How do you pivot a VC-backed brand from growth to a profitable exit?

The high-end footwear market, it's really a cutthroat market. We were like losing a lot of money here. Why did you raise money in the early days? We tried to go after celebrities, like Seth Rogen. It was really hard to sell a $300 pair of shoes while no one knew your name online. >> You salvaged the business. Now it can be self-sustaining, it can generate a profit. What happens when now you have this cash-flowing business? In order to compete with incumbents without raising more money, we need to Everyone, welcome back to 100 Million Dollar Exits. Today we have Chris Wichert with us today, the founder of Koio, a luxury sneaker brand that went on to raise $20 million from the likes of the Winklevoss twins, Founders Fund, and the founder of Aldo, the the shoe brand, the global shoe brand. Uh Chris, welcome to the show. Thank you very much for having me. So, Chris, you have an amazing story of navigating raising so much capital for some prominent investors, uh but then also navigating the chaos that came after COVID and the DTC direct-to-consumer uh collapse shortly after in terms of revenue multiples and how the market was, you know, dramatically impacted. I want to kind of start with you know, why did you raise money in the early days? And we're going to kind of guide uh the audience through what that led to in terms of the opportunity, but also how you navigated the the recap, you know, you know, the recapping of the business and everything. So, let's go ahead and start with why did you raise money? So, I met my co-founder in business school in uh 2013. We Yeah, we got together, we got excited both by the idea of building a brand together and exploring the luxury world. Our goal was to build a modern version of a luxury brand that really takes all the good elements of traditional luxury brands, like craftsmanship, material, brings it in the into the digital age, and builds a brand that is less exclusive and more attainable. So, that was kind of our starting point, and we launched Koio right after business school. So, we moved to New York. We both had business school debt, and for us, in order to really get started and survive in New York, we we needed some kind of foundation, and we needed some kind of money in the business. And that led us to explore the path of of raising capital. Like both of us were giving each other like 6 months. We were like, let's try this for 6 months. Let's see where this goes. Let's see if we can find some investors to come on board. And if it doesn't go, we go back to Germany, which is where we're from originally. And then, of course, the first 6 months passed. We didn't have financing. But, we had a lot of other um um cool, credible at moments that kept us going. For example, we were featured in GQ very early on with like the sneaker of the year. We were featured in Vogue. And um we had like many of these moments that made us like to keep pushing. And ultimately, at the end of 12 months, um we had our seed round completed. We raised like 1 and 1/2 million dollars from um a bunch of seed funds and a lot of DTC angel investors and DTC operators. So, how did you get those initial investors? Like I you had some traction, it sounds like you got the you know, sneaker of the year award, which is pretty amazing not having much capital. Um how did you secure those initial found uh initial investors? We were really hustling. We were really like grinding very hard trying to put ourselves out there and get this opportunity in front of anyone who could be interested. Because of our Wharton background, we had a good network. Um and then, the first few months in New York, we used to meet people, to go to fashion events, to connect to interesting people. And our network has always been super helpful um in wanting to introduce us to to new people. Um so we we started building on that. And um we asked for a few meetings with VCs. Our first couple meetings didn't go so great. Um but we quickly learned like a different mindset between Germany and the US. In Germany, everything is like very very factual, very very like based on like this is the data, this is the numbers. And in the US, everything is a lot more vision-based. So we needed to learn to present a vision. What's the broader vision here? And for Koio, that was what we called at the time, we're building the Louis Vuitton for millennials. We wanted to build this new kind of luxury brand. We didn't just want to build a footwear brand, which is what we would have said in Germany. >> >> That's a good way to position it. Um and so you navigate this initial capital raise. You got on the raise obviously over, you know, close to 20 million. Um when it came to the velocity of the business, deciding to continue to raise additional capital, you obviously took care of the initial need capital need, but you saw this bigger vision, uh much bigger vision than just a shoe brand. Uh what was the kind of later stage rounds like and how did that influence what you were capable of doing you know, once the once the collapse, the D2C collapse came? Yeah, with the first money that we got, we kind of um got ourselves an office in Soho, started hiring our first two employees. And one learning that we had early on was that it was really hard to sell a $300 pair of shoes while no one knew your name online. So what we needed to do was um we we wanted to try retail. And um we used a little bit of budget for that early on. But we would go on weekends um in the streets of Soho knocking on doors of retailers asking them if we could come in, give them a 50% commission, and literally just display our shoes and see if people would want to buy them. And these small experiments gave us some really good data on, "Wow, retail works." Whereas at that point in time, we might have sold like 10 pairs of shoes a week, all of the sudden one afternoon we sold like 15 pairs. So, we saw there was something around retail, and next to our store in Soho I'm sorry, next to our office in Soho, a store opened up. It was a former Outdoor Voices space, and one of the advisers that we had on board was like, "You guys should try to go in there and see if you can make it a pop-up." So, we talked to the landlord. The space was way too big. Uh we would never been work for us, but we got in another brand, cut the space in half, took it on as a 3-month pop-up, and it eventually turned out to be a store that we still have to this day, our flagship store in Soho. But, what this taught us was that retail really worked, and it was also a moment for us to build our brand, right? All of the sudden we had this banner in Soho that said Koio, which would help with our online advertising, and we would also have a place to bring the community together, to show people the shoes, to have them try them on, and that really helped us to get started. So, but with retail and the success of retail came also that we needed more money, and that we needed to raise um to raise additional capital to keep going. So, from the get-go we were pretty much split between like um retail and online 50/50, and we wanted to build on this, but retail is expensive, so we tried pop-ups in different locations, and we kept raising money. Also, the investors that would come on board, they're not looking for like a one or two X return, right? They want you to really push the business, see where you can get it, see if your vision of building the Louis Vuitton for millennials can come true, um or if it doesn't. So, we kept trying different growth areas and channels. We tried building the team, tried tried different channels like retail, eventually also expanded into wholesale, and um, we're primarily focused on driving revenue and building the awareness of Koio in the US. And so, >> >> what were the metrics that mattered back then for the business when it came to deciding what was working, what wasn't working? It was probably only revenue growth. Um, revenue growth and like vanity metrics like features, features in like prominent magazines. Like, we were really trying to build the name. We invested in awareness. We wanted like the big fashion houses to hear of us. We wanted the big retailers to hear of us and potentially want to carry us. We tried to go after celebrities. Um, we actually saw a ton of celebrities including like Seth Rogen, um, and um, yeah, so so many others that wore our shoes not only on the red carpet but also on TV and on their social media. And we were really investing in this to drive the the growth of the business. And so, like LTV to CAC, you know, user acquisition, you know, like the typical things that were are now expected for any D2C brand to survive today. Was not even like a thought in your mind cuz you had access to capital. You had, you know, raised a sizable amount of capital compared to most uh, D2C brands. And it was working. And but then, you know, what happened in 2020 when the, you know, COVID happened and the market started shifting? Yeah, for us COVID wasn't great. It was our first real inflection point, I would say. At the time, we were 35% in retail. We had five or six stores in the US and uh, um yeah, from one day to another, all the retail revenue disappeared, but we still had our employees on, and we still had to pay rent for these stores. So, we needed to figure out a strategy of how to get out of retail. Luckily, a few of the stores that we did um were in partnership with another company where they were operating the stores, so it was kind of easier for us to get out. It was like the retail as a service model um that allowed us a little bit of flexibility. But overall, it was like a big shift in in mindset and trajectory um yeah, we needed to find reasons for why people would still want Koio sneakers. Koio sneakers are dress sneakers that people wear to the office and then to seamlessly transition into the night if they go on a date or if they go to a wedding or if they go to an event. They want to look sharp, they want to be confident in their outfit. And we helped them with that. But with COVID, there were no more social events, and our shoes weren't exactly the shoes that people would wear like lounging on the on the couch in front of their TV. So, we had like two big challenges that we needed to tackle. One was the retail challenge, and the other was the the challenge of like uh people didn't need the shoes during this time. And so, this transition starts to happen. You have capital, but burning. And what's kind of going through your mind at this point as you start to now look at how the world is changing and how you're having to adapt? Yeah, there were lots of things going through our mind. It was my first journey or my first business um my first journey as an entrepreneur, so we needed to navigate and communicate all these challenges to our team, right? And our team was in a phase where most people had been on for 3 4 and the conversation shifted to what exciting project can I work on now? What's the growth trajectory? What's my salary increase? What's my bonus? And all of the sudden we were in a very different world. So, we needed to level set with employees. We needed to be like super transparent with them to tell them like, "Hey, this is the journey like right now. We need to find ways to make it through this time." And one thing that we actually did was um for the whole team, I think for a month or two, we um like implemented a salary cut in order to like bridge some time. We got all employees on board to agree to this. Everyone agreed it was like a challenging time, and we wanted people to chip in uh and contribute um during that time. Well, I think it's kind of fair, otherwise yeah, there's no cash to pay them anymore. >> >> And the market was such a scary time at that point in terms of what was going to happen, where the world's going, so yeah, there's a lot of those kind of decisions happening. Would you Would you say your team was over uh overstaffed at that point? Like would it have been like better to lay those people off, and you were just trying to do right by them? What was kind of the options you were weighing at that moment? Uh yeah, I would I would agree with you that our team was overstaffed at the time. I think starting a brand in the 2015-2016 era, there was a certain flavor, right? You were driving revenue, you were driving brand recognition and awareness, and you wanted to have good capable people on your team and like try as many growth projects as possible. The reality has shifted now 10 years later completely. Now there's the playbook of having super lean teams. They're saying like each team member should be driving $1 million plus in revenue for um our kind of D2C businesses. So, it's a much leaner approach to to everything. And that was probably also the right approach at that time. Again, this having been our first business, there was a reluctance to let go of valued trusted team members that had become friends too quickly, too early on. I think that was something that we needed to learn. But in hindsight, absolutely would have been the right decision to like make a cut there and work with a smaller team and really try to be a profitable, self-sustainable brand. That we then only realized a couple years later um when yeah, interest rates started rising and we saw a few failed IPOs in the D2C space with Allbirds, with Casper, and all of a sudden investors were viewing D2C not anymore as a business model that was going to revolutionize the world, more so like a distribution channel where they shouldn't be paying a premium for. And consequentially yeah, valuations and multiples dipped and it would become very, very hard to raise capital. I'm going to bring up this I want to bring up this point. We're going to pin it and save it for later in our discussion um but this this multiple comparison to like Allbirds. So, Allbirds went public. Now, there's a clear, you know, benchmark. There's a couple companies got acquired, Bonobos and others. Um not all the metrics are super clear, but when Allbirds went out and a few others, it became very clear what the real numbers were and the market adjusted and basically priced them way below what anyone anticipated and more of a revenue mul- and more of an EBITDA multiple, which was not what anyone was expecting with going public. And I think this is going to be a you know, albeit it's happening at DDC, we're going to continue this conversation. I also want to bring it up for what's happening in software today in the AI space. Like software is now switching from a forward future cash flow multiple than a top line ARR multiple, which is been a you know, something that a lot of founders need to start catching that wind, you know, catching that wave and understanding how that's going to impact their business valuation and how what we saw in 2021 for DDC valuations quickly turn in 2022, 2023, um seeing a similar transition from 2025 to 2026 on on software. But we'll we'll pin that one for later, but with this realization you're speaking in hindsight. You know, you're looking at like, okay, Allbirds fell off a cliff. Um did you have the the foresight? Like you saw Allbirds kind of falling and collapsing. Did you see that impact impacting you or did it did it kind of like come later after you really started feel the pain? No, luckily at this point we were I feel like we were pretty early on in the DDC space to realize that something needs to change and something needs to change today in order to preserve any kind of optionality that we still have. So, at that time I would say like early 2023, um we were well, my co-founder and I were looking each other in the eye and we were like, hey, we're losing a lot of money here. Um at the time it was roughly like 3 million in in in EBITDA. Um minus 3 million in EBITDA that we Minus it. I meant that part. Um and we were like, wow, we need we need to figure something out and turn this company around because we're not growing as fast anymore. We can't don't have access to capital and ultimately what's this business worth if it is not making money. Um and at the same time we were seeing like, wow, all we have this great brand that all these celebrities are wearing that people genuinely love. I think we have a phenomenal product. Like we would get people telling us, "I've been wearing your shoes for 6 7 years and they they still look as great as on day one." So we had like all these softer metrics that were encouraging us and then we had the hard numbers that were telling a different story. And we kind of looked each other in the eye and we're like we need to do like a dramatic shift here or it's going to be over in a couple of months. Um so the first thing that we did was we aligned on this with our investors. Luckily we have had a very strong trusting relationship with all of our investors um in Koyo especially with our board. So we were very close with them and we aligned on making these changes now as like the number one priority. And what that entailed was well we came up with a plan of how we want the company to look post restructuring. Um and essentially it wasn't supposed to lose any more money but it was supposed to make money and ideally we would do this without dropping it revenue. So our starting point was to really understand why people are coming to us. So we conducted churn surveys and both my co-founder and I went on calls with 100 plus of our customers to really like dive deep into why they're buying our shoes. And what we learned was that most people loved us for these dress sneakers that they could buy at this rate that they could wear to the office, to dinners, to dates, to strolling through the city like so that they would feel comfortable in their comfortable comfortable and confident in their everyday lives. But the reality was that over the years we had expanded and we had expanded way too fast. We added SKUs not only for men, but for women, in boots, in loafers, in slippers, in heels. Um and all of a sudden, people didn't really know anymore what Koio was. Also, with your limited marketing dollars, as soon as you start spreading them out across all these different products, well, your messaging is not as clear, and your customer acquisition costs are kind of like all over the place, um because you're trying to, yeah, advertise all these different products and all these different messages, and some of them work, some of them don't work. So, we realized we had a we had a focus problem, and we needed to bring our vision back to to what we started with. And uh that meant cutting SKUs. So, we probably cut 40% of our SKU portfolio, and we also put product development on hold because we we went from like releasing 10 SKUs a season to releasing 120 SKUs a season. Um and we're we're really like reeling this back back in. Um then the next step was, what do we do with our team? We we have been working on so many growth um initiatives that we can't finance any longer, and we probably don't need that big of a team. And we made the drastic decision to cut uh 70% of our team um in New York, and shift to a remote-first organization. So, that was probably the hardest step um in this whole journey, letting go of people that have worked with you for 4 or 5 years, that became your friends, that you really trusted, and um and enjoyed working with. But, it had to be done, or the company was going to be done. So, um we did that, we closed our office, we closed retail stores other than one, and we shifted into this remote setup and started hiring um a few people that were really essential to the business in remote positions all over the world, whether it's South Africa, Brazil, or Turkey. Um all of that, of course, there was a lot of friction, right? If as you're like letting go of your customer service team and rehiring your customer service team, you're realizing there's no one to answer customer customer messages anymore. So, us founders had to go back to the early days and be super hyper involved. Um in hindsight, that was also a blessing because we discovered a lot of things that um like, yeah, weren't optimal anymore after years of like having processes built up and and hierarchy built up in the team. Um and at the end of the day, we did this 18-month restructuring turnaround for our own business. Um and the results were remarkable. We cut indeed 3 million in cost um in 18 months, didn't drop in revenue, and all of a sudden we had uh a very clear focused brand positioning. We had a small lean team, and the business was making money. So, you get to this stage, went through basically hell and back. >> >> The the the self-realization of what must be done. But obviously, there's other choices. You could have, you know, tried to, you know, some people throw in the towel at that point. It's too hard to turn it around. Yeah, and and wind it down and you know, tell your investors too bad, so sad. You guys kind of fought through, you found a way to to turn it around, knowing that really there's no more capital left to go out and get it. You did great. That was a skill you developed, raised 20 million in the D2C space. Um but that capital had dried up. Interest rates had changed. No one's paying those premiums and those other multiples. But effectively, when you got to that point, okay, you salvaged the business. Now, it can be self-sustaining, it can generate a profit. Pat yourself on the back. But, what happens then? Like, what happens when now you have this cash-flowing business? You know, did you have debt that you had to deal with? Did you have disgruntled investors? Like, how are you kind of navigating at this point? Real quick, if you're a founder doing over 5 million in revenue and want to know what the best $100 million-plus founders are doing to fuel their growth, then make sure to subscribe to our $100 million exits newsletter. Get the playbooks that are proven on how to fund, grow, and sell your business. I'll even give you a curated list of investors that want to invest in your business. It's totally free. All you have to do is click that link down below, subscribe. Do it now. I promise it's worth it. You won't regret it. You got nothing to lose. Go ahead, subscribe now. Back to the show. Yeah, great questions. Um the lucky thing was that we never took on real institutional debt. So, our balance sheet was always very clean. The only position that we had um that involved that was inventory financing, which was more than fully backed by all of our inventory. So, and we were always having like a a strong balance sheet. And now we also had a relatively strong P&L. At the same time, um we needed to be real with our situation, right? Like, we had just invested another 18 months into the business. At this time, we've been with the company for 7 to 8 years. And we realized that we were pretty diluted um after raising all of this capital and then and then not being able to keep raising at higher at higher multiples. Um so, we needed to question like, what's our long-term goal? Like, we built a strong emotional connection with the brand. And we also really wanted to make right by our investors who we've had a great relationship with, and we also wanted to prove ourselves that we can do it. But at the same time, we were heavily disincentivized. Um So, yeah, again, one of the first things that we did was like talk to our investors um and and see if there's an alignment that if we keep running the company, um they would give us some more incentives in order to do so. So, um we yeah, looked at the liquidation preferences of the business and addressed them together with our board in a very productive way. That was kind of like step one. And I think what's been so important in getting this done is like having this trust with your investors, having them see that you are yeah, burning for this company and that you're really like trying everything in your power to to get it to a certain place. Um And that was always the case with us, right? That was always the case with us. Like all our investors were like, "Wow, like this is an unfortunate market timing and market condition, but you guys are really like trying things left and right and like um chapeau that we're at this position now where this business is making a profit." So, my co-founder and I were like, "So, what can we do?" Like generally, when you look at the bigger market, you see all these big incumbents, you see some bigger DTC brands, and you see so many small fragmented players in the footwear space. How can we create value here? In order to build the luxury brand, we realized it's a long-term game. Right? It's not like we're not going to accomplish that in another year or two. We need to keep investing in brand, brand, brand, brand to justify these price points. We need to keep building our product portfolio. We need to keep really evolving the Koio brand, and this can be another 10, 20 years to come to to get it to the place where you want it to be. And I think the game in high-end premium is very different in than in a regular commodity kind of brand. Um but for us, we learned that it was a long-term game and we need to be willing to play that long-term game. So, in order to like compete with incumbents without raising more money, uh necessarily, we discussed the idea of doing M&A, uh potentially mergers with other footwear companies that were or are in a similar situation in order to kind of combine forces, be able to combine teams, be even leaner, and then have the advantage of a little bit more scale, which can reflect positive in your cost of goods sold, and and and and try to compete from that point of view. So, there was a period of time for a year where we explored the idea of partnering with someone else and combining our businesses. And what we learned was twofold. On the one hand side, um and that goes back to your question of like were we early realizing that the DTC market was going to shift or um were we late. Like a lot of founders that we talked to were still at the belief like no, my company is worth X multiple multiples on revenue. Like I don't want to I don't want to accept reality. So, the options were limited, but there were some founders that like where this mindset had kicked in that there was a new reality and they were willing to explore merger with us. So, we explored this pathway for for some period of time and ultimately decided against it to then I want to talk about that a little bit more cuz this this happens all the time. Like, you know, two companies kind of adjacent, nothing's perfect. Maybe are Are are we stronger and better together? And you went through the exercise that says that out. Why did you back out of that? Like what what evidence or what data came about where you're like, this isn't the right path? So in order for these things to actually go through, a lot of things need to be true, right? I think you need to have great chemistry with the other founders. You need to have an alignment on who does what going forward. You need to have an alignment on how much longer um we're committing to this. How much more money are we adding to this? Um what's the product strategy? And there there has to be an alignment on so many different levels. And besides, do these brands fit together and does it make sense from a financial uh financial perspective? So A all of these conversations took a long time. It wasn't just like one or two meetings. It was probably three to seven months meetings to get to a stage where you could really fully assess what it meant and if it made sense. Um including getting your existing investors on board to potentially provide more capital for the new for the new company. Um but for us or what we learned in this process was that we didn't want to be running a footwear company for the next 10 years. That was a big learning. Um as we were analyzing the growth strategy for the next years, we felt like honestly pretty exhausted. We were We've been added for eight years. We've tried a lot of things. We knew it was a long-term game. We did not necessarily want to commit to another five to 10 years. The other thing that we learned was that our our balance sheet was very clean and not necessarily that was not necessarily the case with some of the parties that we talked to. So it kind of like yeah, put us in a position where like, are these two brands together really stronger or are we like also inheriting like some new some new risk with this deal. And ultimately, yeah, we decided that this was not going to be the right move for us because of a combination of these of these things that we would rather shift towards trying to sell the business all together. And so you succeeded in that effort. Let's transition to that experience of kind of identifying the buyer and running that process. Yeah. So, the good news was that I had already networked quite a bit in the footwear industry and in the DTC space um and that also gave you an idea of like the investors in the space, potential buyers in the space. But, we knew the situation was going to be challenging because we knew both founders wanted out. Um that's that rarely helps in a sale. Um we generally, I think, footwear um at our size is also a tricky category. It's not an easy add-on for the big strategics. Um Steve Madden tried it with Greats um in 2022 where they bought the company and then it was too small for them to really care about it. So, subsequently, the com- the company like grew smaller and smaller and now they sold it on. Um so, with that warning sign, you also knew like that the big strategics weren't necessarily going to go for it even though we tried talking to a few of those. So, the starting point was really like identifying the potential buyer universe, right? Here we have the big strategics. It's very unlikely. Here we have some PE growth players that could be interesting. Um and then here we have other DTC brands where footwear could be a good addition to their portfolio. And here we have um other smaller footwear brands. Here we have a few aggregators. Here we have a few family office offices. So we start we started collecting names in in these worlds. I was meeting a lot of people. I was speaking to um yeah to to bankers in the space to to get an idea of like who these who these not so obvious names would be and then started reaching out to them and started asking for meetings introducing the company. And we actually got quite a few meetings over the process of the next 2 years. I had more than 200 conversations with potential buyers. Um so a real process started to form. And um luckily um due to my time in investment banking where I started my career, I had generally an idea of like how to run such a process, how to put together deal documents, how to present the company, how to um put your data room together, what is it that investors are looking for and kind of like tailoring our materials to that. Um so we got some momentum. We talked to a lot of people. Um and I think it was like close to the end of 2024 when we had still around 10 parties that were at a stage where they were interested. Um and we were hoping to get to the LOI stage with many of them. Then early 2025 the terrorist happened. And the And all of the sudden, everything that we had worked for it kind of just like disappeared because a ton of the players that we were talking to um had China exposure, had massive China exposure, and they were like, well, with this going on in the world, we really can't be thinking about buying another business right now. We need to have more certainty of what's going on in the market. Um but we were determined, like the business was in a good position. Um like late 2020 or the year 2024 was the the best year in the company history, and 2025 even topped that. Uh so, we wanted to use that momentum and and and and close the deal. And ultimately, we had still two parties in the race until the very end, and then decided to go um with the family office that is um based in Miami because we believed that they would yeah, really be able to take this brand to the next level, and at the same time respect everything that we've built and cared for. What was that like coming to that conclusion uh after, you know, running such an insane process, you know, 200 parties, you know, getting 10 at the table, getting punched in the gut uh when tariffs happened, but still driving an outcome. Like, from my experience in working with, you know, countless founders and countless transactions, like usually people throw in the towel. You know, people, you know, give up. They'll go back to, you know, try to cash flow the business or, you know, try to create some spark back in the business, but, you know, you were able to drive it all the way home, and you know, be able to open yourself up to new opportunities because you were able to to drive that transaction. Like, what do you think made what was your secret sauce? Whether it was just your pure determination or something else that ultimately led to you to driving that transaction all the way home? Yeah, great question. I think 2025 has been a very emotional year, probably one of the most emotional years of my life because it ended a 10-year-long chapter. And um it's been a rollercoaster ride, right? Like like as founders coming to terms with that this journey ends um even though your identity is so tied up in what you've built in the brand, right? I I didn't even know Chris outside of Koyo anymore. Like and um then trying to well manage the company through all its ups and downs and bringing it to an end despite everything that was going on in the market I think was really a result of like yeah, determination plus having had um a strong foundation, right? I think and our strong foundation consisted of us having cleaned up the company first and foremost, having a strong balance sheet, and having strong investor relations. So, we were aligned with our investors on what the outcome should be. They were supporting us in getting this done. There was no like gray area. Like we were driving towards the same goal. We had a very clean balance sheet, so the risk that anyone would take on with Koyo was um rather small. Like also the business we had been in business for 10 years, right? You You kind of know what you're going to get. The company is not going to go to to zero in the next in the next uh in the next years, right? Um, but I think over the course of the 10 years, like probably the biggest learning as an entrepreneur has been to deal with setbacks, disappointments, and to keep to keep standing up, like the the level of resilience. And I I think at the end it wasn't any different in that process. Um, we had a goal, we we wanted to get that goal done, so we were just more determined to get to the outcome than than anything else. It's impressive, and I think that it's something that a lot of founders, I think especially, it doesn't have to be D2C, but you know, anywhere, any industry that founders have kind of gone through this this ramp up and ramp down cycle in their sector, I've come to the conclusion that like I see so many founders are just no, we got to keep going, and the it'll turn around, like whether it's magic that they have in terms of turning around the business and growing it to some exponential number, or you know, the multiples will turn around. I was like, I tell you now, multiples don't turn around. Once they once they're set, they're set. And if they only progressively get worse in most cases. Like multiples from 2022 to now, um, will probably be continuing to depress and/or leveling out. Um, and so a challenge I talk to founders about, I'm curious to get your thoughts of like the the time value of money, and the value of your time versus, you know, taking cash off the table now, concluding the deal now at what the current market terms are, despite they're never going to be what they were. But, can a founder truly create so much upside despite the headwinds to where investing another three to five or 10 years into the business will truly actually yield a higher return to where like the IRR, factoring in inflation and all that kind of stuff, is you know, worth their time. Uh, Uh, and it's better to cuz also it's like what else could you unlock as a founder? Could you go build something else? Could you go something in AI? Could you join a firm like Thundra? >> >> Uh, and so I you know, I'm curious as you ran through is it you guys were tired. You know, I think that was an obvious statement that you made of just like the the time had come. Um, but as you think about what it unlocks for you by selling the business and moving on to something else. Yeah, I think if you learnings that we've had along the the way was like we started every year kind of motivated with like here's what we're going to do. These are our growth levers, right? We're going to bring out this new product. We have this cool collaboration with the Jonas Brothers. We have a partnership with Nordstrom. We're expanding into more doors. We're testing Europe. Like we had every year we started with these growth initiatives that got us excited. And I must also say like the high-end footwear market, it's it's really a cutthroat market. I feel like we probably picked one of the most competitive spaces that we could have picked. Um, where you have all of these growth ideas and you execute them, you put a lot of effort and energy behind them, you execute them well, and it often just translates into like very minor marginal upside. Um, what what one example that I want to give um, is like for example like if someone posted Koio on Instagram, like we went away from like even 5 years ago, we went away from seeing direct sales and revenue. Because it's a high consideration item. People don't just buy it as as an impulse purchase. And that was true for everything. Like that was kind of like the sphere for everything. So whatever we tried, we knew most things would only be marginal, but we were still so optimistic and positive about the next year. Right? And um at some point you learn to be more realistic with what these growth opportunities actually mean. Right? Um if you've gone through that cycle and and have been disappointed a couple of times. And as we were exploring mergers, um we got exposure to other seasoned founders that have built great businesses where the former company wasn't necessarily their first business and we got a lot of perspective. And the perspective that they brought to us, which I'm super grateful for, was that, "Hey, you guys need to also start thinking about your opportunity costs. You can't just be like uh trying to get this done in order to get this done and to do right by your investors. You also need to start thinking about you and what you ultimately want out of there and like what other opportunities exist out of there?" And that kind of like kick-started, I would say two two and a half years ago, um a process in our mind where we're like, "Yeah, probably for us this is not the best path financially to keep to keep doing this and keep testing these growth initiatives." And I think you need to be super realistic with yourself and that also um implies being realistic about the prospects of your business. Often times, once your business has lost like real growth momentum, it's very hard to get it back. Very very hard to get it back. And I would say in 90% of times, founders are too optimistic about the value of their brand and how easy it is to grow the business. Um that's definitely something that I see now as I'm working with lots of founders across the D2C space that there is this level of um being too optimistic about um the next year. And we were too. We had to learn to not be. And I think the same is true for like multiples and and and valuations of companies. We were always saying like this is probably the worst. Maybe next year consumer sentiment is going to come back plus our this growth initiative hits and then we could sell for 20% more. Um but yeah, if you after having done it long enough and after having spoken to other people who have sold companies before, um I feel like we we got a perspective to be more realistic. And that realism helped us to drive to an to an outcome today rather than tomorrow. So you brought up a really good point there of like if we just do this, we can get 20% more, 30% more. And that's usually an arbitrary number that's like you know, finger in the wind like that's what I feel. And I I feel it's so important to get like the uh data and how it's trending over time to kind of understand what's happening to the comps. And also it's it's so tough for founders to have the truth of like oh, this company sold for 300 million. Like It's like well I had a founder come on my uh uh come on as a client that saw their competitor close 300 million and they're like wow, like they're probably doing 50 got 6X revenue. I was like no, we found out that they were doing like 350 in revenue. And they sold for 300 million. And they were profitable. And you know, that was just such a a shock to to their system of like wait. So they got less than 1X revenue. And I'm like we're not talk we should stop measuring in revenue multiples in this in this market in particular, do you see? And you know, consumers and things of that uh consumer CPG um you know, the multiples have just completely shifted. And like getting that outside perspective, someone that you know, can kind of come in and be honest with you about the reality. I think it's such a crucial thing for for founders to experience to be able to get to that realism that you had and understand like, okay, if I just reshape my perspective, look at the pros and cons of my alternatives, uh I can make a you know, a real decision. Cuz the other thing is is I'm only seeing in some cases, unless the company's continuing to hit 20, 30, 50% year-over-year growth, like the multiples you know, the value will decrease over time in terms of like who's who's willing to pay what. You know, if you flatlined or you're growing like 5%, 10%, you know, the mojo's lost. Someone's going to look into coming and acquiring it from an opportunistic perspective most likely. You know, where they're going to want to they're taking on risk, so they want to buy it at a price low enough to where they can, you know, potentially turn it around and make a sale for themselves. And so it's important for founders to realize okay, if you had a good year last year, maybe now's the good time to take it to market and try to run a competitive process with a realistic expectation on on exit value knowing that unless you got the energy to keep, you know, rapidly growing the business, um you know, that the faster you sell, the the higher value you're going to capture. Curious with kind of now with your ex- expertise and what you're seeing, Chris, um cuz full disclosure, Chris has joined Thrasio as a partner. He's leading our DTC uh side of the business helping uh DTC founders do exactly what we're talking about here, transact M&A, debt or equity, whatever their situation might be. Uh you know, for Chris for for what you're seeing right now, kind of what are you observing from founders in the current market today that are looking to transact? Um yeah, good question. So, I think like this DTC phenomenon of like venture orphans is very prominent, right? It's like companies that raised money pre-pandemic at high valuations. They're now in a situation where they can't raise at the same valuations. Um so they would either have to raise a down round or they can't raise at all. So, generally, I think there is going to be this bigger wave of consolidation coming. I think more and more founders are becoming more realistic with the value of their business. Like compared to what I've seen 3-4 years ago and now, or like I feel like there has a big shift, right? There has been a big shift. We've seen I've seen so many founders that started with us in the consumer space that just like closed shop and and ended their businesses. And for the comp for the founders that are still staying on board, that are have run their business now for quite some time, they're also realizing that DTC is not the uh the end-all uh game here, and that just focusing on DTC is really, really hard in terms of building your brand. It feels like every year it's going to get harder to grow through Meta. And the more you're exposed to like yeah, just your own website as a selling channel, um the harder it is to grow, and the harder it is to like diversify that diversify your growth options. So, what we're seeing in the market is definitely that omni-channel brands that are not just pure-play DTC are demanding higher multiples. And um what we're seeing from founders is, yeah, I think a combination of like reality kicking in, plus um having exhausted some growth options, um plus being open to yeah, finding new ways to really create value for them. I think a lot of a lot of founders are at a point where they're trying to understand what's my business worth? How much value have I really created? Like how much longer do I have to do this before I can take money off the table? And um yeah, and I think what we're really good here at Thunder is to like help founders get clarity on this and also to think creatively about how to maximize the outcome. Yeah, it's also setting the realistic expectation. You know, you and I had a call earlier today, founder real business, real revenue, you know, has dealt with ups and downs, but doing it for years. And it's tough like sometimes like people just want to to cash out and you know, it's it's fun when we talk to founders is they they feel they have to present their all their options like, "Hey, no, yeah, I'm open to staying with the company or I'm open to this or that." Like you can also kind of tell deep down inside they would just love to cash out and get as much money as they can and try something else. But it's just it's so hard for them because they they have to always have their defenses up, always have to have their their guard up cuz you know, if they say the wrong thing, do they, you know, lose an opportunity and um you can definitely empathize and I know you can on that front of just always having to like puff your chest and be like, "No, everything's great. Oh yeah, we're doing great." And it's like but it's hard to have a candid conversation and really get to the facts uh when those guards are up and if people can't really identify what's going on just to provide any kind of support on that front. Yeah, absolutely. And I think uh two things that I think are that I've that I've learned over the years that are important is like if well, if you are starting to think about how to realize your value when when you need it, it's probably too late, right? If you want to run a full exit, um you need to really prepare for this. You need to be in market. You need to start building relationships. You need to start optimizing your business for the metrics that these buyers want to see. So, it's not something that just happens overnight. And I think having clarity on what your strategy should be in order to maximize your founder outcome is is a sup- super helpful thing and you should start thinking about this rather earlier. And I think this is where this is where we'd love to help to help you like get to that level of clarity. And the other thing that I think is key here is that your capital strategy that you choose early on or that you choose on any given day really determines your outcome down the line, right? If you go down a certain path and then not commit to or not commit or for whatever reason not hit the numbers that you're supposed to hit with that are associated with that path, then you're in a tricky situation, right? We raised VC money on day one and our business is a business that didn't necessarily need VC money or it's a it's a more traditional business. We should have probably partnered if we needed money with family offices, with strategics, with angel investors, more so than with VCs. And we needed to course correct many times over the over the next 10 years in order to get to an outcome that was still beneficial for us founders. So, I think it's super important to think through your capital strategy early on to yeah, and have this be a much bigger piece in your overall puzzle of how to build a company and brand. Um that's uh and just early days, but also just knowing before you make the move. Like there you know, one thing we haven't talked about cuz I think you avoided it, but uh merchant cash advances or like the the Stripe Capital or the Shopify Capital loans, this is what most founders in this space fall into and it's it's such a trap for it's like, "Oh, here's easy money. Oh, like it just comes out and like doesn't feel like a real loan. It just you know, comes out of your pay you know, out of your uh it's like basically first money out. So like before you know, credit card fees are even paid. Like they're they're getting paid uh on a daily or weekly sweep. And >> >> this is something that you know, we had a a client of ours that pulled one of those um before we were able to get to market with a proper debt package and equity package. And because they pulled that loan, they basically all of the options were dead. You know, and then that's something I want to share with any kind of D2C founder listening. It's like those those loans are a sign of uh unhealthy balance sheet or an unhealthy business. And if that's the only capital you have and like some cases like this client didn't need that capital. They just didn't realize that they could talk to other people that could provide higher quality debt. And what often happens is is now have a countless of my friends that have these businesses in the two to 20 million dollar range uh in this in the D2C space, but they just they keep growing. And like they're all their gross margin in you know, country or sorry, all their contribution margin is going back to paying these um these loans and it's just kicking out of them. And the math is hard. It's really hard to kind of figure out the math on these MCAs and determine like, "Oh, what am I doing right? What am I doing wrong? Like how much is actually coming out and paying these?" And the products are designed that way because they're super high risk um for the lender. And so they have to like have all these schemes in place to protect their downside and capture as much of that cash up front and return the capital so it can be redeployed as quickly as possible. And it's such a disad- Yeah, disadvantage structure for founders especially in D2C you have to manage like cash flow conversion cycle or cash conversion cycles and inventory management. You have to have all this cash going out to be able to make money. And people kind of use these MCAs as a stopgap cuz it's easy. Oh, I get 40K right now. Easy. >> right? You can sign up to it with a click of a button. Um you don't have to really go through an underwriting process that's that's long. So it's so easy and so quick and I think um yeah, that that makes it so dangerous. It's um it's usually when a business goes from you know, growing to surviving. And and that's what I've noticed is and it just becomes like it becomes so hard to fund the growth of the business when so much cash is coming out so fast to pay back those MCAs. And the effective rates on those things can be anywhere between like 20 to 50% um in terms of like APR because you're paying it daily. Mhm. It's very >> bad when you actually factor in the APR. It doesn't like oh, it's only like a 1.2 factor rate. Yeah, or something like that. It's like nah, it's like something like 30 to 50%. >> >> And then the real danger is where it gets really tricky is when you start stacking them. When you don't just work with one of them, but you have two, three. Um and then all of the sudden your future cash flow is just like promised to other to other parties. So yeah, your the future revenue is is very important for you to protect because you want to have this to reinvest in the business. Yeah. Now I tell founders I just pretend that money doesn't exist. You know, hit the X button when you get the ad for it uh when you're logging into like it's a so it's brilliant business for Stripe and Shopify and all the providers that offer it, but um you know, unless you used unless you have like rapid growth, like you need to be growing faster than the percentage of which the cost of capital is. Otherwise, it's just going to eat you alive. And the problem is like, "Oh, you'll just grow out of it. You know, no problem." It's like once that once that loan's taken, I I see very few companies uh grow out of it. And it constantly becomes the only source of capital they get access to. And the only way they get out of that is they go and get worse capital from some, you know, kind of very like they all serve a purpose in the market. So, I don't want to say anything bad, but it's not like shark loans or you know, anything of that sort, but it's like they're very aggressive loans that you you will live to pay back those loans. You will operate the business to pay back those loans. And it just makes the business not much fun for a lot of people. And it's but then it's like, "Well, how do you get out of it?" And it's just becomes a painful trap. So, um as founders are exploring their options in this space, stay away from those loans. Talk to, you know, we'll take a call. We'll be happy to kind of share, you know, what other providers out there will be able to help you on those uh particular situations. Just make sure you're always coming before you need it. Cuz if you need it, 10 times harder to get it. But if you want it from three, you know, like in a few months or you have some plans, you want to grow, that's always the best time to bring it up. It's always best to start your options as early as possible, especially in the M&A front, Chris, as you were saying. You need to be in the market as early as possible. Whether you're saying you're for sale or not, just having conversations, people need to know you exist, people need to know what you're what you're building. Um cuz as much as AI is eating the world right now, people like to do deals with people in the finance world and fundraising and deal making. And um people only want to do deals with people they know. So. Chris, it's been great having you on the show. Obviously, you and I are going to do some more shows. Uh we're going to talk more about D2C, uh what's going on in the market. You know, this is more of an introduction for people that don't know who you are, hear your story, what you built at Koyal at Koyal. And it'd be great to leave some parting advice for for those founders that are currently exploring their options. Yeah, I I think it really goes back to be proactive and be early. Like, don't try to preserve your optionality while you have optionality. And if you if it's already past that point, then like try to recreate your optionality. Like, don't wait until it's too late. Really like make capital strategy a key cornerstone of your company's pillars, um not just an afterthought. And and and be prepared so that ultimately you can optimize for your personal outcome as well as just building the brand. Well said. And if you anyone wants to talk to Chris or myself about their business, wants to have a conversation about what could be done, what options might exist for them, uh shoot us an email. You got Chris at thunder.vc or myself Jason at thunder.vc. Uh always happy to have a conversation. And uh you know, feel free to subscribe to our newsletter and our podcast uh down in the description below. And uh hope you enjoyed the show. Thank you, guys. If you were inspired by today's episode, then go ahead watch this next episode. Promise it's worth it. And if you really enjoyed this last episode, and you want to connect with the guest I had on today, make sure to leave a comment down below telling me why you would like an intro to this guest, and I'll make it happen.