It took innovative earphone manufacturer Tzuka seven months to complete its first funding round. Its second took six weeks. 1284 director George Oliver asks Tzuka founder Tom Jelliffe what he learned between the two.
Tom Jelliffe and his gym friend once broke nine pairs of earphones in a year.
Realising the existing market was geared primarily towards running, they decided to do something about it.
Almost three years on and Tzuka is about to start work on a final prototype of the world’s most durable sports earbuds. The product also works underwater and has its own built-in MP3 player - as well as Bluetooth.
Of course, the research and development of prototypes for such an invention requires investment. The same is true of taking the product to market.
Last summer, Tzuka won the financial backing of Wilkinson Future - the family-owned investment fund of the high street retailer. But it has not always been like that.
Tzuka founder Tom did not come from an engineering background. He was a geography and business management student at Loughborough University.
While working on a group enterprise project as part of his business studies the early idea was born of what was to ultimately become Tzuka.
A key moment came at Christmas 2018 when the decision was taken to pivot the product from a wired to a wireless model. It meant months of work would be discarded.
‘If we were going to launch a crowdfunding campaign as pre-sales, then it is a market of innovators and there is no point launching what is seen as old technology,’ Tom says.
However, it also meant a period of tight finances. At one point, Tom painted the house of an electronic engineer in return for his professional advice.
‘My savings had almost all but dried up or been invested in Tzuka. I spent 10 weeks crashing between six different houses. It was a tough period. But what does not leave is the knowledge and networks you have built up,’ Tom said. ‘That makes the difference. Pivoting was a big decision to make but it was the right one.’
The first funding, apart from Tom’s savings, came from a Loughborough University grant for high potential start-ups. This enabled a specialist team to be formed at the Coventry-based Manufacturing Technology Centre to further develop the idea. But there was still lots of work to be done.
‘At one point I worked for 40-45 days in a row,’ says Tom. ‘My partner was practically threatening me to get me to take a day off!
‘I was researching and testing competitor products, exploring any product weaknesses so they could be engineered out.’
The firm’s research showed that more than 45% of health and fitness club members had experienced earphone breakage during sports.
This led them to calculate that more than 10 million earphones were being broken and thrown away each year. And that was just in the UK.
Yet, when the first big investment opportunity came, Tom turned it down.
He was offered £30,000 based on a 10% stake in the company. But this was less than half Tzuka’s valuation and he was sure he could get a better offer elsewhere.
It was a bold move given that, at the time, Tzuka had been seeking investment for four months and had £1.70 in its bank account.
An alternative offer was soon on the table - brought about through word of mouth.
‘One guy offered us £15,000 for around 2%, but then Covid came along and he was almost immediately forced to withdraw the offer.
‘The highs and lows of being an entrepreneur are extreme. The start of Tzuka was driven by pure self-belief that I will make it work.’
Covid and lockdown have impacted traditional routes to funding. Face-to-face meetings have been replaced with Zoom calls in which it is more difficult to form a personal connection and carve out time to pitch products.
Yet it only takes one investor to show an interest. Once one investor moves it is not uncommon for more to follow.
In waiting for this, of course, resilience and belief is key. You have no idea where the investment might come from,’ adds Tom. ‘I had three meetings with one investor, who ended up pulling out, and just one phone call with another who did invest.
‘I kept an Excel spreadsheet of progress during the first funding round.
‘It was colour-coded - red for a no, orange for a maybe, green for a yes.
‘At the end it was red almost the entire way down. But there were two greens and that was all we needed to hit our target.’
Making the most of visuals
That first round took seven months. But it was enough to move the earbuds through the preliminary prototype stage. The second, larger round, to fund further development and take the product to launch, took just six weeks. So what had changed?
‘I learned that investors are very visual people,’ says Tom. ‘Even if you have the most basic prototype it creates an interest.’
The second funding round had a far more developed prototype, detailed visuals and PR from the first raise behind it. It all resulted in tens of thousands of hits on LinkedIn.
‘Of course you want to go straight to the finished product, but you have to work with the finances you have, the timescales and be embrace the stage you are at,’ said Tom.
‘If I was doing it again I would hire a student industrial designer to do some visuals as soon as possible. The design will undoubtedly change, but it’s those visuals which attract investors. The visuals make it simple to understand.
‘We dropped a tube full of sand on our prototypes and products of our competitors,’ continues Tom. ‘The competitor earbuds smashed whereas it just bounced off ours.
‘Videos which show this shock factor really helps get your point across and makes the investor want to know more.
‘For the second round we used CGI visuals to build a basic website which was only accessible to prospective investors.
‘This gives you a very simple way to allow an invited list of investors to view the early designs and gives it that exclusivity.
‘Those early visual designs act as a placeholder as you continue to develop them.’
Knowing the audience
Finally, it is vital to know the background of the investor. To do the research and prepare on the basis of their interests and experience.
‘If you are pitching to an investor with a background in mechanical engineering then prepare to talk about the engineering of the product in detail,’ says Tom.
‘If you are seeing several investors then the instinct is to speak to the one you believe to be the most promising first.
‘But by speaking to the one you believe is least likely to invest first, you get the chance to practise your pitch and get rid of any errors.
‘We ended up overfunding on our second round and even after we closed it, we had investors asking to let them know about future raises.’
The next stage for Tzuka is to complete that final prototype.
From there, the earbuds will go on to launch a crowdfunding campaign in the summer to target innovators who favour the platform.
If 5% of the population are innovators wanting the latest technology, and if Indigogo is the platform they use to get it, it presents Tzuka with a first step into the commercial market.
And it will also mean Tom no longer needs to go through numerous sets of earbuds during time spent at the gym.