And when we looked at why this was, traditional bar companies design for a 36C. That is what they think the industry standard is. So the first thing we had to do was develop our own cup molds. We used a cup mold that’s a shallower in depth. So it’s easier to fill for these women. So for these bras that you see here, we have three styles right now. And what makes them special is that you’ll notice there is a demi cup and a layer of mesh that goes on top. So this kind of has the effect of the perfect pair of yoga pants. It’s able to lift from the bottom up, really scooping you up in a natural way so you get really nice lift, even without that bulky push-up padding.
Maia: I feel like I'm also in this, this demographic. Um, but I usually don't wear a bra. Kind of because. Right? It’s like, I mean...
Elizabeth: Yeah. I very often go braless.
Maia: That’s it, yeah, right, like that’s the thing is like I feel like I don’t really need like support or whatever.
Elizabeth: And what do you sell these for?
Jaclyn: It ranges from $48 to $54.
Sheel: And what are your margins in the product?
Jaclyn: 71%. And this includes the end fulfilment to the customer.
Sheel: Got it.
So Jaclyn is selling a better bra, for small-chested women that costs around $50. Pretty simple. Now, direct to consumer brands like this, normally grow by throwing up ads on Facebook using filters for age, gender, location a person’s interests.
But none of those things, tell you what someone’s bra size is. Which makes the investors wonder:
Charles: How do you find your customer?
Jaclyn: So we have a few theories about who those segments are. Um, so we know that bra size and bust size has a lot to do with genetics. For example, I'm Asian American. A lot of women, similar to me, have very similar bust size. So we'll target that way. And we'll feature Asian American models, for example. Women who finish breast feeding tell us they used to be a C cup, now they're a AA cup. And they found our bras because they were looking for something that now fits their body as it is today. Another community that we recently just discovered who loves our products are transgender women. So during the transitioning process, you know, their bodies are also changing really quickly and they're trying to find a brand that not only fits them but speaks directly to them.
Elizabeth: And so if you are using paid acquisition, what does that look like right now?
Jaclyn: So we’re doing Facebook ads and Instagram ads. We’re also diving into Google AdWords right now, um, which has been amazing because women are constantly searching for a solution to this pain point.
Sheel: What do they search for?
Maia: I know. What words?
Jaclyn: Yeah, they’ll search for things really specific. Like, best bras for 34 AA.
Jaclyn: Best bras for, best bras for 38 AA. It’s very specific. And because a lot of other companies aren’t really focusing on this size range, we’re just capturing all that traffic.
Sheel: What about just overall CAC?
Jaclyn: Yeah. So overall CAC is $25. And our lifetime value is $130. And we expect this lifetime value to go even higher, because right now we only have three products, we want to increase that.
Elizabeth: Okay. So if you plan on raising a tranche of capital to pour into paid acquisition, roughly how much are you thinking that might be? Or how much would be interesting?
Jaclyn: Well, out of the $1.5 million, we're thinking about doing um $1 million that goes towards paid acquisition.
Elizabeth: Oh wow.
Jaclyn: Yeah. And the rest would go towards hiring and inventory.
Elizabeth: That's great.
Maia: I feel like there’s an opportunity here to kind of like build a whole campaign around like bra sizing is not fair, and, and things like that. It sounds like that’s your mission is to, like, make it culturally more okay and like help women feel more confident.
Maia: And things like that. Are there, are there any other things that you’re doing to kind of push forward that mission besides just the product in front of me?
Jaclyn: Yes. So we’re doing a lot of fun things to have those type of conversations. For example, in March, it was National Pancake Day. And a lot of our customers mentioned when they were younger they got teased for having a pancake body. So we renamed it as National Flat Chest Day.
Jaclyn: We owned it and embraced it. So anyone who placed an order with us on that day, we sent them $4.65 back, which is exactly how much a short stack of pancakes costs at iHop. So it went viral in the press.
Sheel: That’s cool.
Jaclyn: Our customers loved it.
Maia: I love this.
Jaclyn: And it was inexpensive. It was a really cheap way for us to get in front of the media, cut through noise. And it just, again, repositioned us as a brand that's not just making a bra, but we want to have these conversations.
The investors sound stoked about Pepper’s PR so far. But that’s just the start. To make it in the big leagues of venture capital, Jaclyn has to do more than bend minor holidays to her will. She needs to prove that Pepper can be unbeatable.
Sheel: Question for, for, Maia and Elizabeth more than, more than Charles.
Charles: No offense taken.
Sheel: Like I guess the price point, how do you think about it from a like quality of the product versus the price. Does it feel?
Maia: It feels fine to me.
Elizabeth: Yeah. It’s fine.
Maia: Like I think, so, there’s a, do you know Lively?
Maia: So I think Lively bras are probably $45.
Maia: And they seem the same quality as these bras, which I think are also $45. Like, I think it's pretty standard.
Sheel: And is that the same price range as, like, Victoria’s Secret?
Maia: I think Victoria’s Secret is probably more expensive.
Elizabeth: More expensive.
Maia: But they’re like, they’re also much more, there’s like all kinds of bull***t hanging off.
Elizabeth: But for like a pretty everyday casual bra, this is like in line...
Maia: I think standard.
Elizabeth: Standard. Bras are a good market. That’s why you see all these bra companies.
“All these bra companies.” You’ve got Lively, Adore Me, Third Love. There’s a whole bunch of next-wave startups that say, “Toss out that old underwire! Our bras are made to fit you.”
Which has our investors wondering, why any one of those other bra companies wouldn’t just make their own line of small bras, and blow Pepper out of the water.
Elizabeth: I don't understand how challenging is it? Like I still cannot wrap my head around how hard is it to make a new bra for this audience?
That’s coming up, after the break.
It is so easy for these investors to imagine Pepper getting flattened by the competition, not just the newer companies like Third Love. In reality she’s going up against Hanes and Victoria’s Secret too. Companies that could very easily whip up a bra similar to Pepper and then crush Jaclyn’s business. Here’s Elizabeth.
Elizabeth: The thing I’m trying to wrap my head around, and this is me speaking from the perspective of probably squarely in your target demographic. What, what is different about these bras other than the size?
Elizabeth: For companies like, you know, take Third Love. Why is it that they cannot just extend into these cup sizes as well?
Jaclyn: Yeah. Most of these bra companies are already mass audience. They're trying to serve everyone. Um, and if you’re trying to serve everyone, there’s no way to develop the resources to be able to perfect the fit for all those sizes. For ours, we had to develop each, um, size, so that it perfectly fits that size, versus trying to use one single size and apply that design to every single person.
Elizabeth: But, but that is exactly, I think, I don't understand how challenging is it? Like I still cannot, even though I already asked you this, I cannot wrap my head around how hard is it to make a new bra for this audience?
Maia: Well, and I'm, I’m comparing this to Lively, which I think is just, they're, they're like not really shaped bras. It's kind of, they're just, they're bralettes.
Elizabeth: And Third Love is like a custom bra. And their messaging is also, like, we’re inclusive about everybody’s, you know, cup sizes or whatever you want to call it. Right. So you have people kind of going after this demographic. Not explicitly. Not building a brand around this.
Maia: Not, right, but.
Elizabeth: But they're in the space.
Jaclyn: So I've tried both of those bras, and they don't fit me. Um, so with Third Love, um, I still get the cup gap, they're still too deep, they're a little pointy on me. For Lively, because they're bralettes and they're not shaped, they don't really scoop me up. There's a bunching towards the cup. So, you know, even though they it's for all these different sizes, it wasn't made for those sizes.
Elizabeth: There is an opportunity here. I think I’m just trying to navigate...
Maia: Are you worried that like Third Love is going to come in?
Elizabeth: Competition. So competition's a big one. I think just in general, like, ecommerce scares me as a category because there are just so many additional challenges that pure software doesn't have. Right. Um, go-to-market is expensive, ecommerce has costs, although it sounds like your cost structure’s actually really good. And then these looming competitors, and I don’t understand, like, you know, I get that they haven’t cracked the nut, but if you start to do well, I’m pretty certain that other people will, will crack the nut. Like, I don’t believe this is rocket science. So this is like a first-mover, hustle advantage, which it sounds like you guys are doing well. So that, those are the things I’m thinking about.
Charles: How big is this subset of the broader bra market?
Jaclyn: Yeah. We believe it to be a $5.1 billion market. And the way we got to this is the total lingerie market in the US is $16 billion. And around 32% of women fall in the BMI that would be applicable to us.
Charles: I'm just trying to figure out, if you can build a beachhead around this customer and you can speak to her and you're the person she goes to time and time again, like, how big is. The 5.1 number of the, it just feels bigger and it, I say this with all knowledge that I'm a man who doesn't wear a bra, that just feels like a larger chunk of the market than I was anticipating you saying. And if it's a smaller chunk that's not as well understood, I think there's an argument to be said that like it's just not worth it to specialize on this if it's not the only thing you do.
Maia: I mean, I don't know the data. But I would believe it. I would totally believe that.
Elizabeth: I also believe in the market sizing, I mean, let's just take Asian Americans in this country, they're what, sub 20% of 300 million people and you spend 50 to 100 dollars in a bra, like there you go.
Elizabeth: So. Um, and then I believe there are a lot of upsell opportunities for sure. Like, once you get that audience there are. So I’m not worried about that.
Charles: Yeah. I mean, the only way I know how you compete, I mean, because obviously Adore Me and those other folks have tons of cash. The only way you can really compete with them is to just play a different game, which is organic bottom-up community. So I like, like I buy that part. I’m still trying to in my mind sort out like, can you get big enough fast enough and own the category such that when those people do come, it’s like a futile effort?
Maia: Right. That everyone’s like, No, no, no, like only Pepper does ...
Elizabeth: Mhm. Yep.
Maia: ... AA bras. Like you'd never get it from Adore Me.
Elizabeth: Right. You’re like first thought for this audience. Yeah.
I think the women investors are convincing Charles that this market is plenty big for venture capital. And that Pepper could dominate this market. And now, Charles leans in.
Charles: So tell me, tell me more about, I mean you’ve run this really lean, tell me more about how you adjust to sort of having more resources and kind of what the plan is for how you’ll deploy them.
Jaclyn: Yes. So with this 1.5 million, it will go towards hiring, product development and continued growth. And most of it will be focused on growth. So paid acquisition we know is going to be a bigger part of this story. So we’re spending more resources there. With product development, we want to start developing strapless bras, our version of a pushup bra, even start thinking about swimsuits soon. And then the last part of it is community building and brand marketing. So right now with those initiatives like National Flat Chest Day, we can even bigger versions of that with more money. So we’re just waiting for the right resources.
Charles: How do you sequence how much to bite off? I mean, you're still relatively early in kind of core bra. You've got sports bras, swimwear. How do you think about, how should I think about the sequencing of when you add new things versus sort of doubling and tripling down just on your core product today?
Jaclyn: The next two years will still be focused on bras. This is the number one pain point of our audience. Um, and the way women shop for bras is they need a bra depending on what they wear on top. So right now we only have the t-shirt bra, essentially. We still have so many different type of bras that we haven't conquered yet. So there's a lot of opportunity there. And after we, um, get the bra category is when we start thinking about things like swimsuit.
Charles: Where, where do you think investors can help you most?
Jaclyn: Yeah. I mean we’re first time founders. So we’re always open to advice from people who’ve done it before. And from done it before I mean have grown D2C businesses to successful exit, or have built really thriving communities, because that’s really important to us. One area we’re also diving into right now is wholesale. So we actually just launched a partnership with Urban Outfitters a few weeks ago, and that’s been met with really awesome response. They're placing a second purchase order now. So I think there’s opportunities to get in front of more women through these retail partnerships. But we want to make sure that we’re still maintaining that D2C essence, that community building essence of our brand as well.
Sheel: Um, so I'm gonna pass on this opportunity. I think you're super bright, you know what you're doing. And you have seemingly decent unit economics. Um, I just, it's a category I know so little about that I'm just reluctant to, to invest in it. So for that, I'm gonna pass.
Jaclyn: Thank you so much.
Maia: I think for me this is a pass. Personally kinda passionate about it. But all the things that we’ve discussed about the competitive landscape, I just anticipate a pretty rough path forward.
Jaclyn: Thank you for the feedback.
Charles: So look, here’s what I think. Um. I like you. I could be convinced that the market size is larger than my naive instincts suggest based on what some of my fellow panelists have said. So I’d like to make a small investment of $25k. I obviously have some diligence to do. But I’d love to work with you. I really value capital efficiency and um I also really value people who’ve picked a, a niche or a target customer that’s clearly defined and easy to identify. And it sounds to me like I really liked your answer about spending the next two years on bras. I think that’s your beachhead product and so defending that at all costs as a first step I think makes a lot of sense.
Jaclyn: Thank you. I can’t wait to work together.
Elizabeth: I think you answered everything perfectly. And I love the hustle and the scrappiness. Of course, you've done a lot with very little. I also think that there is a big opportunity here. The valuation for me is really pricey, to be honest. Like this is where we come in with Hustle Fund. Um. For that reason I'm a pass. If you want to do revenue based financing, that is something we can potentially discuss.
Okay, let’s just stop for a second. Revenue based financing. We haven’t seen this type of deal on the show before. What Elizabeth is offering Jaclyn, is essentially just a flexible loan. If Pepper really takes off, she’ll pay back the loan quickly. If it grows slowly, she’ll pay back the loan more slowly.
So what Elizabeth is saying here is she likes Pepper as a business. And with revenues of $3 million it seems like a pretty safe bet. But she doesn’t see it as a highly scalable, growth machine worthy of VC dollars.
Elizabeth: For that reason I'm a pass. If you want to do revenue based financing, that is something we can potentially discuss.
Jaclyn: I would love to talk more about that, thank you.
Elizabeth: So for our next steps, um, why don't I introduce you to our fund manager who runs the revenue based financing fund, Shiyan Lim. And so I can do that introduction over email.
Jaclyn: Perfect. Thank you so much.
Elizabeth: Yeah. Well, thank you for coming.
Jaclyn: Thank you.
Sheel: Thank you.
After Jaclyn leaves, the VCs in the room can’t wait to talk shop. They’re used to putting in venture money but Elizabeth just changed the game. And they want to know, what is this revenue based financing thing?
Maia: I’m curious about this like, how you make the difference between an investment and the revenue based financing. Like, is it, is it like. It seems like…
Sheel: Are you going to make 20x your money, then make an investment, equity investment. If not, revenue based financing for this kind of thing.
Elizabeth: It’s totally, it’s totally different. Like revenue based financing, like, I don’t have to believe this will be a billion dollar-plus outcome. I just have to believe, can she pay me back with interest. And I would take that bet any day. She seems like she’s operating her business well.
Maia: It's just a better fit. It's like she can pay you back at like a healthy interest rate, but you're not going to 20x.
Charles thinks the opposite, he thinks Pepper is venture scale. But Elizabeth doesn’t. The question is, What is Jaclyn’s vision for her company?
That’s coming up after the break.
Welcome back. Jaclyn came into the room with a plain brown box, but she brought a pitch that was far from plain. Charles said he wanted to invest $25K and Elizabeth’s revenue based financing offer, ended up at $250K.
First, Heather asked Jaclyn to reflect on what it was like in the pitch room.
Jaclyn: Half the investors were female. So that was awesome. But you know our business, um, it’s pretty unique. You know, it's a bra company for small-chested women. You don't always get the response of head nods, especially when there's a lot of men in the room. Um. I remember this one instance, one of the male investors got really beet-red trying to have a conversation around her business. His cheeks went bright red. He couldn't say the word chest or breast, and he had to. I think he defaulted to bosom or something like that. So there are some instances where you know it's not a fit with an investor. But, um, the majority of the time it’s been great.
Heather: Mm hmm. There was something that happened in the room that I wanted to ask you about, which was like initially Charles was like, uh, I’m not sure about the size of this, you know, the size of this market? And Elizabeth and Maia were like, oh, yeah, definitely. That market's there. And then Charles ended up going in. What was that like for you?
Jaclyn: It was great. Umm. And I think that’s usually what’s missing when we don’t have female investors in the room and it was really refreshing to have someone like Elizabeth just say exactly how I've been feeling. So it was great that she shared her viewpoint and no one questioned it. Like, oh, yeah, I could see how that's totally true.
Heather: Yeah. That seems like a powerful moment.
Heather: Yeah. Okay, so Charles, in the room, he went in for twenty five thousand dollars. Have you talked to him since the pitch?
Jaclyn: Yeah. I talked to him on the phone and he's still really excited. And was this like, how can I best support you? And he is telling me a little bit about how he is, how he usually works with his portfolio companies. And then I think it only lasted 15 minutes at of it. He just said, send over the paperwork and super excited to be on board.
So Charles put in his VC money but Elizabeth, on the other hand, withheld a traditional VC check, and opted instead to offer Jaclyn a different kind of deal. Revenue based financing.
Heather: Essentially what she's saying. And she said this afterwards when the investors were chatting, um that she doesn't see Pepper being a venture-scale business. What's your response to that?
Jaclyn: I think we're going to be a fast-growing, really big business. Um, and I think to some VCs, venture scale means it's unicorn or bust.
Jaclyn: And if that is the definition, then I agree. Because we also want to be building a very sustainable and profitable business at the same time. Because we also want to be building a very sustainable and profitable business at the same time. So our philosophy is, It's not growth at all cost. And that might not be a venture-scale type of business because we might be growing a little bit slower. But for us, it's more important to be profitable.
Interesting enough, plenty of other VCs like Jaclyn's approach - and they are handing her money. She set out to raise 1.5M and after the show, ended up oversubscribing and raised almost $2M from investors.
But what about that revenue based financing offer from Elizabeth. Well Jacklyn told us, that she and her cofounder Lia, decided not to take the $250K. Because they didn’t need it.
Heather: What's the first thing you're going to spend money on?
Jaclyn: So we just made our first full-time hire and she started two weeks ago, so we’re really excited. And she’s our customer experience manager. So it was just Lia and I for the first two years. And now we we finally have a third teammate.
Heather: Mm hmm. You get help now.
Jaclyn: Yeah. Um, we can tap into someone else's brain and expertise to accomplish all the things that maybe sometimes we don't have enough time to do. So it’s just really cool to think about. Imagine all the more things that we can accomplish now with one additional person when we, us two, already did so much by ourselves.
Even though Jaclyn is saying no to a loan, other startup founders have been saying yes to similar deals. And recently, some startup pundits have begun heralding these new debt options as the beginning of the end for VC. I don’t know about that, but it does represent a viable option for founders who don’t fit the VC mold.
I asked Elizabeth about this, and she says it’s not even a matter of loans or venture capital. She thinks that a lot of growing companies could do well with a combination of both. She has a ton of interesting reasons why -- there’s a link to her Twitter thread about it in the show notes. But the bottom line ... Stay flexible friends - there are lots of ways to finance a company, and you don’t have to pick just one.
The Pitch is hosted by me, Josh Muccio. Produced by Heather Rogers and Kareem Maddox. We are edited by Sara Sarasohn.
Theme music by The Muse Maker. Original compositions from Breakmaster Cylinder, Peter Leonard, SoWylie and The Muse Maker. We are mixed by Enoch Kim.
Lisa Muccio coordinated the recording of this pitch.
Thanks to Brianne Kimmel for introducing us to Pepper.
As a reminder, no offer to invest is being made to or solicited from the listening audience on today’s show.
Thank you so much for listening. We’ll be back with a brand new episode. In two weeks. And if you haven’t already, take a moment to “follow” The Pitch on Spotify, so you don’t miss a thing.
Investor / original co-host on The Pitch
Sheel is a co-founder of Better Tomorrow, a seed-stage venture capital fund investing in Fintech companies globally. His own startup experience includes 2 successful FinTech exits – a payments company and a high-stakes auction company, and he is GP of the 500 Fintech fund. He formerly worked as a financial services consultant at BCG and started his FinTech career at the non-profit p2p lender Kiva.
Investor on The Pitch Seasons 2–10
Charles Hudson is the Managing Partner and Founder of Precursor Ventures, an early-stage venture capital firm focused on investing in the first institutional round of investment for the most promising software and hardware companies. Prior to founding Precursor Ventures, Charles was a Partner at SoftTech VC. In this role, he focused on identifying investment opportunities in mobile infrastructure.
Investor on The Pitch Seasons 6–10
Elizabeth Yin is the Co-Founder and General Partner at Hustle Fund, a pre-seed fund for software startups. Before founding Hustle Fund, Elizabeth was a partner at 500 Startups, where she invested in seed stage companies and ran the Mountain View accelerator. She’s also an entrepreneur who co-founded the ad-tech company LaunchBit, which was acquired in 2014. Her book is called Democratizing Knowledge: How to Build a Startup, Raise Money, Run a VC Firm, and Everything in Between.
Investor on The Pitch
Maia Bittner was Co-Founder and CTO at Rocksbox, a designer jewelry subscription service. She was featured in the book “Creating Innovators: The Making of Young People Who Will Change the World.”