20VC Tearing Up Term Sheets and Writing Your Own, Why Founders Must Do VC Dating PreFundraise & The Benefits of Capital Constraints in The Early Days with Rachel Drori, Founder & CEO @ Daily Harvest

In this episode of the 20 minutes VC, host Harry Stebbings interviews Rachel Drori, founder and CEO of Daily Harvest, a direct-to-consumer brand delivering unprocessed and unrefined foods. Drori discusses her transition from corporate roles at Four Seasons, American Express, and Gilt Group to entrepreneurship, emphasizing capital efficiency, methodical growth, and the importance of investor relationships as a single founder. She shares insights on raising funds, including orchestrating a successful Series B by building prior relationships with VCs, and the challenges of securing early-stage investment in New York. Drori also touches on the evolution of the New York startup ecosystem and her philosophy of "faking it till you make it," particularly during fundraising. Daily Harvest's future includes expanding product categories and further addressing modern eating dilemmas through frozen foods.

• Harry Stebbings hosts Founders Friday on the 20 Minutes VC podcast.
• Rachel Drori, founder and CEO of Daily Harvest, is the guest.
• Daily Harvest is a direct-to-consumer brand delivering unprocessed, unrefined foods in a frozen format.
• The company has raised over $43 million in funding from investors such as Alex Tausig at Lightspeed, Collaborative Fund, and Beth Ferreira.
• Rachel Drori previously worked at Guilt Group, American Express, and Four Seasons hotels and resorts.

"So I'm thrilled to welcome Rachel Drori, founder and CEO at Daily Harvest, a direct consumer brand that delivers real, unprocessed, unrefined foods in the most convenient format possible. Frozen."

This quote introduces Rachel Drori and her company, Daily Harvest, emphasizing its focus on delivering healthy, unprocessed food in a convenient frozen format.

• Lisa is an online mattress company that ships directly to customers, compared to Warby Parker or Tom Shoes.
• For every ten mattresses sold, Lisa donates one to a shelter.
• Zoom is a video and web conferencing service that offers a consistent enterprise experience for various activities including video meetings, webinars, and chat.
• Zoom is highly rated across user review sites like G2 Crowd and Trust Radius.

"All Lisa mattresses are 100% US or UK made, and for every ten mattresses they sell, they donate one to a shelter."

This quote highlights Lisa's commitment to local production and corporate social responsibility by donating mattresses to shelters.

"Zoom is the top rated conferencing app across various user review sites, including G2 Crowd and Trust Radius."

This quote underscores Zoom's high user satisfaction and its position as a leading conferencing app according to user reviews.

• Rachel started her career at Four Seasons hotels, then attended business school.
• Moved to American Express and then worked at Gilt Group before founding Daily Harvest.
• Her experience in corporate settings influenced her approach to building Daily Harvest.

"So I started my career at Four Seasons hotels, then went to business school, actually, then moved over to American Express. So very corporate."

Rachel Drori describes her professional journey through corporate environments, leading up to her venture into entrepreneurship with Daily Harvest.

• Gilt Group was a pioneer in e-commerce 1.0.
• Former Gilt Group employees share common takeaways that have influenced their own startups.
• Rachel Drori applied learnings to Daily Harvest in areas such as capital deployment, growth, and team building.
• She emphasizes building a capital-efficient business and not hiring too far ahead of growth.

"And it's nothing against Gilt, as I said, was absolutely a pioneer. But as I've built Daily Harvest, I've really looked at building it very capital efficient, not hiring six months ahead of growth."

Rachel Drori reflects on her time at Gilt Group and how it informed her strategy for capital efficiency and measured hiring practices at Daily Harvest.

• Capital efficiency is a core value at Daily Harvest.
• Rachel believes in doing more with less and being disciplined.
• Being capital light forced the company to be selective and methodical in its approach.

"I'm a very big believer in kind of testing and learning and being really disciplined. So being capital light allowed us, or not only allowed us, it forced us to kind of be very selective with things that we went after and to be methodical about how we did it."

Rachel Drori explains her belief in a disciplined, test-and-learn approach, which is facilitated by maintaining capital efficiency.

• Daily Harvest prioritized team growth and building a proprietary site.
• Initially, they used an out-of-the-box solution for their website before transitioning to a custom-built site.
• Due to this choice, some desired customer features were delayed.

"We knew we could use kind of an out of the box solution, which was very not out of the box by the time we were done with it, but an out of the box solution to start, and then got to a point where we were breaking it and then built our own site."

Rachel Drori discusses the strategic decision to start with a basic e-commerce platform and then transition to a custom-built website as the company grew and needed more functionality.## Dealing with Technical Challenges as a First-Time Founder

• Rachel Drori experienced a significant technical issue due to a non-proprietary site not scaling with the business's growth.
• She used stoicism to manage the situation, asking herself about the worst-case scenario.
• The worst-case scenario was manageable, and they resorted to manually charging customers.

"So it's one of those moments where sheer panic. And Susan, you're trying to figure out, like, okay, I have a very basic business problem that I need to solve right now."

This quote illustrates the initial panic and the need to address a fundamental business issue urgently.

"And I always ask myself, what's the absolute worst thing that can happen?"

Rachel Drori uses stoic philosophy to ground her decision-making process during crises.

"We ended up manually charging everybody. But the worst case scenario was one that I could live with."

The resolution involved a manual workaround, and the worst-case scenario was deemed acceptable.

• Rachel Drori deliberately orchestrated her company's capital efficiency from Series C to Series A.
• The goal was to prove the business model before raising a significant amount of funding.
• The strategy was to be lean initially to enable a substantial raise later when needed.

"So it was actually all very deliberately orchestrated."

The quote indicates the intentional and strategic approach to the company's financial planning and fundraising.

"You can't just raise $43 million because you want to."

This emphasizes the necessity of justifying a large fundraising amount through proven business success.

• Rachel Drori bootstrapped the business for eight months due to early investor skepticism.
• She used the Series Seed to demonstrate traction with numbers.
• Series A was approached with more robust reporting.

"It was mostly middle aged men who I was talking to, and they would taste one of our first collections, which was smoothies."

This quote reflects the challenge of early investor engagement and their failure to grasp the business concept.

"I proved our series c with numbers. Not a large amount of numbers, but just enough to kind of show the traction."

This demonstrates the strategic use of initial business data to gain investor confidence during early fundraising.

• Rachel Drori reflects on the unique fundraising story of her company.
• She experienced unexpected growth during the Series A fundraising, which doubled the run rate.
• This led to a reevaluation of the fundraising terms and a proactive approach to adjusting the terms.

"And what happened was the run rate that I originally deemed like the one to raise the series A at had doubled in that six weeks, which is insane."

The quote shows the surprising and significant growth of the business during a critical fundraising period.

"I actually decided to blow up the entire round and basically wrote my own term sheet and sent it back to everybody."

Rachel Drori took a bold step in rewriting the fundraising terms based on the new business valuation.

• Rachel Drori's approach to investor relations involved capping the investment amount per fund.
• She wanted to avoid a dominant lead investor dictating terms, maintaining control over the term sheet.
• The strategy resulted in a mix of responses from investors, with some being put off and others willing to participate.

"I actually capped the amount that each fund could take."

This quote indicates Rachel Drori's strategy to diversify investor influence and maintain control over the fundraising process.

"And it was because once you have a true lead investor in a round, then it becomes difficult to have your own term sheet because they have certain ways that they want to work."

The rationale for capping investment amounts is to prevent a single lead investor from having disproportionate control over the terms of the deal.## Fundraising Strategy

• Rachel Drori emphasizes the importance of building relationships with VCs before actively seeking investment.
• She suggests meeting with potential investors informally to establish connections without sharing specific business details initially.
• The approach of "dating" investors beforehand led to a more efficient Series B fundraising process for her.
• Finding investors who are value-aligned is crucial, especially for a single founder who relies more on their board and investors.
• She limited her Series B fundraising efforts to six VCs with whom she had already formed relationships, streamlining the process.

"So I did a lot of quote unquote dating before I set out to raise. So I met with vcs. Anybody who wanted a meeting, I took. I went out to a few that I've heard great things about and I just got to know them."

This quote illustrates the proactive approach Rachel took to familiarize herself with potential investors, setting the stage for a more targeted and effective fundraising round.

• Rachel values the relationship with her investors, particularly due to her status as a single founder.
• Empathy and the ability to serve as a sounding board are key attributes she seeks in investors.
• She highlights the positive dynamic with Alex at Lightspeed and Carl from BMG, who are on her board and provide support similar to that of a co-founder.

"Both Alex and Carl be the type of people that can call. I can be a little vulnerable, can I will get that empathy. But they're also just wonderful sounding boards."

Rachel's quote emphasizes the importance of having investors who offer empathy and guidance, which is especially valuable for single founders in lieu of a co-founder's support.

• Rachel observes a significant presence of consumer startups in New York City.
• She praises the New York startup community for its camaraderie and willingness to share best practices.
• The ecosystem is described as collegial, which may differ from other regions such as the West Coast.

"New York definitely seems to be the calm of consumer entrepreneurship as I continue to meet people and as I continue to kind of be out there in the startup community."

Rachel's quote reflects her positive view of New York's startup ecosystem, highlighting its supportive nature and focus on consumer entrepreneurship.

• Rachel agrees with the perception that New York lacks conviction investors at early stages.
• She shares her struggle with raising a Series Seed and the necessity to bootstrap due to limited early-stage investment opportunities.
• Despite challenges, she managed to secure investors who believed in her vision and have been supportive partners.

"It's really hard to find people at such an early stage that will invest in a concept or an idea. I really had to go beyond that, and I had to bootstrap."

This quote underscores the difficulty of securing early-stage funding and the need for entrepreneurs to be resourceful and committed to their ventures.

• Rachel stresses the importance of projecting confidence during fundraising, even without a proven track record.
• The "fake it till you make it" approach is deemed necessary to gain investor trust and secure funding.

"If you've never done it before, you have to pretend that you know exactly what you're doing, because you really don't earn points for being a rookie."

The quote captures Rachel's strategy for approaching fundraising with confidence, which is crucial for convincing investors of her capability as a founder.

• Rachel believes in the principle of asking for forgiveness rather than permission, reflecting a bold approach to decision-making.
• She relates this to her personality and suggests that it's an inherent trait that influences her leadership style.

"Ask for forgiveness and not permission."

This quote encapsulates Rachel's philosophy on taking initiative and making decisions, which may involve risks but can lead to significant rewards and progress.## Entrepreneurial Mindset

• Rachel Drori identifies with the archetype of the outlaw, embodying a spirit of rebellion and innovation.
• She emphasizes the importance of asking for forgiveness rather than permission, suggesting a proactive and risk-taking approach to entrepreneurship.
• A key moment for her was defying investors' advice to stick with smoothies at Daily Harvest, choosing instead to expand beyond that initial product offering.
• Rachel's understanding of the target demographic, which includes herself, guided her decision to stick with her original vision for the company.

"Well, there are a few different ones, but I always come out as kind of the outlaw. It's just like, time after time, I'm the outlaw. And I think a lot of that goes back to this idea of asking forgiveness and not permission."

This quote illustrates Rachel's self-perception as a non-conformist in the business world, who prioritizes innovation over compliance.

• Rachel had a clear vision for Daily Harvest from the beginning, which was to reinvent frozen food to address modern eating dilemmas.
• Despite the success with smoothies, Rachel faced pushback from investors about expanding the product line.
• She insisted on following her vision, believing in her deeper understanding of the customer base and the broader potential of her business idea.

"I was definitely given a hard talking to about going outside of smoothies. And guess what? I did it anyway."

Rachel's quote demonstrates her determination to pursue her broader vision for Daily Harvest despite resistance from investors.

• Having children significantly altered Rachel's perspective on the possibility of "having it all."
• She now believes that the notion of balancing everything perfectly is an unrealistic ideal that can lead to self-criticism.
• Rachel advocates for acknowledging and accepting the trade-offs between different aspects of life.

"I mean, it changed so much of it, but one of the things that it changed is definitely my view on reality."

This quote reflects Rachel's shift in worldview after becoming a parent, recognizing the need to make choices and prioritize differently.

• Rachel Drori dismisses the concept of work-life balance as a myth, suggesting that true balance is unattainable.
• She believes in the importance of acknowledging this reality and adjusting expectations accordingly.

"Absolutely. There is no balance. There's just not."

Rachel's succinct statement emphasizes her belief that work-life balance is an unachievable ideal.

• Starting Daily Harvest was Rachel's biggest risk, undertaken while she was pregnant and without prior experience in founding a business.
• She highlights the importance of calculated risks, thorough discussion with her partner, and the eventual satisfaction of taking the leap.

"It was definitely a risk, but one that was calculated, one that my husband and I talked a lot about and one that I'm so glad that I took."

Rachel's reflection on the risk she took underscores the importance of careful consideration and partnership in making major life decisions.

• Rachel is excited about the future of Daily Harvest, with plans to expand product categories and introduce innovative solutions.
• She reiterates the company's mission to solve modern eating dilemmas through convenient, healthy frozen foods.

"We've barely scratched the surface. But when you think about our big mission, which is solving this modern eating dilemma, the desire to eat real, clean food without the time to actually make it through frozen, there's just so much to do."

Rachel's quote conveys her enthusiasm for the potential growth and impact of Daily Harvest in the coming years.

• Rachel recommends the nutrition book "Deep Nutrition," which has influenced her approach to building Daily Harvest.
• The podcast episode concludes with endorsements for Lisa, a mattress company, and Zoom, a video and web conferencing service.

"It's called deep nutrition. It's fascinating, but the 1 second synopsis of it is basically, if your great grandparents didn't eat it, you shouldn't either."

Rachel's brief synopsis of "Deep Nutrition" encapsulates the book's message about traditional eating and its relevance to her business philosophy.