In their quest to build a better baby bottle, Priska Diaz and Dana King liquidated everything they had to keep their idea going for five years until they could get outside financing.
They invested $250,000 from retirement funds, savings and the proceeds from the sale of a house.
“The only thing we didn”™t leverage,” said King, “was our children.”
Their experiences illustrate the challenges that small businesses face in navigating the capital markets, especially for startups and firms owned by minorities and women.
Bittylab LLC, their Eastchester business, is all three.
Diaz, a Peruvian who moved to the U.S. in 1992 as a 17-year-old, is the founder, owner, CEO and driving force behind the startup.
She quickly encountered the problem that many startups face. She needed money to produce her product, but she didn”™t have the financial history that conventional lenders require.
Banks typically won”™t make loans to businesses with less than two years of revenue, said Tamara Underwood, a vice president for New York Business Development Corp. in White Plains.
They want to see a well developed business plan, strong personal credit, cash and savings invested in the business, assets such as real estate that can be used as collateral and experience in the sector in which they plan to operate.
But new enterprises often need mentors, technical assistance, training or credit counseling, Underwood said, “to make the business successful and loan ready and able to grow.”
Conventional lenders usually do not offer those services.
Diaz incorporated Bittylab in 2010 to make an airtight and watertight baby bottle. She got the idea when her baby got gassy and cranky from bottle feeding.
She created a prototype at her kitchen table. Then she gave a 30-second demonstration to a buyer at Toys R Us who specialized in infant feeding products. The buyer was impressed and encouraged her to continue development.
“We knew we had something special,” King said. “But she validated it in a very big way.”
Diaz and King began bootstrapping ”” using their own money in a two-year, trial-and-error process of prototyping, testing and redesigning the bottle.
She patented her invention. They searched the country for designers and engineers who could produce a bottle that met the standards of medical devices.
Toys R Us was eager to launch the product, but Diaz and King wanted to do more testing. A Kickstarter campaign to finance a test run didn”™t catch on. So Diaz created a website and used social media to sell the bottle directly to mothers.
She raised $50,000 in the first four hours of her campaign, and she produced 10,000 bottles. Feedback from mothers led them to refine the design and create two versions.
She found a factory in Shenzhen, China, that could produce the bottle at a fraction of the cost of domestic factories without compromising quality.
Toys R Us agreed to launch the products in 185 Babies R Us stores.
Now they needed serious financing.
The factory expected to be paid half before and half after production. Plus, Diaz would have to wait another three months to get paid by retailers.
Somehow, she had to bridge six or seven months of financing.
Conventional banks turned down her loan applications.
“Their attitude was, ”˜Come back when you don”™t need us anymore,”™” King said.
Along the way Diaz got help from Marty Levine of SCORE Westchester, a group of retired business people who mentor newcomers.
“He was amazing,” King said. “He knew how banks work and how to finance things.”
Levine helped Diaz and King explore their options. He introduced them to Westchester Angels, local investors who look for promising enterprises. But Diaz was unwilling to give up much equity.
They met with a factoring company that advances cash for products that have been ordered but not yet delivered. But the interest rates seemed too steep.
Levine helped them document her sales forecast and showed them how to present her plans to banks.
In September, First Niagara Bank in Ossining approved a $50,000 line of credit and $25,000 loan, enough to start placing orders.
New York Business Development Corp. and Community Capital New York worked with Diaz on the next round of financing. Both are alternative lenders that cater to underserved people and communities. They offer the kind of support services that new businesses need, and they can take greater risks using loans backed by the U.S. Small Business Administration.
Diaz was a “wonderfully ideal candidate,” said Simone Obermaier, vice president of lending at Community Capital in Hawthorne. “She worked at it for five years and she had the drive. She just needed a little extra to get to the next point.”
Community Capital provided $80,000 just in time to pay inventory that had to be delivered to stores before Feb. 1. A few weeks later NYBDC loaned $150,000 for production costs.
Babies R Us launched the Bare Air-Free Baby Bottles on Feb. 1 in stand-alone displays.
By the end of the summer Diaz will know if she has a hit. If the bottles pass the test, they will be placed on shelves alongside bottles made by huge companies.
Meanwhile, Diaz continues to work seven days a week. She has no financing for marketing, so she is using YouTube videos to demonstrate the advantages of her bottles.
“It”™s a David and Goliath story,” King said. “Our limited funds forced us to think more creatively to outmaneuver the big guys.”
Diaz and King also count themselves as lucky for meeting helpful people.
The buyer from Toys R Us believed in them and encouraged them to keep working.
Jeff Loehr of Westchester Angels helped Diaz and King weigh the pluses and minuses of different types of financing.
Jim Lowenberg, branch manager at First Niagara Bank, “actually listened and recognized that we”™re very real,” King said.
Underwood at NYBDC coordinated with Community Capital to make sure loans were paid in time for delivery schedules.
Kim Jacobs, executive director of Community Capital, went out of her way to introduce Diaz to Westchester County officials who, in turn, touted the startup.
And Levine, the SCORE mentor, helped them navigate the tricky financing process.
“Without him,” King said, “we”™d be paying ridiculous interest rates for short-time loans or we would have given away equity.”
