‘VC money becomes a bit of a drug’ – Nick Mowbray schools startup after ‘fiasco’

A Kiwi startup has started the year as one of LinkedIn’s most talked-about companies – and not in a good way – drawing hundreds of angry comments across dozens of posts.

Publicity stunts have served
Kiki founder Toby Thomas-Smith well in the past, from stripping to Kiki-branded underwear on breakfast TV sets, planes and trains to a prank LinkedIn post claiming Airbnb had bought his company. That is, until an Instagram post last week that many found tone-deaf or arrogant.

Thomas-Smith posted that Kiki – a subleasing platform – was relaunching as a New York “girls’-only club” to help Manhattan women “thrive”.

The plan for a startup founded by five males to create a “girls’ club” sparked angry comments. “I need to punch something,” posted Annie Parker, an ex-global lead for equity and inclusion at Microsoft.

“Kiki Club’s testosterone-fuelled founding team believing they could define women’s needs would be laughable on its own if it weren’t so infuriating,” posted writer and crypto entrepreneur Joan Westenberg.

The startup could point to the fact it had hired a female employee late last year, who appeared in the post, but that narrative also drew flak. Thomas-Smith posted she was hired, “On the one condition she drop the business she literally built with her best friend.” One commenter replied, “How is that female empowerment?”

Boys’ club

Other comments centred on a second major theme: Male founders seemingly having a much easier track to funding, and the related topic that the “girls’ club” reinvention seemed off-the-cuff, with no apparent revenue plan.

“I spent nine months raising for my startup and it was really hard, so it’s natural to feel a little resentful when someone raises quickly by throwing spaghetti at the wall,” posted Kry10 chief operating officer Lovina McMurchy.

Last August, Kiki – formerly EasyRent – raised US$6 million ($10m) to launch its sub-leasing business in New York, with Australasian venture capital firm Blackbird VC chipping in US$4.5m.

At the same time, Thomas-Smith confirmed Kiki was closing its Australian business (which had around $360,000 in revenue in 2022 as it clipped the ticket on Airbnb-style short-term rentals) to concentrate on the US. Earlier, it closed its original business in NZ to concentrate on its launch across the Tasman.

“It’s hard to know what decisions are made on funding in VC investment meetings. But a lot of the strong feeling comes from so many female-founded startups facing a wall of ‘No’s’,” a female executive with a Wellington-based startup, who is following the Kiki saga closely, told the Herald this morning.

“It’s hard to face rejection every day and then see businesses with unclear value get such a large funding round. Despite the increase in women filling the ranks of VC companies, this has not flowed through to more female or minority founders actually being funded”.

She added, “It is common for VCs to hire women so they can tick the box on diversity with their LP [limited partner] investors. But the real test of diversity is really in how diverse their founders are, not how diverse their employees look.”

‘VC money becomes a bit of a drug’

Zuru cofounder Nick Mowbray – who shared a tiny flat with his siblings and subsisted on a $2-per-day rice and vegetables diet during the toy firm’s early days in China – posted that he wished the Kiki team well. But he added that the current “fiasco”, as he saw it, amplified his concerns about young entrepreneurs getting big cheques from venture capital firms.

“VC money becomes a bit of a drug and these entrepreneurs don’t learn to build profitable companies. They don’t learn to really grind. Few become profitable and just keep raising,” Mowbray said.

“And for the entrepreneurs, the victory or win is not on the raise that truly means very little. Focus on building a model and getting product market fit that can scale and be profitable – that’s the win.”

Radio silence

The protagonists have gone to ground over the past week. Neither Thomas-Smith nor Blackbird partner Samantha Wong responded to requests for comment – not the least on whether Kiki had actually executed a pivot, as even some of its smaller investors seemed to assume, or if the “girls’ club” was just another prank.

A PR agency sent a comment on behalf of Blackbird that said, “Both Blackbird and the Kiki team recognise that Kiki’s recent social media post announcing its intention to build Girls Club NYC has regrettably caused frustration and in some cases, offence. The team understands the reaction this has caused and has taken on board all feedback.”

A barrage of negative comments poured into the vacuum.

Some in the venture capital industry didn’t so much defend Blackbird as attempt to put its investment into context.

“Blackbird looks for crazy founders quite deliberately – people who are wild and passionate and daring,” Punakaiki Fund director Lance Wiggs told the Herald.

“Sometimes it works out, and sometimes this happens.”

And McMurchy said, “Right or wrong Blackbird invests in founders who have a good story – that’s who they are. They have invested in many female founders who fit that mould and have a ton of women investors.”

But overall, a Techcrunch survey in 2022 found only 17.2 per cent of venture capital money went to firms with at least one female co-founder, and only 1.9 per cent to an all-female team of founders.

Call for patience

And ex-Icehouse CEO Andy Hamilton said, “We don’t fully know all the facts, and a pile-on is a pile-on, justified to many but maybe some factors and context might help see the situation from all sides. Maybe time is needed for things to calm down, and also for the founders to respond and explain when they are ready.

“I will also start with a position that most people don’t start out trying to be bad or be dickheads – many of us have all been the star in our own poor behaviour or poor actions, which if taken on, learned should not be a forever stain on us.”

Derek Handley who founded the Aera venture capital fund, posted that while he struggled with Kiki’s business plan in a city where sub-leasing is what he calls a “legal minefield,” (and it’s recently got more perilous. In September last year, New York introduced tough new rules, aimed at alleviating a housing shortage, that prohibited short-term rentals of many apartments. Airbnb was the primary target, but other services face collateral damage).

But he added, “When you make a founder bet, more so than a thesis bet, you have to trust the founder. We find that some of the most committed founders have a single-mindedness that no matter what you suggest or coach them into considering, they will always ultimately go with their conviction.”

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.