Fundraising is still ‘a paradoxical issue’
As of this month, personal care and beauty retailer Sephora is selling vibrators on its U.S. website. It is a significant milestone not just for Dame and Maude, the startups it partnered with, but also for the sexual wellness product category.
These startups operate in a different environment than the one founders encountered just a few years ago, but raising money is still no easy feat, a “paradoxical issue” to navigate, according to Andrea Barrica, CEO of sexual wellness education platform O.School. “When you go into a space where very few people have gone, with a lot of barriers, arguably you need more money, but typically we have to do it with less money upfront,” she told TechCrunch.
To understand how early-stage sex tech startups can address this challenge, we also spoke to founder Lora DiCarlo and investor Carli Sapir, founding partner at Amboy Street Ventures. As for Barrica, she now sits on both sides of the table – in addition to being an entrepreneur, she is angel investing and raising a fund.
Our conversations indicated that things are opening up: There are more funding sources to leverage, and convincing investors is easier than it used to be. But fundraising is still more difficult than in other verticals.
More than a few venture capital funds will never invest in sex tech due to “vice clauses” that contractually obligate them to pass on companies that offer products or services in categories like alcohol, tobacco, gambling, weapons, porn — and sexual wellness.
“The larger the fund, the more common it is” for it to have a vice clause, Barrica said, adding that the restriction is wide-ranging: “I’ve met small funds that have conservative LPs.”
To find out, she said, “You just have to ask the fund managers or partners: ‘We’re really excited about sexual wellness as a part of health and wellness. Is this going to be a problem with one of your LPs?’”
Asking a broad question about their concerns is a good idea, because even without a written clause, fund managers might not be keen on investments that could upset their limited partners. “We VC funds raise a new fund every three years or so, and they don’t want to lose any investors,” Sapir agreed.