Fundraising is still ‘a paradoxical issue’
from this month, personal care and beauty retailer Sephora sells vibrators on its US website. It’s an important milestone not only for Dame and Maude, the startups it worked with, but also for the sexual wellness product category.
These startups operate in a different environment than the founders encountered a few years ago, but raising money is still no easy feat, a “paradoxical issue” to navigate, according to O.School CEO Andrea Barrica. “If you go into a space where very few people have been, with a lot of barriers, you probably need more money, but most of the time we have to do it up front with less money,” she told TechCrunch.
To understand how aspiring sex tech startups can meet this challenge, we also spoke with founder Lora DiCarlo and investor Carli Sapir, founder of Amboy Street Ventures. As for Barrica, she is now sitting on both sides of the table – in addition to being an entrepreneur, she is also an angel who invests and raises a fund.
Our conversations showed that things are opening up: there are more funding sources to tap into, and convincing investors is easier than it used to be. But fundraising is still more difficult than in other industries.
More than a few venture capital funds will never invest in sex tech because of “victim clauses” that contractually oblige them to pass on companies that offer products or services in categories such as alcohol, tobacco, gambling, weapons, porn and sexual wellness.
“The bigger the fund, the more common it is” that it has a vice clause, Barrica said, adding that the restriction is broad: “I’ve met small funds that have conservative LPs.”
To find out, she said, “You just need to ask the fund managers or partners, ‘We’re very excited about sexual wellness as part of health and wellness. Is this going to be an issue with any of your LPs?'”
Asking a broad question about their concerns is a good idea, because even without a written clause, fund managers may not be keen on investments that could upset their limited partners. “We VC funds raise a new fund every three years and they don’t want to lose investors,” Sapir agrees.