Where does your money come from? For the venture-backed startups whose entire business models have been made possible by wealthy institutions and individuals, it’s an increasingly fraught existential question.
Take Lola, a policy-minded, women-founded seller of organic tampons, menstrual pads, and other “feminine care” products. The New York company has raised $35 million from investors including Spark Capital, Alliance Consumer Growth, Serena Williams, Lena Dunham—and RSE Ventures, the firm co-founded by real estate developer Stephen Ross, the billionaire owner of the Miami Dolphins and donor to President Donald Trump.
In August, Lola was one of many Ross-backed companies to face a customer backlash after the developer hosted a high-profile Hamptons fundraiser for Trump’s re-election campaign. SoulCycle attendance dropped; celebrities publicly quit their Equinox memberships; Momofuku founder David Chang donated a day’s worth of his restaurants’ profits to charity. And Lola, which touts its “reproductive care for women, by women,” suddenly found itself on lists of companies to be boycotted by Trump’s critics—and facing increasingly common questions about the combination of venture money, politics, and the branding of “empowerment.”
“Every company is working through questions around who their partners are that we weren’t necessarily thinking through pre-2016,” Lola co-founder Jordana Kier tells me, in the company’s first public comments about its relationship with Ross.
She says that Lola did not consider trying to buy out Ross’s stake directly or asking another investor to do so. However, it’s possible that could change in the coming year, says Kier, as the company seeks to raise a Series C round of investment. “That is an opportunity, and the moment where a bigger investor will want to come in to clean up the cap table” by buying out smaller investors, she says.
A spokeswoman for RSE Ventures declined to comment on its relationship with Lola or on Kier’s remarks about potentially buying out its stake in the company.
Lola, which Kier co-founded with Alexandra Friedman in 2014, has 45 employees and a valuation of $104 million, according to PitchBook. It’s a growing company that now finds itself trying to thread an increasingly tiny needle: advocating “for all women” and for certain legislation that affects these customers—without getting involved in the partisan fighting that often revolves around women and the policies affecting their bodies.
Some high-profile female-focused companies, including Glossier, M.M. LaFleur, and The Wing, have to some extent given up on making it through the eye of that needle, especially regarding the highly politicized fight over reproductive rights. The women who founded those startups—as well as hundreds of other male and female executives, at all sorts of companies—last summer signed a petition supporting access to abortion.
But the traditional business desire to shy away from such debates, or any resulting partisan label, is not necessarily a surprising one for a consumer startup looking for broad appeal. After all, women of all political affiliations buy tampons: “You’d be surprised by how many customers we have who are conservative,” Kier says.
As Ann Skeet, senior director of leadership ethics for the Markkula Center for Applied Ethics at Santa Clara University, puts it: “One of the things that I don’t think would serve society well is if we have companies that only want to serve Democrats or Republicans.”
Still, “there’s a real challenge if you’re a founder and trying to get your arms around who you should be working with as an investor,” she adds. “Then behind that is: Where did any of the money come from in the first place?”
‘It matters a lot’
Lola and other RSE-backed companies are far from the only startups to face increased scrutiny of their funding in recent months. Perhaps the most significant flashpoint was the October 2018 murder of journalist Jamal Khashoggi by assassins tied to the government of Saudi Arabia. His killing raised uncomfortable questions about high-profile startups—including WeWork and Uber—that had taken massive investments either from the Kingdom directly, or through SoftBank’s Saudi-backed Vision Fund.
Now entrepreneurs and investors alike say they are paying closer attention to where they get their funding. “It matters a lot,” says Mike Volpi, partner at Index Ventures.
“Entrepreneurs are increasingly asking us” where the tech-focused venture capital firm gets its funding, he adds. Several years ago, Index Ventures stopped raising money from family offices or most government-owned investment funds, and “we’re not taking money from Middle East sovereign funds or oligarchs,” Volpi says today.
Meanwhile, the wider financial and business world is increasingly trying to stake out positions on conscientious investing (see BlackRock’s efforts to make “sustainability integral” to how it invests clients’ money) and greater social responsibility (see the Business Roundtable’s emphasis on “stakeholders,” not just shareholders). Now pressure is mounting from several corners for venture-backed startups and their investors alike to scrutinize the sources of the funding that sustains them and the agendas of those who provide it.
“A critical question for founders and employees should be: “Where is my money coming from?” the venture capitalist Chamath Palihapitiya wrote in a recent Twitter thread. “It’s not really from Sequoia or Andree[s]sen FYI. It’s from a whole grab-bag of funding sources you may actually not agree with.”
How Lola handled (or postponed handling) its relationship with Ross illuminates the difficult balance for companies that want to get involved in policymaking or wrap themselves in a social mission at a time when some of their investors—or the governments, institutional investors and other “limited partner” sources of that funding—have conflicting political affiliations.
It’s an especially urgent question for direct-to-consumer product sellers like Lola, which have relied on oceans of venture money to get off the ground—and, as Casper’s disappointing IPO and Brandless’s shutdown have most recently demonstrated, can often struggle to wean themselves off it.
‘As nonpartisan as possible’
Last summer started off well for Lola’s cofounders, personally and professionally. Kier and Friedman were successfully covering for each other during adjacent maternity leaves. In between, they were photographed for a New York Times article about legislative efforts Lola is supporting, which would repeal gendered state sales taxes on tampons and other menstrual products. Eliminating those taxes will help “us move toward a better model of economic parity and gender equity,” Kier later said in a Lola-sponsored post on Refinery29.
Then the news broke about the Trump fundraiser hosted by Ross, whose RSE Ventures had made what Kier characterizes as a “small, early” investment in Lola. With Friedman on leave, Kier hopped on the phone with “about 40” concerned customers over the next few weeks. “We wanted to take the time to listen to customers, understand their questions and let them know also, if this made them uncomfortable, we understand,” she says. “This is a really unique time in the political landscape and how that matches into people trying to build businesses.”
Unlike Equinox or SoulCycle or Momofuku, which all, to varying degrees, attempted to publicly distance themselves from the Trump fundraiser, Lola avoided putting out a statement about either the President or the company’s relationship with Ross.
“We obviously have our own personal beliefs, but we want the brand to be as nonpartisan as possible,” says Kier, adding that she’s a “Jewish girl from the Upper West side, and my dad’s a Cuban immigrant—you can probably guess what my politics are.” (She’s also married to Jesse Derris, who runs a New York City communications firm and once served as a presidential-campaign spokesman for former Democratic Sen. John Kerry.)
“Nonpartisan” doesn’t mean apolitical in this case. Through its relationship with the nonprofit Period Equity, Lola has been especially involved in an effort to repeal various states’ sales taxes on tampons and other menstrual products. It’s a feminist objective—and one that serves Lola’s business purposes—but also one that has garnered some bipartisan support. (In 2016, Lola also made some marketing hay off of Trump’s initial presidential campaign, selling “Make Periods Great Again” hats and T-shirts for charity.)
“We think it’s important to listen to all sides of the argument,” Kier says today. “Our mission is to drive that conversation forward, empower women to ask questions about what the ingredients are on their products, and demand equity as far as what they’re being taxed for. Those are things that we feel that everybody can get on board with.”
When asked about Ross, Kier initially said that Lola wouldn’t have been able to buy out RSE Ventures’ investment in August even if it had wanted to. Some of the customers she spoke with at the time asked why Lola didn’t just “kick this person off your cap table?” But “that’s just not how investing works,” says Kier. “[RSE] would have to say, ‘We’re ready to pull out our investment.’”
That’s not entirely accurate. Several once-venture-backed startups, including tech companies Arkadium, Wistia, and Buffer, have indeed proactively bought out their investors. But an investor does have to be willing to be bought out for an agreed-upon price—and of course, the startup needs to find the cash or another way to finance any such buyout.
When I pointed out to Kier that some other companies have bought out their investors, she responded that Lola didn’t want to do a financial deal that wasn’t tied to a larger fundraising. “We didn’t want to be reactive,” she says. (The company later added in an emailed statement that it didn’t buy out the stake “because we believe individuals have the right to their own political beliefs, just as we, our employees, and our customers do.”)
Lola, which recently introduced a new type of menstrual pad and plans to spend this year building out some as-yet-unspecified “digital products,” has broad ambitions. “We think a brand like this needs to exist for women to support them through this reproductive journey from their first period to the last hot flash and beyond,” Kier says. “We should be building something that holds her hand through this entire journey.”
She and Friedman, who have adopted the tampon-industry parlance of discussing their core customer as a nameless, singular “Her,” sketch out an expansion that would provide a digital “community” as well as products for every biological stage of a woman’s life: “We want to be able to show up for her on the shelf and with the products that she needs,” Kier says, adding that Lola also wants to help that unnamed customer “understand her body and the questions she needs to be asking.”
It’s an ambitious—and idealistic—goal for many tampon startups, which are competing in a crowded market still dominated by Tampax maker Procter & Gamble and other big consumer-product conglomerates. “The fate of most of these period startups, closely aligned to the fate of most startups in general, will be to disappear,” as a long Guardian feature on Tampax and the tampon industry put it last week. And in the past year, some of Lola’s competitors have pulled that vanishing act: This is L. was sold to P&G, and Sustain was acquired by another startup, natural-products specialist Grove Collaborative.
Feminine-care startups that want to beat the odds will need to continue to raise private funding—and to navigate these questions of whether their backers’ views align with their company missions. Most startups that began as “direct-to-consumer” sellers of physical goods, like makeup or razors or mattresses, have survived on tens or hundreds of millions of dollars raised from private investors—and most have so far failed to turn a profit. Meanwhile, their potential viable exits from the private-fundraising cycle seem to be shrinking: Just last week, Casper’s disappointing IPO and Brandless’s shutdown were joined by the federally-assisted collapse of the planned $1.4 billion buyout of razor company Harry’s.
Lola, in a statement, shrugs off these comparisons, arguing that direct-to-consumer businesses “offer fundamentally different products with varying customer engagement and purchase behaviors.” Kier and Friedman say they regularly “have conversations with” potential strategic buyers, and strike an agnostic note when asked about Lola’s future independence.
“We view Lola as a brand that we want to exist in 100 years. If that means that this is going to be a private company, if it’s going to be part of a larger CPG or if it’s going to be a public company, we’re just trying to be really opportunistic,” Kier says. “Our longterm vision of being there for her is what we’re focused on.”