ROOMINATE: Raising Money Carefully and deliberately

Alice  Brooks  and  Bettina  Chen  met  in  2012,  when  they  were  engineering master’s students at Stanford University. They both noticed the lack of female classmates. Both  had undergraduate degrees in engineering and reflected that  females are underrepresented in undergraduate engineering programs too. They set out to try to put their fingers on why more girls aren’t attracted to engineering programs. In the accompanying photo, Alice Brooks is on the left and Bettina Chen is on the right.

After giving it some thought,  they realized that they had two things in common that might explain why they chose engineering. First, the toys they played with when they were young instilled in them a love for making things. When Brooks was eight she asked for a Barbie Doll for Christmas and got a saw. She used the saw to cut up wood and nail the pieces together to make dolls and animals. She believes that that experience sparked in her a love for making things and for engineering. Similarly, as a young girl Chen spent hours designing things, not with a saw but with Legos. She designed elaborate Lego structures with her older brother, and feels that that instilled in her a love for making things and using her imagination. The second thing the two had in common was a result of the first. They both built skills, as youngsters, that were important to them in sticking with engineering.

Brooks and Chen also found that they both shared an entrepre- neurial spirit. They decided to tackle the challenge of encouraging more girls to enter engineering. The idea they came up with was to develop a toy that would provide young girls similar experiences to those they benefited from as children. The toy, they reasoned, had to develop skills such as spatial reasoning, hands-on-problem  solving,  and self-confidence. The idea they settled on was a kit of pastel-colored pieces that girls could assemble into a building or any other type of structure. Once the building was built, it could be decorated with included paper and other embellishments, and a small motor could be used to add electrical appliances, fans, buzzers, or anything else that uses power. The kit, or toy, would come in a board game–sized box and be called Roominate.

At the same time Brooks and Chen were conceiving Roominate, they were tak- ing a Lean Launchpad class at Stanford taught by Steve Blank. Blank is known for encouraging students and others to “get out of the building” and talk to as many potential customers as possible while developing a business idea. Brooks and Chen followed Blank’s advice. They interacted with over 200 girls in their target age range (ages 6–12) to see what worked best. They also asked young girls to experiment with early prototypes of Roominate at local events and the Children’s Creativity Museum in San Francisco. They took time to talk to parents and educators and did a lot of prototyping. Brooks and Chen followed Blank’s class with two stints at StartX, which is Stanford’s start-up accelerator. Through this program they were put in touch with mentors and subject matter experts, such as attorneys, who helped them develop the business side of Roominate.

The next step was raising funds. Money was needed for two reasons. First, the entrepreneurs needed financial capital so they could scale production through large- quantity orders of wood, electronics, and assembly costs. At this point, Brooks and Chen were assembling Roominate kits by hand, which was unsustainable. Second, because Roominate was designed to be played with by children under the age of 14, money was needed to fulfill the tests required to certify compliance with toy safety standards.

Brooks and Chen decided to launch a Kickstarter campaign. The campaign was launched in mid-2012 with a $25,000 goal. Pause for a moment and go to https://www. kickstarter.com and type “Roominate”  into the search box. Although the Roominate campaign is long since over, Kickstarter archives all campaigns indefinitely. You’ll be able to view the video pitch, see what the Roominate toy looks like, and examine the specifics of the campaign. The $25,000 goal was easily exceeded, with $85,964 raised from 1,154 backers. The successful Kickstarter campaign was a big plus for Brooks and Chen. not only did it help fund their initial production run, but the overwhelmingly positive response was a big confidence-builder.

Since the Kickstarter campaign concluded in mid-2012, Roominate has pro- gressed. In defining the first three years of Roominate, Brooks characterizes year one (2012) as developing the product and raising money via Kickstarter, year two (2013) as finding customers and slowly building sales, and year three (2014) as finding retailers and ramping up. In 2013 and 2014, Brooks and Chen raised approximately $1 million from angel investors to fund the buildup. Several things happened along the way that demonstrated  momentum, which was important  in securing the angel investments. First, Roominate won several toy awards, which provided external validation for the efficacy of the idea and the product. Along with that, it attracted positive PR, including an appearance by Brooks and Chen on the Today Show in 2013. Second, sales started to build in 2013, primarily through specialty stores, the Roominate website, and via Amazon.com. Third, mainstream retailers, including Toys“R”Us and Walmart, started showing interest.

The next logical step for Roominate, in terms of funding, would be a Series A round of venture capital. Roominate’s ability to get to that point will depend on whether it dem- onstrates broad product acceptance and is seen as a potential high-growth business.

In this chapter, we focus on the process of getting financing or funding. We begin by discussing why firms raise capital. We follow this with a description of personal financing and the importance of personal funds, capital from

friends and family, and bootstrapping in the early life of a firm. We then turn to the different forms of equity, debt, and creative financing available to entre- preneurial ventures. We also emphasize the importance of preparing to secure these types of financing.

Source: Barringer Bruce R, Ireland R Duane (2015), Entrepreneurship: successfully launching new ventures, Pearson; 5th edition.