
Ask HN: Non-VC backed founders, any tips on growth? - melonbar
I am involved in two bootstrapped startups (group of buddies saved up and some work remote from my house) and it is getting to the point where we do not really need the money or investments as we have some earnings keeping us afloat. One of the apps is enterprise, has shown market fit, and has some great clients. We have been approached already with VC offers, but I am just so hesitant to let someone else in. Sometimes (read: lots and lots and lots of times) something that started as a noble pursuit ends up being corrupted by all of the cooks in the kitchen. Any guidance to those that have been similar situations? Thanks.
======
andrewljohnson
I've been building a company for the last 10 years. For the first 9, no VCs
ever contacted us. In the last year, we've gotten pounded with requests, and
have thus far declined to talk, but maybe will eventually.

So my tips:

1) If you are going to raise money, decide to do it and go at it hard. Talk to
lots of investors, all at once. Until then, I wouldn't meet with any
investors. Just thank them for their interest and tell them you'll contact
them later if you decide to raise money.

2) To decide whether to raise, start with your goals. Decide what you want to
achieve with the company, then analyze your company (business plan,
spreadsheets), then choose whether to raise now, later, or maybe never.

What you want to achieve is isn't a simple sort of expected value (EV)
question, for a profitable, boot-strapped company. You may prefer to take the
option that maximizes the chance of a certain level of return for
shareholders, over the option that maximizes the absolute EV. It depends what
you want, what your risk tolerance is, what you think your business can
achieve, and whether you think VC money helps you get there.

~~~
carimura
Personally I'd revise point one -- do meet with some investors, even if you
aren't planning to raise. At a minimum the experience is worth it (learn what
they ask, how they think, etc.), but beyond that you're cultivating a
relationship that may or may not lead to an outcome later. The first date is a
lot more awkward if everyone at the table is thinking about marriage.

~~~
whistlerbrk
Why... they just want to farm for ideas, understand your execution, use that
knowledge to launch a competitor they have a stake in, drive out all the alpha
from the business in so doing, and make an exit leaving someone else to hold
the bag.

~~~
muzani
Nobody does this. VCs rely a lot on reputation. The few slimy VCs I see get
ostracized from the ecosystem; it's no way to land good deals with good
founders.

The other paradox is that you can't have a good execution plan without good
leaders. The ones who can execute better do something like Rocket Internet,
and don't become VCs. VCs are happy to pay someone to do all the work for
them.

------
liamcardenas
Don’t raise money if you don’t know how you would use it. VCs are asking for a
piece of what you built. If you decide to give it to them, you’d better get
something that you really need in return.

Don’t accept money just because other people do. Don’t accept money out of
fear (i.e. what if competition has money). Don’t rush into a deal without
understanding the terms.

If you believe that not having money will be a bottleneck for your venture in
the near future, then it is a good idea to accept investment. Since you are in
a position of strength, it’s worth finding good investors and structuring a
favorable deal. If money will just make things slightly more
convenient/comfortable, it will be worth just pushing through without it.

Just my 2 cents.

~~~
cik
Even then you don't necessarily accept money. Bottlenecks aren't necessarily
bad, unless they impact revenue - and of course depends on the business. At
certain scales you can easily get the bank to loan you 1x revenue, for a heck
of a lot less than equity is worth.

The value of VC, and investors in general is about more than just capital. If
you just value the capital, you're going after a short term goal - and VC
probably isn't the way to get there. The relationships, advice, the deep
connections - those are all reasons to VC, but not just cash.

------
gwbas1c
When I interviewed at a startup for my current job, I asked the CEO, "Why did
you take investment instead of bootstrapping?"

The CEO answered the question for me:

> A company takes investment so that it can grow faster than it can with
> organic growth.

So, if you're happy with organic growth, avoid outside investment. If you want
(or need) to grow faster than you can with organic growth, then you need
outside investment, (and the maturity and willingness to adapt as your company
changes.)

For what it's worth, this also depends on what kind of business you're in. If
it's something that can grow fast, someone might point to your startup to
justify demand in your space, take outside investment, and grow so fast that
they push you out. (Hopefully your "organic" company could figure out a way to
cash out before your customers flee to the well-funded competitor.)

Otherwise, If your business is niche, the market might not be big enough to
justify investment, and you can continue to comfortably grow at your own pace
without risk of a well-funded competitor eating you for breakfast.

~~~
floatrock
I would take this a step further: VC funding _requires_ fast growth.

When you take VC funding, you're put onto an 18-month cycle: 12 months to grow
your KPI's, then 6 months to raise the next round of funding.

Remember, the VC business model is 9 out of 10 investments fail and the last
one makes at least 10x returns. Your probable failure is built into their
spreadsheets, and if you don't believe/can't execute your 10x hockey stick
story, they're going to cut you out at month 16. 2x growth is failure. 4x
growth is an acquihire into another one of their portfolio companies (with the
4x profits going to their liquidation preferences, not to you). 7x growth and
maybe they'll toss you a (dilutive) "bridge round" to buy you another 4-6
months.

VC funding is great if you're willing to commit to that game, but make sure
rapid growth at all costs is the game you want to play. "Lifestyle business"
is often used as a pejorative around here, but the reality is the average
founder can make out just as good if not better owning all of a smaller pie
than a down-round-diluted large pie.

If you want to play the VC game, understand the constraints and requirements
you're committing to. It's a tool, and just like any tool, make sure you're
using it for the right job.

~~~
kajmagnusmobile
What does it mean / imply, to get cut out at month 16?

~~~
floatrock
Depends on the situation.

If things are going great, your previous investors will want to exercise their
follow-on participation clauses (lets them put more money to maintain their
percent stake at same terms as the new investors). Although lack of
participation isn't necessarily a red flag (there are legit firm-specific
business model reasons not to follow-on even if things are going good), it
might still raise eyebrows ("if this is so great, how come your other
investors aren't participating?").

Good investors open you up to their networks. If they're not taking your calls
nor making intros to later-stage investors, that's a really bad sign (there
still is an incentive to continue the game so portfolios look better even if
things are just okay, so this one's hard to judge).

When things aren't looking good, they might pressure you to sell so they can
cut their losses. Maybe they'll bring in a new CEO who's job it is to sell the
company (that's why they demand board seats).

When things are really bad, they can pull out any remaining money. I haven't
experienced this one and don't really understand the mechanics, but maybe
someone else can chime in?

------
JohnFen
I have started and sold a number of business without involving VC money
myself. I don't hold any magic wisdom, but here's what worked for me (and is
what I'll continue to do). My recipe is not one that leads to anything like
getting rich quick. Instead, it leads to growing a solid business over a
longer period of time (7-10 years for me).

As rapidly as possible, I get a revenue stream going. That stream is never
really what the business is intending to do in the long run (although is
should leverage the same assets -- code, people, etc. as the ultimate goal
needs). This can happen in a bunch of different ways. I've done things like
licensing libraries of core functionality to other software shops, engaging in
consulting services, selling stripped-down "light" versions, etc.

The goal here is to achieve self-sufficiency as rapidly as possible. A huge
part of this is to avoid growing expenses too quickly: put off hiring anyone
for as long as possible, don't get fancy when it comes to office space and
equipment, etc. And don't expect to pay yourself for a long time.

I'm a big believer in startups running on a shoestring. From my observations,
it is usually harmful for a business to be too well-funded too quickly.

After that, only grow at the pace that your revenue stream can support. If
there's a growth opportunity but you need to go into a lot of debt to take
advantage of it, don't do it. There's no such thing as a "once in a lifetime"
opportunity.

Debt can't always be avoided, but only take it on if you're going to lose a
lot more money if you don't. (Lost opportunity doesn't count as lost money).

Also, take maximal advantage of the primary thing a startup has over an
established business: flexibility. Your business will develop its own idea of
where it wants to go, and that may be very different than what you had in mind
on day one. Listen to it, it's smarter than you are.

Anyway, as I said, this is (scratching the surface of) what works for me. I
have no idea of whether or not it would work for anybody else.

~~~
edmundsauto
>There's no such thing as a "once in a lifetime" opportunity.

So concisely put, yet a few times in life, this concept has saved me from
making a huge mistake.

It may also be part of the reason I tend towards being single :/

~~~
JohnFen
I can clearly remember when this was driven home to me. When I was in high
school, back in the early '80s, my social circle was heavy into hacking and
programming. One of my acquaintances got a real job at a real software company
that, if I had been more observant, I could have had.

I was so jealous that I could taste it! I was sure that I had missed a one-in-
a-lifetime chance.

Decades went by and I happened to run into him by chance. In catching up, I
learned that he wasn't working in the industry at all. I mentioned that job
and told him how jealous I had been. He laughed and said that it was one of
the worst decisions he ever made, bad enough that it was why he lost interest
in programming professionally. (Don't feel too bad for him, he's doing quite
well in a different field.)

In the meantime, I'd been lucky enough to have benefited from many
opportunities. That one-in-a-lifetime chance that I missed turned out not to
be that at all.

------
yosho
As a founder that has built a VC backed business to $XXXM in revenue and now
as a founder that has built a bootstrapped business to $XM in revenue I guess
I'm in a unique position to answer this.

They both have their pros and cons as many people here have said. VCs allow
for faster growth, greater risk taking, focus on other things such as culture
and team, and sometimes you get tangential benefits such as PR and exposure.
However, the downside is dilution, complicated cap table, growth at all costs
(including profitability), infighting, differences in opinions and direction,
and if you keep going down the VC path, ultimately you might realize you've
built a company that doesn't feel like yours anymore. But hey, if you IPO one
day at $XB dollars, everyone wins right?

For bootstrapping, the pros are you control your own destiny, work life
balance can be great, you get to make all the decisions, you don't have to do
anything you don't want to do. The cons are you live and die by your
customers, growth can be sloooow, you have to watch every expense, money is
always an issue, it's hard to pay employees top dollar.

There are ways to get money without VC, there are many small business loans
out there, there's also friends and family which you can also get loans from,
it also feels more real to live off of profit - which I think many companies
in SV don't know how to do. You can also raise from Angels with non-
traditional VC terms such as profit sharing.

As to which I personally prefer, I think there's something great about
bootstrapping and living off profits. It's liberating and freeing... but I'd
also be lying if I said that VC money doesn't tempt me every now and then.
Ultimately I'm lucky in that we're profitable enough to grow at a decent clip
without VC dollars so that's the best thing I can ask for... so for me,
bootstrapping so far has been pretty great.

~~~
ChuckMcM
Conversely growth is exponential if you maintain margins. So the more you sell
the more you have in the bank the more you can invest in growth. Sadly,
exponential curves are very flat when you start out.

------
hhw3h
For the enterprise app:

1) Ensure your ACV is greater than $3000

2) Scale out an outbound prospecting inside sales channel

3) Scale paid ads on top of outbound prospecting

4) Create a promotion strategy/mix for your growing email list

5) Scale content on top of paid ads

6) Ensure $1 into the customer acquisition machine spits out $3.

7) Explore channel partners, affiliates, replacing yourself with a
professional management team, or raising growth capital on very founder
friendly terms, etc. if you'd like

I help B2B SaaS founders scale to $1M ARR and beyond with outbound prospecting
inside sales funnels. If you'd like to learn more, happy to discuss harry [at]
convopanda.com

~~~
johnsimer
I always hear the "your LTV To CAC" ratio must be > 3.

Why? Is the assumption that the LTV is spread out over a period of time that
such a low ratio would cause a low CAGR?

I'd assume if one's payback period were let's say 2 hours instead of 18
months, one'd be fine with with a LTV/CAC of let's say 1.1. Is my logic
correct?

~~~
hhw3h
I don't know exactly why the industry has settled on a best practice of
specifically 3:1. Good question.

My hunch is it has to do with the opportunity cost of investors. If a startup
comes to an investor with a 1.1:1 ratio why would a rational investor invest?
They can get that rate of return in less risky asset classes.

As a bootstrapper yes a lower LTV:CAC ratio could in theory be fine. But I
would think like an investor. Instead of investing money you are investing
your time. It would be better to iterate and tune what you're doing until
you're getting a higher return on your time than you would working in a
corporate job you could get or, if you do have capital, a higher return than
you would get investing in less risky asset classes.

To your point, time to recover CAC is extremely important to bootstrappers. I
recommending going after a niche in your market that can afford higher ticket
pricing and will jump at annual deals in exchange for (say a 2 month) discount
so that CAC is recovered in month 1. This is very doable but requires sales
skills which many technical founders don't have. But they are very capable of
mastering.

~~~
lawrencewu
What's the best way to learn sales for a technical founder?

~~~
hhw3h
Learn sales/marketing theory, do mock sales calls, do live sales calls,
reflect on what went well and what went poorly on the calls. Keep improving
through more repetitions.

Reading books and mock calls do help but nothing replaces the actual act of
having real conversations with real prospects and asking for the sale.

------
Alex3917
If you're a SaaS company that can get new customers using paid advertising, I
would use revenue financing instead of VC. It's a new category of financing
that's been created for SaaS companies within the last couple years, and the
terms are much better if you're one of the companies where it's a good fit.

(Basically you need to be doing something that people are Googling for.)

~~~
throw03172019
Any companies you recommend for this? Thanks!

~~~
Alex3917
For early stage, I think Earnest Capital does this but you'd have to ask
Tyler.

For later stage, I would look at Timia Capital. Some of the payment processors
that SaaS companies use may also have their own solutions that just look at
your MRR and let you borrow an appropriate amount against that automatically.

~~~
tylertringas
We are in the same ballpark but don't do revenue-based financing (ie getting
repaid via taking a % of revenue). We are typically investing earlier in
startups where it doesn't make sense to take money off the topline yet. (More
on our model: [https://earnestcapital.com/shared-earnings-
agreement/](https://earnestcapital.com/shared-earnings-agreement/)).

Timia and Lighter Capital offer revenue-based debt for companies that are I
believe at least at $25k-50k MRR. Clearbanc will offer RBF specifically for
your paid marketing (ie FB ads) budget but doesn't fund other parts of your
business.

~~~
floatrock
Revenue-based or shared earning financing at first glance looks a lot like a
bank loan, almost the original revenue-based financiers... the loan officer
isn't going to approve the small business loan if it doesn't look like you
have the revenue to pay it off, and 'return cap' is roughly kinda another way
of modeling interest rate returns.

Can you talk more about revenue financing vs. bank loans? eg I assume bank
loans are lower risk and often want physical assets backing the loan instead
of paper equity. I'm curious how this model fits into the broader world of
alternatives-to-VC-financing.

------
eorge_g
Outside money is helpful if you want to grow in a specific direction and want
to do it fast to make sure you get there before competitors do.

It sounds like you have a nice thing going, there's no need to jump into the
deep end if you don't have the ambitions to.

A lot of VCs talk about raising money as 'the big leagues', and the takeaway
from that is: success is judged as performance against expected returns.
Perform or get out.

If this doesn't sound like what you want, then don't take VC $. If you're
ambitious and it sounds like an interesting challenge then maybe it's
something to consider!

------
bandrade
Read Traction by Gabriel Weinberg and Justin Mares. Work on trying different
marketing channels and sales processes until you have something consistent and
repeatable that you can scale to another sales person. Then consider if adding
money to that process will accelerate you in a way that is worth giving up
equity and some control for. Also, too many cooks is a real concern. Think
hard about the speed with which YOU want to grow the business.

------
bitL
You already made it. VCs aren't risking much at this point, your business idea
and execution was validated by market already and they would push you for 500%
YoY growth, likely destroying you in the process. IMO unless you want to risk
everything to rule the world, avoid. If you are in the exponential growth
phase and your capital is not covering your operational expenses and you have
to throttle down your business, get a loan instead.

~~~
melonbar
This encapsulates a lot of what I have been trying to put to words, which can
be a challenge with other founders.

------
markbnj
Well, this was awhile ago so I don't know how relevant the advice is today,
but when I did a startup in the 90's we didn't take any angel money for over a
year and until we had our first live customers. What we did was run super
cheap, crappy office space, minimal everything, didn't take any salary
ourselves. We wrote code all night and called prospects all day. I was never
really comfortable cold calling, but I learned to be. We were selling to banks
and called anyone we could find contact info on. Not spending any money we
didn't have to spend, and not giving up until some people said yes, basically.

~~~
andrewnc
What ended up happening to your company?

~~~
markbnj
We were acquired in the early 2000's for something less than the preferences
owed to the VC, so they did sort of ok (by everyman standards, doubled their
money in four years) and everyone else just chalked it all up to a life
experience :).

------
WhyKill
Sell a product that people want to buy and then don't run out of business
making that product. If you have traction already, leverage it. Keep costs
super lean. Expect slow but steady growth. The only reason to take VC money is
if you are reasonably certain someone with better funding than you could eat
your lunch. How to know if someone can eat your lunch: do you have any IP or
trade secrets or secret sauce? No? Maybe you should raise VC money, but
realize you will be competing on execution and not on special sauce.

------
msis
Getting a VC usually sounds like a good idea and is definitely the myth that
we were all told that without a VC you cannot succeed.

This is actually not true. If you have clients and your having enough money to
pay yourselves a little bit, ride that wave. Focus on growing your business
with more satisfied clients and building a brand. VC money can be useful if
you see a small but very lucrative opening that will get you to get 10 to 100
folds more return and your clients cannot advance you money for that. If
you’re lean enough and running a tight ship, building only features that have
great value for the customers; have great channels to grow your customer base;
and are financially sustainable; then why a VC?

And remember, the longer you run your company without external funding, the
better the return is later for you and your friends, whether you decide to
sell, IPO, or get VC. You will always own more of your company.

But if you’re close to bankruptcy, because of your burn rate , and you’re
still growing, then maybe start raising money when you have 6 months or so
worth of runway left.

PS: I do have some doubts about the 2 startups though. If you’re running 2 at
the same time, then you’re not in any of them 100%... And that’s not in the
best interest of your startups

~~~
melonbar
Apologies, I should have been more clear. I have two companies, however one is
the main focus (the enterprise one) whereas the other c-corp is a mobile
gaming platform I do in my free-time. You are right though, there will surely
come a time where hard decisions must be made.

------
an4rchy
Do you have a goal/direction in mind for the end state of the company?
(Acquisition, IPO, Lifestyle business etc)

It's totally fine if you don't but I would work on figuring that out with the
team, so that incentives are aligned, before making a decision on fundraising.

Also, I've noticed that there's alternative sources of funding for
bootstrappers, that seem to be less demanding in terms of
equity/growth/returns that might be more appealing.

As in, if you want to hold on to more equity or grow at your own pace.

A great article that was posted on HN: [https://medium.com/swlh/alternative-
funding-calculus-a-quant...](https://medium.com/swlh/alternative-funding-
calculus-a-quant-comparison-of-tiny-indie-and-earnest-8d61d35d5ad5)

------
matchagaucho
> _" I am involved in two bootstrapped startups"_

You're way smarter than me if you can juggle two companies. Grow by focusing
on just one?

~~~
melonbar
I should have given more context. The main company/startup was founded with
myself and two others. We have enterprise clients. I also do mobile gaming
development as a hobby which has begun to blossom a bit.

~~~
matchagaucho
Got it.

Checkout Nathan Barry's "15 lessons" article. Particularly lesson #1.

[https://nathanbarry.com/15-lessons-15-million/](https://nathanbarry.com/15-lessons-15-million/)

~~~
melonbar
>11\. Always pay your debts

This. Not only in regard to tech debt but so many things when running a
business. Great article, thanks.

------
js4
If you really have product/market fit and know how to find and sell to
customers most of the risk is gone.

Why not use debt?

~~~
brianwawok
Like personal owner debt? I.e. mortage up the house for 300k and fuel some
growth?

Let's compare VC to Debt for owner capital

Funded via VC:

* Startup Wins Big: You get 30-70% of big money

* Startup Fails: Walk away with a fresh slate

Funded via personal Debt:

* Startup Wins Big: Get 100% of the big money

* Startup Fails: Declare personal bankruptcy, perhaps lose house, perhaps unable to buy a home for 5 or so years, lose any physical assets

I am a big fan of don't get VC if you don't need VC. But for many many normal
founders without a huge pile of cash in a trust fund or from a previous exist,
the VC debt looks a whole lot nicer than the person debt story.

~~~
mi100hael
No, that would be insane. That's what LLCs are for.

Small business loans and private lenders exist and are usually accessible if
you have profits and/or business assets.

~~~
brianwawok
You aren’t getting non personal guaranteed loans as a tiny startup with no
assets

------
coderunner
Sorry about side-tracking your post a little bit, but do you mind sharing what
you did to attract enterprise clients? Trying to get paid enterprise clients
without connections from a past life or connected investors while you're
starting out seems like a very difficult task for me. They seem to expect
either a reputable investor (doesn't exist if boostrapping) or proven track
record on the product from other customers (doesn't exist if you're starting
out). Thanks for any help.

------
And1
Check out www.indiehackers.com There's a strong community there of people who
are doing exactly what you are all at various stages of growth- someone who's
business is within stonesthrow of where you are and in the direction of where
you want to go may be in the best position to help advise you to get to that
next step. (check our their podcast, might be useful for you)

------
superanonacc
Finding good value added resellers has helped us avoid having to raise money.
They are the sales team that we can't afford.

~~~
superanonacc
Also, you did not mention what your end goal is. Are you aiming for a windfall
that will allow you not to work again or would you be happy to long term
running your business on your own terms?

Also what is holding you back right now? (Customer pipeline, custom
development needs...)

~~~
melonbar
It sounds so cheesy, probably because it is, but I want to make nice software
that people enjoy and I have a vision that I feel is the right direction
(after plenty of valuable feedback from others) and I guess I just want to
make sure I am not shooting ourselves in the foot one way or the other. If I
made a metric ton of chedda in the process, I wouldn't sneeze at it. That
said, doing right by our customers and being a decent person who respects
privacy and critical feedback takes precedence [I hope; people change].

------
gist
My answer to this is if you have to ask if you need the money you need the
money. Why? Because you are entirely discounting the benefit of having an
experienced VC and firm and what they can give you. Sure you can take time and
DIY the process and people have done that. But in the end it might make more
sense to have someone to lean on and to give up part of the business for that
value.

And how would anyone's in particular guidance (here) apply anyway? What they
are doing is most likely not what your are doing or whatever luck they had or
didn't have is not what will happen with you.

> We have been approached already with VC offers, but I am just so hesitant to
> let someone else in. Sometimes (read: lots and lots and lots of times)
> something that started as a noble pursuit ends up being corrupted by all of
> the cooks in the kitchen.

A great big 'it depends'. One thing is for sure in a battle between a well
funded company that can afford to experiment and have losses and one that
can't (because it's bootstrapped) the well funded company has a super big
edge. You know as they say 'all else equal'.

> we do not really need the money or investments as we have some earnings
> keeping us afloat

Well there you go 'keeping us afloat'. Would you like to not have at least
that to worry about?

(My perspective. Back in the day 'pre internet' what I did worked but was not
the type of idea that investors would fund. As a result attention had to be
paid to every cent spent and every single decision had to be dead on. Was a
profitable situation and I sold it. But no doubt having capital and even
giving up control would have made things better (but was not possible for a
host of reasons). Also today I do various work for startups and I can see the
flexibility they have because they can afford to (and this is super important)
make mistakes. That is a very very very big advantage that you can't easily do
when self funded.

------
LeicaLatte
Funding is not everything in our industry and good VCs offer lot more than
money. Think broadly about these things.

~~~
JohnFen
This is true.

It's also true that there are other ways of getting the additional expertise a
VC can bring. Make use of your local Chamber of Commerce, for instance. Most
of them can put you in touch with a lot of expertise.

One thing I advise regardless of the sort of business or financing being used
is to be sure to socialize with other business people, and not just executives
or the chamber of commerce.

For instance, one of my favorite approaches is to use local suppliers as much
as possible, and forge a personal relationship with them. Take them out to
lunch every so often. Talk shop (don't just talk about your business -- talk
about theirs). You might be surprised how often suppliers can turn into
investors, too. If not with cash, then with credit.

------
notananthem
If VCs are reaching out to you, that's a sign you're doing something right-
and as long as you can literally afford to keep doing it yourselves, keep
doing it yourselves.

VC's won't corrupt your work, VC's are there to fill in blind spots, gaps,
hiring, board, things you probably aren't good at because that's not your
focus right now.

You can find incredible VC's who will take your company places you could never
have imagined- but right now, if you can afford it- why bother.

Taking on advisors is a great tool though as well as VC's, the equity cost is
like percents of a percent for all of them and you get X hrs/month of
resources. If you're building tools that require specific regulation
requirements, etc.. then you add a regulator as an adviser.

~~~
stevesimmons
"VCs won't corrupt your work"

VCs will increase your risk. They will push you to make 10x rather than 2x
even if that doubles the chance of you failing.

Remember, they just need a couple of investments in their whole fund to go
really well. You absolutely need your one company to work out.

------
djyaz1200
Taking VC money is a lot like a record deal. You're giving up some amount of
control in exchange for resources and validation now. Record deals and VC
deals are not for everyone. I think the way to determine that is to decide
what your personal goals are and ask your teammates the same thing. I think
you also need to be very realistic about your market and idea, if you have a
multi-billion dollar idea you're going to need backers... if you are already
paying the bills and can dominate a smaller market without more funding that
might be ideal for you? This all comes back to what you want, once you know
what you want all the other decisions get much easier. Good luck! :)

~~~
theturtletalks
I think this is great advice, but many founders think that if they don't raise
funding (or take the funding offered), a competitor who will, can come in and
dominate the niche market. I also remember reading an article about SoftBank
wanting to invest into Uber. If Uber turned them down, they would just give
that money to Lyft or another competitor.

~~~
alexpetralia
For non-Uber deal sizes, couldn't you always take that offer as substantial
external validation and shop that around?

For example, if Google says they'll acquire you or run you out of existence,
couldn't you always go to VC (ie. any alternative of Google) and say:

* Google wanted to acquire us because they like our team and/or the idea. You can either buy Google stock, or make an investment in us.

This at least gives you some out between the "take our investment or die."

But maybe this wouldn't work in practice for some reason? I'd be curious to
hear. It just seems the market can't reasonably be in equilibrium when
everyone is forced to take money _at the mere threat of_ producing (or
investing in) a competing product.

.

[Edit] It's also important to keep in mind that often cash is much more
fungible than the execution of an idea. I can put 1MM into your business, or a
business that I think will put _you_ out of business, but if I don't trust
that team or they can't execute, that 1MM may as well be toilet paper.

------
not_that_noob
There are investors out there who don’t insist on control. I know of at least
two - IndieVC and Earnest Capital. Their investment can be paid back in cash
over time from earnings.

------
digitaltrees
If you need capital and have revenue or, better yet, past break even, consider
reaching out to small family offices. They may be interested in a good
investment but not expect a venture scale outcome. If you’re past the seed
stage and can show them a path to a good outcome that may be a good option.

If you have enough cash, buy a building, then get a mortgage to get your money
back. Now you are building a balance sheet and have cash with a low interest
rate.

~~~
gwbas1c
> If you have enough cash, buy a building, then get a mortgage to get your
> money back. Now you are building a balance sheet and have cash with a low
> interest rate.

How does that work? You're now paying interest on cash that you used to have.

Does that imply that you need to rent out space within your building to
augment your cashflow?

------
hartator
Running SerpApi.com. My main tip is to be as transparent as possible. Both
internally and externally. The competitive edge that you are having by holding
secrets is not worth the headaches of managing them. Even in our industry.
Regarding potential investments, share you numbers and try to see if it makes
sense for you against what they are bringing.

------
pedalpete
I don't know much about your situation, so tough to chat about growth, but it
is our priority at the moment as well after also reaching PMF.

Why is your growth relevant to only Non-VC backed founders?

It may be easier to provide suggestions if you describe your business rather
than describe why you don't want VC money. Perhaps I'm misunderstanding.

------
mkagenius
Your clients. They know people who may need your product, request them to
introduce you.

------
Rickasaurus
It depends on your market. If you're in b2b with big companies you can partner
on solutions if you have some core that is special. For consumer you'll need
to solve at least one problem well enough to get cashflow.

------
jiveturkey
you NEED some capital if you want to see 10x growth.

you have to decide, do you want to be beholden to growth, growth, growth and
chase a payout? or not.

this is a question that has no answer. if it started as a 'noble pursuit' and
not as a personal wealth engine, and you want to keep it that way, just turn
them down. sure, it's easier said than done.

keep in mind what both scenarios look like 5-8 years down the road: success
_and_ failure.

~~~
melonbar
I just do not want to subscribe to the idea that for the rest of eternity you
have to make a mephistophelian bargain in order to '10x'.

------
vessenes
It would be helpful to know a bit more about your situation; if I were on your
board, here are the starting questions I would have to help you figure out
what you want to do.

* Are you definitely dominant in your niche? If so, how long can you remain so while 'just' reinvesting profits? How big is the niche?

* Presuming you are and can definitely stay the dominant one, are there target areas next to your niche you'd like to go after and can't because of capital?

* Would additional capital let you add revenue through new features / adjacent product enhancement?

If the answer to any of these is that more capital would be helpful, either to
make more money, stabilize the business, or grow the value, then you need to
figure out how you want to take that money on.

Generally there are three ways businesses get additional capital: equity
finance, debt finance and trade partners.

My guess from your question and how you explain your business is that if you
sit down and take a cold hard look at where your business is at, then you will
conclude you have some real risks, and money will help mitigate those risks.

This is a tough mental game to play as a startup founder, you have to stop
thinking product vision for a little bit, and switch it around, and be like
"I'm X product manager at Y company / just VC funded / my enemy from junior
high who is rich, and I want to fuck us up and drive us out of business. How
do I do that?"

Once the business is real, and has real ongoing value, then _part_ of your job
is mitigating those risks. Usually the right way to do that is to grow the
business into a dominant market position so that you're not vulnerable, and
that's (part) of the thinking behind taking money -- so that you can grow
rapidly, and get through that risk period where anyone might notice you've got
something good here and come take it away from you.

So, how do you figure out debt/equity/trade? Short answer is that trade is
almost always preferable if you can get it -- details depend on your product
and industry. Between debt and equity, it varies, all the time, and will vary
at the stage your company is at.

In brief, though, at its best, you'll bring on real partners with VC money,
people who will guide you, kick your ass, help you, and end up with a
significant portion of your company in exchange. (At it's worst, it's much,
much worse than that). If you bring on strategic investment from the in-house
VC teams at your customers, that has a different flavor. If you get big enough
to have an interesting stable return rate for Private Equity, that's again a
different flavor, with different expectations about your team -- it doesn't
sound like you're their yet, BTW. :)

Debt comes in two flavors, recourse and non-recourse, essentially are you
going to give them your house if you fuck up -- and they're priced
differently, and it's harder to acquire non-recourse financing.

Enjoy where you're at! It's nice to have something working. And, finally,
remember you cannot undo an equity round - they lost longer than many
marriages - so tread carefully.

~~~
alexpetralia
The idea of thinking that _too slow a rate of growth_ is a business risk is
somewhat confounding to me.

Isn't every business at risk, by this definition? This seems like a good way
for investors to "scare the pants off" founders by reminding of them of an
existential threat, and therefore _only money can solve it_. Not only that -
only _a lot of money_ can solve. Convenient!

Couldn't the founder simply re-allocate retained earnings toward mitigating
risk? Then you are protecting from the downside at the expense of growth. One
could also argue that this is money deployed much more wisely - ie. in a
capital efficient way - over known risks than speculative "target niches" or
feature creep.

At this point, your only argument is that you _may_ (but not necessarily) be
growing less quickly.

And to that, well you can use that argument literally against any business.
There is a "threat of a potential well-funded competitor." This doesn't seem
very tenable to me.

~~~
vessenes
I hear you. In my twenties I was resistant to this idea also, that growth was
the thing. I was mentored for a while by the founder of JD Edwards, and he
drilled this idea into me -- if you're not growing, you're dead. I can only
speak to my own experience -- I've started roughly 20 companies, and generated
hundreds of millions of dollars of earnings and value, and I've lost quite a
lot of money and made some terrible decisions along the way as well. I now
mostly sit in the investor seat, but I have worn the founder hat many, many
times, and I think to a first approximation he was precisely right.

I'll note our own pg says he doesn't really need to understand almost anything
about a company, he just needs to eyeball their growth rate to know everything
he needs to about a company. And, if you read through the public YC training
materials, they hammer this point home, very, very hard for their founders.
Weekly compounding growth.

To respond to some of your other questions, I don't really believe in
retaining earnings for a company this size -- returns should be deployed
somehow, and this deployment should be planned for -- they have certainly not
found the end of the list of things they could do with money inside the
company that beats some notional outside-the-company returns yet.

I don't know how you would propose to mitigate risk more effectively than
growing aggressively, but I would be interested in your perspective -- rapid
growth brings its own risks, yes. But it does a few things - it provides an
incontrovertible early feedback loop on your continued ability to have product
market fit - and it increases your power as you grow your network of
stakeholders - and it increases your economic power in that network as you
have greater revenue.

In general I'd rather be sitting in the seat of being the largest most
influential company in a niche, and being able to acquire or squash
competitors (or expand) than finding out I'm up against a deep pocketed
competitor with a vastly larger customer portfolio, and if you're starting out
organically from scratch the only way to get to that large/influential spot is
to put the gas on very fast while you target a small niche, unless you have
some extraordinarily special sauce that isn't replicable.

My experience is that generally people are better at thinking about risks from
doing things -- risks from growing for instance, risks from taking on capital
-- they aren't so good at thinking about risks from inaction -- from doing the
same thing they do now.

Finally, I'd say most businesses are vulnerable to well funded competitors;
usually though the business they're in isn't juicy enough to really get say
the Goldman special situations group interested. You'd better believe if you
have juicy at-scale real world returns available to your business then very
intelligent very wealthy people are already thinking about how to carve up /
acquire those returns.

~~~
alexpetralia
First, thanks for the thorough response.

Let me preface this response by saying that I don't have direct experience in
any of this. That being said, I'm not sure that renders my points immediately
invalid from a logical perspective (though, definitely from an experience
perspective, it may).

For the most part, I completely agree about growth. You can do everything
wrong but kill it on growth (either revenue, or a proxy for future growth such
as user count/engagement), and none of the mistakes matter. You can do
everything right but have weak growth, and you're still dead.

I think there are many ways to mitigate risk without growing - in fact, growth
often exacerbates risk. Here are some examples of risk:

* Operational risk (payments errors, fat finger mistakes)

* Cultural risk (diluted or confrontational culture)

* Legal risk (sticking with old contracts that nobody thought to update)

* Technical risk (ie. too much technical debt)

* Key man risk

* Security risks (cyber or otherwise)

* Concentration risk (eg. one main vendor/supplier, one main platform like selling on Amazon)

Yes - _cash_ can mitigate these risks, but growth is definitely not the same
thing as cashflow. If you have cashflow, you should absolutely spend it toward
mitigating risks as well as pursuing growth (ie. new features, new target
markets). When you raise funding, it is often deployed to either _risk
mitigation_ or _growth opportunities_. Of course, you can also do both of
these without VC - cash is cash.

I do think it's important to note that large companies can move somewhat fast,
but also somewhat slow.

It is _very hard_ for a large company to (a) be exposed to an idea, (b) agree
it's a good idea (is it really worth risking our core competency/brand?), (c)
allocate the resources to a team (as if people are just sitting around
unstaffed! you almost always have to hire), (d) motivate the team to actually
work faster than the startup (though yes they will have more resources), and
(e) execute well. None of these are guaranteed. However, it is very cheap to
_threaten_ that you can do all this stuff and never have to worry about a
competitor!

People who are incentivized to - namely, investors (an acquirer is also an
investor) - will wave a few case studies about how this happened in the past,
so you better watch out. However, I don't think this is statistically very
probable.

Nevertheless, founders are often uninformed and often believe what people with
expertise (and not perfectly aligned interests) say. It is very hard to find a
VC, almost by their very nature, who is aligned with a founder without
persuading that founder to part from her own long-term interests. (For
example, VC always has an incentive to pump a startup with risk, since it's
effectively a call option.)

All in all, I personally think it's important to realize that VC's main value-
add is running a book, almost like an investment banker. They raise capital so
_you don't have to_. That's a lot of work! That's valuable!

But somewhere in the process, they became the gatekeepers for starting a
business (we provide network! recruiting! expertise! everything!), and that's
quite literally not their primary job. It's just a very convenient tale to
tell founders because it increases deal flow.

Anyway, I do admit, those are my very uninformed opinions and I could be wrong
about quite a lot.

------
mbesto
Hire a sales person.

~~~
eorge_g
I'd be careful with this unless you've done enough selling to come up with a
repeatable sales process/known business model!

[https://steveblank.com/2010/09/13/job-titles-that-can-
sink-y...](https://steveblank.com/2010/09/13/job-titles-that-can-sink-your-
startup/)

------
OliverJones
Others have mentioned the downside of having venture capitalists hanging
around, wanting an "exit" \-- a way to get their money back tenfold or so.

A couple of other observations:

1\. VCs only crowd around trying to invest in you when you don't need the
investment. If you actually needed more capital to keep going, they'd be hard
to find.

2\. they'll make your ownership structure more complex. Read about cap tables,
preferred shares, and participating preferred shares, to learn a bit more
about this. All the complexity favors them, not you.

A suggestion: if you need an investment in your enterprise business, ask one
of your customers to invest, or to pay for some development that benefits
them. Enterprise customers do this. And they're far more patient than VCs.

Another suggestion. Think of your businesses as businesses. Unless you're
looking for a quick exit, you have more in common (in terms of bookkeeping and
finance) with a local bookstore than you do with a typical VC-funded startup.

Ask yourselves these kind of questions:

Are you making enough money to meet your expenses and payroll? Are your
customers happy? Do you like making and selling your product / service? Do you
want to keep doing it for a few years into the future? If the answer to these
questions is "yes" then great.

Looking to the future:

Need for funds: Will you or a partner need to take some money out of the
business at some point to pay a big bill or two (college fees for kids and the
like)? If so, how will you manage that?

Succession: What if you and/or a partner wants to retire? Are you funding
401Ks for yourselves and your employees?Can you sell the business, or have a
younger family member take over?

A final suggestion. There's an outfit called SCORE.org. Use them. They're
affiliated with the US Small Business Administration. "Service Corps of
Retired Executives." They offer free (yes, really, free) and confidential
advice to business owners. You can ask general questions like "here are our
books, what do you think?" or specific questions "How can we get new customers
in Europe?" "We're growing and need to move, how can we make sure we get
treated fairly?" and "We want to sell the business in ten years; how can we
prepare for that?"

I've volunteered for SCORE and can vouch for both their cost (0) and their
confidentiality. My fellow volunteers were really wise folks; I learned a lot
from them. We were NOT ALLOWED invest, or even offer to invest, in the
businesses who used us. And the NDA we signed has teeth. It was with the feds;
the FBI has been known to go after SCORE people who abuse the trust of their
clients.)

~~~
FiatLuxDave
Have an upvote for the mention of SCORE (and thank you for your volunteer
service!)

A retired executive mentored me through SCORE when I was young. The most
valuable part was simply the questions that he asked that I would not have
thought of. It was a thoroughly positive experience. I think it is especially
valuable if you are young and do not have much business background.

