Behind the $1.5mill raise: Interview with Trace CEO Cat Long

March 2022

What do the experts think...

If you’ve been following our startup journey, you probably heard our announcement that we recently closed a $1.5 million seed round, taking our total funds raised to date to $1.9 million!

But, what you can’t read in a standard press release is the story behind the raise - the learnings, challenges and strategy that culminated in the final headline of success.

In the spirit of radical transparency, something we pride ourselves on at Trace, we wanted to give you a ‘behind-the-scenes’ insight into how we went about raising our seed capital - direct from co-founder and CEO Cat Long, who spearheaded our fundraising efforts alongside her co-founder Joanna.

I sat down with Cat to ask her the questions I was interested in knowing the answers to, in the hope that the answers might prove interesting and useful to any other aspiring or early-stage founders looking to follow in her footsteps. We covered a lot of super interesting ground, including…

Below is an almost exact transcript of our discussion with only minor editing to help with readability (and to remove the million times I said “like” and “you know”, which was a confronting realisation!). I’ve also included a few ‘sidebar’ comments to provide context or summarise the random tangent conversations we had off the back of Cat’s answers.

I hope you enjoy reading it as much as I did doing the interview!

Q: What were your expectations and goals going into this round of fundraising? 

The overall goal, obviously, was to raise sufficient money that we can then build out the team in order to achieve our growth goals ahead of the next round. We actually set out originally with a goal of $1.2 million and were lucky to be able to over-subscribe [reaching $1.5 million], and cater for that extra demand. 

But also, I wanted to build a network of potential investors, whether they would join this round or not. It's important as founders to have a network of investors that can then guide you on your journey and hopefully participate in future rounds. 

Although it was very time consuming, I definitely don't see any of it as a waste of time because it really helped shape our thinking and it's really helped develop a network that we can then go back to when we're ready to raise our Series A. 

And then the third [goal] was having a mixture of investors that weren't just in it for the money. 

Obviously, we want to deliver a financial return to our investors, but we also want people that care about the cause and our vision and can help us steer the ship towards that vision as well. 

We've ended up with a good mix of people, many of whom have been founders before of their own tech companies or are people that are more specifically experts in the carbon or the climate space that can help us navigate that. And then we have your more traditional investors that can help guide the process of growth from a venture capital point of view.

At this point, Cat brought up stats from the spreadsheet she used to track the investors she’d reached out to and spoken to. There were 119 investors in the spreadsheet that she reached out to (mainly by email), with Cat estimating she spoke to around 80 investors in total - many of them two or three times. This was over a 6-month period of Cat juggling the raise alongside her day-to-day role as CEO.

I thought it'd be quicker even though everyone warned me…! I frankly don't know how I would have done it quicker. I think I thought it wouldn't take six months, but I wasn’t focusing on it full time. [At] the crunch point, it might have been 70% of my time, but for the rest of it was more like 50% so I was able to get on with my other role in the business as well.

Where it all began: Cat & Jo's first pitching experience with the Antler Accelerator Program

Q: Firstly, it's interesting that we don’t have a ‘lead’ investor. I wanted to understand why this is the case? Was it an intentional choice or did it just happen like that?

Yeah, I've been reflecting on this a lot. And it was a learning process for me…

So what basically happened was, I spoke to a load of VCs upfront, hoping that I would secure a lead investor. And a lot of them were interested but not interested enough to take the lead.

I realised that we were never going to get momentum unless we started taking investments from the interested investors who were not big enough to take the lead. So I did have to manage the expectations around that and go back to investors and say, “You know what, we've decided to price this round ourselves. We've come up with the terms.” So I had to do a bit of a pivot in that sense… and it didn't hold us back in the end.

I find the Australian investment landscape frustrating. [Investors/ VCs] talk about wanting to be a company's first cheque, and yet when we went to many of them, I got the impression that we were too early. 

We didn't have enough runs on the board to give them complete confidence to take the lead. But at the same time, we were too progressed for them to just base this investment on pure vision. So I think we were in a sticky position in that sense. We had a really solid product, roadmap, we had customers, we had growth but we only had six months of traction, and that's not enough for most VCs to feel confident.

If we had zero traction because we hadn’t launched yet, then all they would have based their investment decision on opportunity over facts. I think there's a real opportunity for Australian VCs, frankly, to get their head around companies that have managed to achieve consistent traction but they're not progressed enough to prove, say, two years' worth of growth.

Cat and I discussed the fact that the way we ended up raising, with a mixed pool of smaller investors who are keen to make a positive impact, is really quite metaphorical in that it reflects the Trace business model which focuses on attracting a large pool of SMEs to take climate action, rather than relying on the government or big corporates to provide a “silver bullet” solution. So maybe it was meant to be…!

Q: We had five customers invest which is, I think, a pretty big statement about their confidence in the product.

I’m interested in what you thought it was what was that made them decide to become investors?

I think we gave them all a very good experience. We met the needs that they couldn't find in a solution elsewhere [by being simple and accessible]. 

But I think most of all, being a customer, you know you’re at least one company that needed Trace’s [solution]. Most of them are not companies that you might automatically assume would need Trace, which goes to show the breadth of opportunity of this product. And I think those customers could see that because they said, “Well if we need this, and we find this valuable, think how many other millions of companies must be feeling the same.”

It was just easy for them to believe; if they were going to do it then other companies would follow suit.

Q: To me, it stands out that we have quite a few angel investors.

What do they bring to the table that's unique or different to the big VCs? And do you think there was a reason that we ended up with so many angel investors interested?

Yes, [the VCs] were really interested in what we were doing but needed a few more months-worth of proof, so I feel really confident that a number of them will participate in our next round and that's why we’re maintaining strong relationships with them and keeping them up to date.

And I think at first I was disappointed in [not getting more VC interest]. But in hindsight, I'm not remotely disappointed because I think,

“Would we rather be a small fish in a big pond, or have loads of investors out there that are gunning for us because they have personally put their own cash into Trace and want to help us succeed?”.

We've ended up with the latter, which I’m actually really pleased with.

Some founders want to keep the clean cap table and there are good reasons for that; more investors, the more people to “look after”, but I see them more as cheerleaders and advisors that I can tap into and especially given some of them have reinvested, that's a really strong sign that they believe in what we're doing. Some of them are customers and then some of them are real experts in either technology or carbon and sustainability. So I would rather have that pool of people behind me (at least at this stage in this early stage, while we're still navigating a lot of decisions and opportunities) than be a small cheque for big funds who have a portfolio of hundreds of companies and naturally need to spend more of their time caring and nurturing their bigger investments.

Cat pitching to investors at SOUTH_START in early 2021

Q: Reflecting on the investors who came on board, do you think there was there a noticeable theme as to why they decided to invest? What were the key things that got them across the line?

I think everyone was interested in the space (climate tech) and most investors like a SaaS (software as a service) model - it’s scalable and has potential for really high margins. So the tech play was good.

I think all of them also did care about climate. So they have this kind of ‘tick box’ of, not only am I investing in something that has the potential to scale but I’m also helping the planet at the same time. 

But then specifically, why Trace?...I think our focus on community building and employee engagement. So trying to not only just provide a digital product for our customers to help them become carbon neutral, but also build a community where they can all help each other and celebrate their successes collectively.

And also the employee piece -

If every one of our customers has on average, 100 FTE, that's 100 individuals that have the potential to drive by action as well. I think a lot of our competitors miss that opportunity. 

Because we were born out of being a consumer product first and foremost, I think we have that tone of voice, that branding, those products that can be used to engage staff. And so I think that was what made us stand out.

And finally, I think we're a dynamic team that has proven we work well together. That's not necessarily unique, but I think there probably aren't that many female-founded climate tech businesses with a team of people with great experience that are really hungry just to succeed. 

So marrying all those three things together, I think that's why they came on board. 

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Q: As you received feedback throughout the pitching process, did that help you shift your focus? How did your pitch change throughout the process?

I think it was just about getting really clear on what the product actually does. 

For the customers [who invested], that was easy, right? There was no convincing required about how it works and what our value is. I think because this isn't something that every investor has used personally, or seen before, initially we were mainly talking about outcomes without actually talking about how the products and our software platform itself actually enables community and actually enables measurement of carbon, offsetting and employee engagement. So we got better at defining the products and giving them visuals to help them understand that and then also, helping them understand what the product roadmap looks like. 

Because we were raising the middle of building the product itself - we didn’t actually have a live software platform at the time of raising, we had an MVP in the market and it's quite hard to sell that when someone can't touch and feel the product!

So towards the end (while we were still building the product in the background), we got better at doing demos and getting investors to talk to existing customers so that they could hear firsthand what Trace does and how it helps those companies on their journey to net-zero. 

Cat and I laughed about this difficult situation we and many other startups must find themselves in - needing a product to help them raise money, and yet needing money to build the product! A serious catch twenty-two!

Q: Did any of the feedback that you were receiving while pitching flow through to how you prioritised what was being worked on in the day-to-day?

There were a lot of influencing factors, not just investor feedback. But certainly, a big focus for us in the last six months has been how can we empower our customers to reduce their footprint not just measure and offset, which was always our vision,  but we realised we needed to accelerate that. 

There was (and still is!) a lot happening at the time, if you think about the narrative in the market; COP26 was happening, everyone was talking about net zero, around 25% of global corporates have made commitments net-zero…So it was this concept of net-zero, which is more than just carbon neutrality, that was becoming really hot. (Read this article to understand the difference between carbon neutral and net zero).

Therefore we needed to make sure that Trace wasn't seen just as an offsetting brand, which we never wanted to be but perhaps were being perceived as.

So I think that started to really come through - showing how we were going to enable that functionality. 

And the reason investors like that is - one, it's a better outcome for the planet, but two, you can really see why companies would stay with Trace. It's not just a once a year thing, it's an ongoing value exchange, which means we have strong retention.

Cat being interviewed by SBS World News

Q: Coming back to your point about the context of what was happening around the world during the raise - last year, there was also a huge boom in climate tech investing

Do you think that we caught the momentum of that new influx of interest in climate tech? Did it help or hinder?

It's really hard to say overall, but I think it actually makes the competition stiffer.

Because, I don't know the numbers exactly, but for every one pitch like mine, they're probably seeing another 20 other climate tech businesses pitch to them, or if not directly pitching, seeing them in the news, and particularly overseas there are some big players out there in the carbon accounting space, who aren’t necessarily direct competitors to us, but to the untrained eye might be seen to be our competitors. 

A lot of education is required in the process to explain how we differ; what was it about our marketing strategy and our product that makes us different to those businesses that they were probably hearing about elsewhere? So it was almost the ‘uneducated’ investors that were easier to convince because the vision wasn't muddied by in-depth knowledge of all these other very early-stage companies. 

But don’t get me wrong, there is a lot of money and it’s an amazing space to be in. And most investors know that climate tech is going to be “the next cloud tech”, so the overall market is not a hard sell. 

It comes way more down to execution and product differentiation, which then ties back to my earlier point that bigger VCs; despite saying they want to back you early, require so much evidence that you can execute and grow. Which, if you've only been running for a year as we have been on the B2B side of the business, how can I provide more evidence than one year's worth of data and growth? So that's where the frustration for me came from, but certainly, it was great to see that the space, in general, was getting a lot of positive attention.

Q: Do you think being a female founder made the process harder? Is there anything you would do differently next time to combat any challenges you faced?

While we obviously can’t do a kind of ‘A/B test’ to know for sure that being a woman made it harder, my gut tells me that it does often come down to personality differences [between founders].  I’m not sure whether it's just me or other women too, but I have a natural trait of being more realistic.

What I mean by that is, when people ask me, “How big can this business be?”, I'm bold and I'm very confident that we can do well, but do I say that we’re going to be the next unicorn? No, I don't. I would love [Trace] to be [a unicorn] and maybe we’ll get there, but it’s not in my nature to try and “sell the world” with no proof. 

I have a level of realism. I think women generally do. Others may be more confident in just saying these big sweeping statements like, “We're going to be the next unicorn, and we're gonna make $100 million next year.” And that narrative is attractive to investors. 

I'm a pretty confident woman but I'm not going out and saying that kind of thing, and I do think that holds us (women) back. 

So what would I do differently next year? Probably get some coaching around that. I think I need practice. I'm good at sales but I wouldn't say it's my bread and butter. So I probably need to go out there and just absolutely be able to confidently say why I think we're going to be the best climate tech company in the whole world. 

Research from Boston Consulting Group in the US showed that despite women’s tendency to paint a more ‘realistic’ rather than ‘optimistic’ picture of their business success to investors and receiving significantly less funding than men overall, on average, female-owned and lead startups actually produce more revenue and are more capital efficient. 

I think it was Jackie Vullinghs, from AirTree Ventures who said in an AFR article last year (check out the article here) that they tend to slash any forecasts that men make in half, while they only cut women's forecasts by about 15%. I think that's amazing and exactly the right direction they should take.

The other challenge for female founders is that they get asked more risk-related questions than men, who get asked ‘opportunity’ based questions, which puts women on the back foot (check out this study). I definitely noticed this - I’d say most questions I was asked were related to competition and risk mitigation instead of potential. Towards the end of the raise, I got much better at turning my answers into an opportunity to sell the upside!

Cat presenting as part of the Fishburners Startup Pitch Competition (which she won, of course!)

Q: Final question - can you elaborate on some of the ways that our investors have been helping us already or will help us as we grow?

Most of our investors have had long and successful careers in technology or industries that are relevant to Trace. So people have been very generous in recommending us to prospective clients and we've acquired a lot of customers as a result of those referrals. 

Then more technically, we've got a couple of investors that are experts in the carbon space, which is a very opaque and complex market and one that we're deeply involved in, so getting advice on how to navigate those markets, things like pricing increases, how we can ensure we're getting quality offsets at a good price and which [project] developers and wholesalers to work with have been super valuable in helping us navigate through that. 

And then just more general advice; so I always try in my monthly updates to investors to have some ‘asks’. For example, we've been working on our advertising and marketing strategy, so I reached out to them and said, “Hey, can anyone put us in touch with an expert or take some time to chat about this”, and they’ve been very forthcoming about helping us.

So what’s next for Trace now we have this new injection of funding? 

Our overarching goal for 2022 is to achieve 10x revenue growth, with 1000 new Climate Positive businesses onboarded by the end of the year. When we translate this to impact, this means at least an additional 90,000 tonnes of CO2 offset, and 450,000 new trees planted!

Other exciting developments will include:

  • Growing the team - we will continuously be looking for new talent (take a look at our open roles here).
  • Expanding our marketing and content development efforts with a focus on education and building our community of climate-conscious leaders
  • Moving to a product-led growth strategy with the launch of our new business customer app!

We expect to kick off our Series A fundraising round in early 2023.

If you’re interested in joining the ‘Trace-ship’ as a customer, team member or supporter, get in touch!

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