LAVCA checked in with serial entrepreneur Alejandro Russo to discuss his latest start-up, his unique journey from Chile to New York, and how his business has created linkages between the two dynamic markets.
LAVCA: Please summarize your business.
Russo: Klooff is an internet and mobile network for passionate pet owners to share photos and connect to a community of 1,000,000 other animal lovers. People love sharing photos of their pets, but not all of their existing friends and followers on other social media platforms, like Facebook or Instragram, may care. Klooff allows its users to share their photos and reach a dedicated audience of people who are part of the community because they do love pets. Klooff lets everyone “celebrify” their pets, to share the time that their pet did something awesome, and to engage with other pet owners who have the same level of enthusiasm.
LAVCA: How did you come up with your business idea?
Russo: I’m a proud pet parent myself, of two great dogs—Nickki and Coco. I had tons of awesome photos to post, but didn’t want to bother my friends on Facebook and Instagram by over-sharing. Pet content is taking over the Internet and no one owns this vertical yet.
LAVCA: How does your background help you to succeed in managing your business? Have you ever started a company before?
Russo: While I was in college, I co-founded Chile’s first mobile restaurant guide, called SoyGourmet. We launched the year iPhones became really popular in Chile. At the time, it was the only restaurant app for iOS, so it quickly became the most downloaded app in the country. SoyGourmet was a tremendous learning experience in so many ways: We learned what it took to build a product according to market demand. We learned sales the hard way by visiting restaurants door to door. We learned how to be ultra-efficient, since we did all this while still in school! After SoyGourmet was acquired, we also learned that for the same amount of effort, we could build a product that had global appeal. This inspired us to base our next business around a more universal type of content: pet photos.
LAVCA: What sort of financing have you received thus far? From whom?
Russo: We started fundraising in the US and also incorporated the company in the US because if we really wanted this product to be global, we knew this is where we would have to begin. In fact, we bought plane tickets to New York City before we even had any code or demo, which gave us a tight deadline to actually get the product up and running. We raised an equity seed round with three angel investors in NY and when we returned to Santiago met two more Chilean angles who joined in. More recently we participated in TechStars NY and took the Convertible Note offered in the program. We have great relationships with all of our investors—both US and Chilean—and get together with them very frequently.
LAVCA: How did you weigh the option of taking on debt financing versus equity financing?
Russo: I’ve taken both. It really depends on the stage that you’re in and how the incentives are aligned. I always want things to be structured in a way that the investors want us to do well and we are incentivized to give the investors a healthy return. In general, I think equity financing is better in terms of alignment. Convertible debt is better in speed and cost and eliminates many of the issues surrounding fair valuation.
LAVCA: For early stage financing, to what extent did investors take your own cash flow projections into account in their equity valuation of your company?
Russo: I think most intelligent early-stage investors don’t focus too much on cash flow projections when the value of a company is in the community. Most of the investors we met with didn’t ask us for projections, even though we had them. They understand that at this stage, we as entrepreneurs have to focus solely on growing our user base and community as much as possible. Obviously, for e-commerce or subscription-based companies, revenue projections are more important.
LAVCA: What role have equity investors taken in the management/operation of your company? Have you faced any challenges thus far in your relationship with equity investors?
Russo: All our investors are pretty hands-off. They’re very helpful, but are not involved in the day-to-day decisions. They trust us to do what’s best for the company.
LAVCA: What is your most pressing strategic challenge right now?
Russo: Replicating the success we had on our Facebook page through other channels. Our plan is to build our audience into the millions and we have to decide the best way to do that sustainably, across all available social platforms.
LAVCA: Who is your competition? What do you see as your competitive advantage?
Russo: Facebook and Instagram are our main competitors. People who post pet photos are primarily doing so on these two networks. When you post to Klooff, you post under your pet’s profile, and this is where all photos get stored. Our competitive advantage is that our community is passionate and encourages pet photo over-sharing. We still have a long way to reach the scale of Facebook and Instagram, but we have an interesting plan and a dedicated audience.
LAVCA: Where do you see your company five years from now?
Russo: Klooff will become like the Animal Planet for pets, but online. We are already becoming a real network, where our user-generated content is shared to millions. In five more years, Klooff will own the online pet vertical completely. We will be the one-stop destination for pet owners everywhere.
LAVCA: Are you looking for additional financing? How is that going, given the current state of the economy? Have you seen any interest or solid commitments?
Russo: We’re almost closed with our current round, but we’re always open to meeting new investors. If not in this round, we can work together in the next. The most important thing is to create lasting relationships with people who can add value to your company. So yes, we’re always looking for additional financing.
LAVCA: How do you plan to put your next round of financing to use?
Russo:We have a very clear product roadmap with an entire list of actionable improvements. All current funds will be invested in product and growth and we will also add two more developers to the team.
LAVCA: How have you changed your operational strategy in light of the economic downturn? Do investors expect you to use capital you’ve raised more efficiently, stretching each dollar further?
Russo: We are always as lean as we can be. Our friends make fun of us for being too thrifty, but we’re proud of being this way. We really believe that each dollar should be stretched as much as possible. Since budget-conscious is just the way we are, our spending decisions aren’t too connected to the economic outlook.
LAVCA: Have any of your assumptions about market demand changed since last fall? How?
Russo: We never really made too many assumptions. We just wanted to bring a product to market quickly and learn from real metrics in order to build our product according to how users actually behave. We try to make as few assumptions as possible, which is why we are now working to streamline our product and take away every feature that people aren’t crazy about.