by Y Combinator3/13/2018
Adora Cheung, YC Partner, then repitches FlavorCloud to Holly.
Adora Cheung – So, the next thing we’re going to do is bring up FlavorCloud, who is going to pitch Holly, who is the investor here and then go from there, yeah.
Holly Liu – All right. So, I guess, we’re gonna be sharing, sorry. So, I’m gonna be an angel investor, and I’ve done some angel investing in the past, so I’ve only heard a little bit about what you do. And so, we’re just, kind of, gonna mock whatever we’d end up doing as an angel investor. So, tell me about FlavorCloud.
Rathna Sharad – Holly. Fabulous to meet you, and I wanna tell you about FlavorCloud. What we do is we make international purchases on any retailer’s website as easy as shopping on the Amazon. So, cheaper, faster, and completely friction-free. So, what retailers would do is use our service and our shopping cart, and they can just instantly ship to 220 plus countries around the world.
Holly Liu – So, help me understand because I’ve never worked at Amazon or places that serve retailers. So, if I’m a retailer, like, maybe I own, like, a Shopify store, you guys are…I would go to you to buy my raw materials?
Rathna Sharad – No, we do the shipping logistics and customs and duties calculation for retailers, so that if you’re an end-consumer, if you purchase from an international website, one of the difficulties that you have is that the shipping cost can be, like, huge, right? And then, the other issue that you could have is that the customs and duties are things that you’d find later on when you actually get the product. And in addition to that, you have to do additional documentation, you don’t expect that. And finally, let’s say, you actually got the product, and now, you’re not happy with it and you wanna return it, as a consumer, you’re pretty much left to your own devices. And so, what we do for retailers is say that, you know, “You figure out your marketing strategy to get to, you know, ship to all these different countries, and what we’ll do is the underlying plumbing to make that happen.”
Holly Liu – So, it seems like you’re making shipping…oh, there’s another one. So, I own an online store and I wanna ship it to somebody in Wisconsin, I would use you, guys, right?
Rathna Sharad – That’s right.
Holly Liu – So…
Rathna Sharad – No, not Wisconsin. This is international shipping, right? So this is cross-border commerce.
Holly Liu – Okay. So if I wanna ship it to Australia. Somebody in Australia had bought my shoes, that I designed and loved, so, currently, what would I do now? I would just force the consumer, right? I mean, that’s what I would imagine because that’s what they’re gonna pay for.
Rathna Sharad – So, the problem today is that most retailers, in the last two years, have seen that because of Amazon and because of, you know, social media like Instagram, and Snapchat, and all of that, consumers are directly finding these brands and they’re, like, “Okay, I wanna go buy this,” right? And then the retailer says, “I’m not equipped to ship to you because you’re located in China, or you’re located in Sweden, or wherever it is,” right? And it used to be that it was 10% of a retailer’s business was international. In just the last three years, what has happened is that it has become one in three e-commerce purchases are cross-border, right? So, if you don’t do that, you miss out on 40% to 60% of the international traffic that comes to your website.
In the U.S., it’s about 40%. If you go to, like, China or EU, it’s well over 60% of the traffic that’s international.
Holly Liu – So, currently, like, how many dollars does that translate to?
Rathna Sharad – That’s a trillion dollar business by 2020, serving a billion consumers worldwide.
Holly Liu – Okay. So, how…I mean, right now, then, I feel like it’s DHL that I get international packages from or eventually, USPS. And certainly, I can get it in three to five days, if using DHL, and then, like, 21 days, is like the slow boat express. Like, how are you guys set-up to be able to compete with those?
Rathna Sharad – Yeah, great question.
Holly Liu – And I have to pay, like, 25 bucks as the end-consumer.
Rathna Sharad – Right. So, great question. So, what we talked about was the consumer experience of, you know, how hard it is to do international, but what we do is, we’re a B2B SaaS platform, right? We have a suite of services that you can plug in. There’s APIs and plugins for Shopify and its merchants, right? So, what we do for these guys is three things.
One, we integrate with 100 plus carriers around the world, so that’s our logistics platform. We have an algorithm that goes across that network of carriers and says what is the cheapest, fastest, most efficient way to move this product from point A to point B, which is across country borders, right. And it takes historical performance for that route, and also, specific to the product, to come up with a recommendation. Just right off the bat, because we have these contracts with these carriers, and it’s a volume-based play across the whole suite of retailers, you’re looking at, like, 80% plus savings on shipping. So imagine if you go as a customer, today, on this website, and you have a shipping cost of $60, if you go with us, you have $10 shipping, and you’re like, “Okay, that increases your conversion rate right off the bat.”
The second thing that we do for retailers is we have a customs engine. So, let’s say, you have thousands of SKUs or even millions of SKUs, right, if you’re an enterprise retailer, the real nightmare with international is that you have to classify every single product and come up with this weird code, and that defines what the duties are. And the paperwork is a massive pain in the ass. And so, what happens is, you have to, as a retailer, have a logistics team that understands the inherent details, and that’s a huge cost that most retailers don’t understand.
Holly Liu – So, how far along are you? Like, how are you set up?
Rathna Sharad – So, we actually started with a vertically integrated marketplace in 2014.
Holly Liu – What does that mean, vertically integrated?
Rathna Sharad – That means we enabled, through our marketplace, small and medium-sized businesses sell to consumers worldwide. I started that, because as an end-consumer, I had problems purchasing from these international websites. So we created that and initially, it was three markets, U.S., UK, India. And then we started experimenting with this, and we figured out with 300 plus brands that we scaled to 100 plus countries worldwide, and we found that this anywhere -to-anywhere logistics infrastructure that we had built became the one that they were most interested in. And we started getting requests for brands that didn’t wanna be in the marketplace, but still wanted to use our technology. So then what we did was we took the backend and said we’re gonna create the SaaS Infrastructure and make it such that, you know, you can simply plug and play, so you don’t need to worry about any of these other aspects of international.
Holly Liu – So you have about 300 brands on your site using your software.
Rathna Sharad – That is through our own marketplace, it’s on top of our infrastructure. And last year, we made the pivot to the SaaS platform, that was in the summer. And then, before the holidays, we started onboarding customers to our Shopify plugin and we have a dozen customers from that.
Holly Liu – I have two quick questions, like, how much shipping volume have you done through your platform?
Rathna Sharad – So, we did about 100 paid GMV through our shipping platform for the external customers, 6% commission, so basically, on order value.
Holly Liu – Okay.
Rathna Sharad – So, that’s been our revenue outside of the marketplace. And we have a pipeline of customers. It’s been really great, the feedback that we’ve gotten. So, we’re looking at 10X in the next 4 months.
Holly Liu – 10X. Okay. And sorry, I lied, it’s actually three questions total. Any competitors?
Rathna Sharad – Yes.
Holly Liu – And what makes you think you guys are the ones that are gonna be able to beat them?
Rathna Sharad – So, the competitors…this is, kind of, a greenfield space because cross-border commerce has grown in the last two years and we’ve seen the trends happen in the last two years. The biggest competition is a company called “Pitney Bowes.” They have a solution called “Borderfree.” It’s a 2.5 billion dinosaur company, but it’s also dinosaur technology. It is geared towards…It’s something that customer’s hate and is geared towards a market-by-market kind of implementation, which is very prohibitive for the smaller companies. And your other question was about…
Holly Liu – Oh, yeah, go ahead.
Rathna Sharad – So, basically, what makes us better in this sense and why we are best equipped is, I actually spent 10 years in supply chain logistics, working with carriers, UPS, DHL, you know, all the guys that you’ve mentioned. I built Customs Integration Solutions, but I also built Route Optimization Solutions, but more so from the other side of it, so I inherently understand the problems. And then, with my co-founder at Microsoft, I built Enterprise SaaS Solutions.
Holly Liu – It’s our very last question, which I usually ask is, how much are you looking to raise and in what valuation?
Rathna Sharad – So, we’ve raised 1.2 million in two rounds, seed round, so far. My second round is halfway through, and I’m raising another million for the next nine months. And that’s why we will do…
Holly Liu – In what valuation?
Rathna Sharad – It’s 10 million right now, valuation cap, pre.
Holly Liu – I’ll get back to you. Thank you. Send me the deck.
Rathna Sharad – Very nice meeting you. Thank you.
Holly Liu – Tell me a little bit about FlavorCloud.
Adora Cheung – FlavorCloud is straight for international shipping. So, online merchants in under five minutes, can…they just plug it into their online check flow and…our checkout flow, and voila, they can do international shipping and deal with customs and everything.
Holly Liu – So, does that mean you handle the payments and…yeah, just payments, too?
Adora Cheung – No, we don’t do the payments. We just…So, how it works is the merchant will send us, through our API, the customer’s address and then we automatically, real-time, determine the best route and the best price to ship it to them.
Holly Liu – Like, how big of a problem is this right now?
Adora Cheung – So, right now, one, if you want to do international shipping as a U.S. merchant, typically, what you do is you hire really expensive consultants who spend weeks, if not many months, many, many months, charging hourly rates…
Holly Liu – They’re shipping it themselves.
Adora Cheung – …trying to figure out all the different combinations for first mile, last mile customs. Customs is the worst for all these types of countries. And even when they finish with that, it’s, you know, typically, there are still issues, packages still get lost, everything still gets stuck in customs, and so, it’s just one big hassle. And that’s if you can even afford it. So, I think the problem is anybody in the U.S., any merchant who wants to sell goods to anyone in the world will be using us very soon.
Holly Liu – That’s a pretty big market. So, where are you guys…
Adora Cheung – So big, I can’t say it.
Holly Liu – So, how far along are you, guys?
Adora Cheung – So, we launched in 2014, and the reason why we started working on this is because we launched as a marketplace for all sorts of brands and retailers who were selling through us, and we realized, while they’re selling goods through us, which was great and it was going well, their major problem was international shipping. And so, we decided we would solve that problem for them. And then, as a result, we just decided to work on that problem itself because it was big enough.
Holly Liu – So, I wanna ask the elephant in the room, like, what about Amazon? Why can’t they set this up? Because you know what they have shipping locations all around the world. They’re just going to Australia too.
Adora Cheung – Well, okay. So, I mean, Amazon is a great way to distribute your product, but I think every merchant, a lot of merchants actually do want to work through Amazon, but I think every brand, for sure, wants to have their own site. And actually, for Amazon, it doesn’t actually cater to all international customers. And so, in fact, if they use us, we have a bigger distribution than them.
Holly Liu – Really?
Adora Cheung – Yeah, because we cater to everybody in the world.
Holly Liu – That’s a good point.
Adora Cheung – Even if you’re in Antarctica.
Holly Liu – Have you shipped to Antarctica? No. So, like, what other competitors are there outside of Amazon? Like, I could see why retailers might not wanna go over here, but there’s gotta be somebody else that’s cracking this. Or what…yeah.
Adora Cheung – Yeah. So I mean, so there are a few other startups that are taking a crack at it, but what we do well is we aggregate everything. So most of the startups are taking a very fragmented approach that they can only ship to one country or, you know, they’re trying to build up some things.
Holly Liu – I mean, are you worried that they’re going to do what you’re gonna do? And, like, what makes you guys, kind of, what competitive advantage do you guys have?
Adora Cheung – So, I have 10 years of experience on logistics, working at UPS and other various places. And so, what I know very deeply is, I know the people doing the delivery, the companies doing delivery, I know how to talk to them. And we’ve developed many algorithms to put this all together.
Holly Liu – So, how much are you looking to raise, and at what valuation?
Adora Cheung – I am looking to raise $1 million dollars and our valuation is $10 million.
Holly Liu – What are you looking to use with that money?
Adora Cheung – So, right now, our team is very, very small, so we need to expand our engineering team and we’re looking for people to help on the operations side.
Holly Liu – Okay. Well, how about this, why don’t you go ahead and send me the deck. I’ll take a look at it and is there any references set? You can give me as well.
Adora Cheung – Yeah. We have customers, we work with over 300 brands already, so you can talk to them. What do you think? How interested are you in this?
Holly Liu – Well, so, I’ll be honest. I’ve never invested on a shipping logistics type of company. So, I don’t really have as much of a background on it, but what’s very interesting is, this is, like, it could be a very big business when I can get a piece of that. So, usually, I’m looking for something that can give me greater than 10X returns. My check sizes usually range from 100K to 250K, so I want a certain percentage of the company as a result of that. And I wanna be able to keep pro-rata rights as I go further.
Adora Cheung – Okay. So, definitely, up for discussion. Our round is half-filled, and so we expect to close in about two weeks. So, I’ll send you the deck and hopefully, we can chat further very, very soon.
Holly Liu – All right. Thank you very much.
Adora Cheung – Yeah. I think my biggest one for your deck is probably just shortening the explanations of what you do. I can see you have a huge, huge, huge vision for this, which is great. But I think just being a little bit more succinct, like, your one-liner. I forgot what it was.
Holly Liu – You said stripe for logistics, and I’m lucky enough to know what stripe is, but, you know, even if it didn’t have to, like, sometimes, A for B doesn’t totally work.
Rathna Sharad – That was her.
Adora Cheung – That was me.
Holly Liu – Oh, that was you. Oh, sorry.
Adora Cheung – I should have asked you.
Holly Liu – I thought of that, but…
Adora Cheung – I said stripe for international shipping. And I assumed you’re a tech investor.
Holly Liu – Thank you. Our researchers are all bad. So, it did take me…It did take me a while to carry on.
Adora Cheung – That’s one of the things I have a problem with, in the sense that I’ve said, depending on, you know, whether they know it, I said flex support for B2C e-commerce, but that only works with some folks. And I hate to say Uber for, like, you know, international shipping. It’s just like…
Adora Cheung – I mean, you could just say you’re on API, I mean, the stripe analogy there is it takes five minutes to put on your checkout flow, easy, and you’re doing a ton of work in the back but no one else sees it, yeah.
Holly Liu – Yeah. I also…I was a little tripped up. I’m like, I kinda knew you were selling to retailers but, like, for me, I just personally, couldn’t, like, figure out what it was. That’s why I spent a ton of time, just like, “Okay, what is this thing?” And that’s mainly where just…where the bulk of it. And then once I could figure out that they, obviously, had a ton of questions afterwards, too.
Adora Cheung – Yeah. And this is a reminder for everyone. Actually, you asked the question which I was hoping you wouldn’t ask the question, but a lot of people actually go to meetings with two investors and don’t ask for money. Like, you just end with it without asking, and even if it’s awkward, just ask it with confidence. And, I mean, the worst, they’ll say no, but you’ll take all these meetings anyway and a lot of people will say no, so don’t worry about that part.
Holly Liu – I know I will say this a lot of times, what happens, and I didn’t probably mark it too well, is usually the first question I asked for is, like, how can I help? It’s usually what I ask that person. And then, so, it’s true the entrepreneur has to guide it to, “I’m asking for money. This is what I’m looking for.” And I think what Adora [SP] did, on the founder side, definitely asked what the investor is interested in. This might not even be their domain. You might not even want them. They may be, like, a bad investor. What is their check size? What are their expectations? How fast can they move? Do they need to talk to somebody else? But that’s…
Adora Cheung – Yeah, but overall, you did really well. She’s raising money. Are there any investors in this audience?
Holly Liu – Yeah, that sounds really cool.
Adora Cheung – Oh, there we go. Two, three over there. Okay. All right.
Holly Liu – That’s awesome.
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