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Ask HN: Non-VC backed founders, any tips on growth?
183 points by melonbar on Apr 12, 2019 | hide | past | web | favorite | 108 comments
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.

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.

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.

I think you're just better off working on the product and talking to customers (though obviously that idea is not original to me). Talking to VCs is a time trap and may further lead you to do the wrong things.

I don't think the dating/marriage analogy holds. If VCs are contacting you because your business is booming, you don't really need much of a relationship.

I don't think taking the time to talk to investors as a hedge is necessary or adds much to business strategy. If you want to build a bootstrapped business and may be open to VC at some unknown point in the future VCs will likely only care about business metrics. If they speak for themselves than most VCs will gladly meet, and it will likely be relatively 'easy' to fundraise. If you aren't looking for early stage capital, don't waste your time talking to investors when you could be building a business...

Now, talking to potential acquirers at any point in the lifecycle of the business is a great use of time, in my opinion. If you are open to the idea of eventually selling your company get close to the companies that might be interested in buying your company and stay close. Partnerships, shared customers, deep understanding of their technology and so forth

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.

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.

They do that? That's slimy!

The absolute best way to raise money (to have leverage in negotiations) is to build a great company. Talking to investors doesn't get you there.

While there is a benefit to having relationships and them seeing you execute over time, it's easier to get a meeting if you have great numbers. How many VCs wouldn't take a meeting if your first sentence is, "We have a $150k in MRR and are growing at 20% month-over-month"? Any?

I don't know. Build your company.

Just hopped off my train but this is great. Thanks so much for the feedback. Especially about the focusing on goals Someone else in the post mentioned about life/work balance and this is crucial for me. Life's simply too short, haha.

As a counterpoint: the best time to raise money might be when you don’t need to, or want to. It can give you significant leverage in negotiations.

>In the last year, we've gotten pounded with requests

Any idea what caused the sudden change?

The most direct reason is I think we got mentioned in some pitch decks.

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.

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.

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.

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.

I wish you made that post as a top-level reply instead of a reply to my post. The simple way that you explain growth requirements is extremely clear and important to know.


Not to invalidate your experience, but from what I've seen the highly upvoted people on HN are more accepting of "lifestyle business" and have more respect for work/life balance than the average startup founder

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

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?

2x growth a month is a failure? Or 2x growth a year?

2x growth on whatever timeframe your hockey stick slide is using.

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.

>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 :/

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.

I would love to pick your brain about all of this, but could you give me an example of the "going to lose a lot more money if you don't"?

Sure. For instance, if you have equipment failure that means you'll miss a ship date where you've promised to a pay a penalty if you're late, or if it means you'll be unable to fulfill a contract.

Weird things happen. I once had my office flood and was unable to use it until they cleaned it up. I had to take out a loan in order to quickly obtain a temporary work area. Critical equipment can break, critical people can get ill or quit, requiring you to hire a temp to get through a crunch, and so forth. These are rare sorts of events, but they happen. When they do, if you don't have the money in the bank to cover it (and you should never use the money intended for rent, taxes, or payroll to cover these things), a loan can be the best option.

I left out a monetary policy that I think is critical for me, so let me take the opportunity to add it now: avoid fixed recurring expenses as much as possible. This includes buying things on time, or periodic subscription/service fees, etc. It's really, really easy for this sort of thing to get out of control, particularly by stacking up a large number of small monthly expenses.

The main problem with fixed recurring expenses is that they reduce a startup's main advantage of flexibility. If your monthly expenses are low, you are able to be pickier about what business deals you take, or you can afford to cut a problematic customer or supplier loose, and so forth. The better a business can weather lean times, the stronger that business is.

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.

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.

"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,... You can also raise from Angels with non-traditional VC terms such as profit sharing."

For those developing hard technologies, there are also plenty of non-dilutive government grants. SBIRs are a popular funding mechanism that typically start in the $200k-$300k range and can go up to $millions if the technology goals are met. There are also many other government funding mechanisms, especially if your technology is health or defense related. The downside of all these government grants is (1) timing - it usually takes ~>6 months from proposal to $ in bank and (2) inflexible - if your plans change, it is not easy to pivot the use of the $.

Has bootstrapping changed where you decided to hire (i.e. not in HCOL areas)?

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

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?

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.

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

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.

Search for Steli Efti on Youtube - got some brilliant videos on getting started with sales.

I'm reading "Way of the Wolf: Straight Line System" right now. Hope to try out its framework this month

> "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?"

On second thought, my question doesn't make sense. The LTV calculation would have already time-adjusted the revenue. I think the replier's opportunity cost and risk explanation makes more sense

Cool! This is a great list and I will be sure to review. I appreciate it and will definitely try and reach out at some points. Cheers.

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.)

Any companies you recommend for this? Thanks!

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.

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/).

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.

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.

I don't have any experience with either of these, but for later stage, these are well known:



Both do variations on https://www.saas-capital.com/blog/funding-properties-mrr-cre....

LighterCapital is one too

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!

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.

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.

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

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.

What ended up happening to your company?

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 :).

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.

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

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.

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...

> "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?

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.

Got it.

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


>11. Always pay your debts

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

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?

The thing to be worried about is competition.

Could someone replicate your product/distribution exactly (which means they have product/market fit) then go raise a ton of money and crush you?

Wow, yeah, this. It is the main reason I want to start taking on funding. At the same time, there are plenty of companies that do that and still don't succeed. I believe (perhaps foolishly) that a handful of motivated, intelligent people can slum it for a bit can accomplish much more than a colossal heap of money can (and whatever trappings come along). I just sometimes get irked by all the money being thrown around on. . . well, I am not all that sure some times. Anywho, I digress. Thanks a bunch for the advice.

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.

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.

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

Most lenders require a personal guarantee even if it is a business loan.

These Win / Fail outcomes are not nearly this binary in reality, so I don't think this is a very helpful comparison. There's a wide distribution of "Winning" and "Failing", and while these extremes do exist, they're actually both outliers (most businesses don't win "big money", also most founders don't lose their house when they fail).

I have pretty decent credit so this is something I have quite recently begun to look into as the rates seem decent enough. Anyone with experience I would love to hear from.

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.

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)

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

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...)

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].

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.

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

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.

I definitely agree that this is true in certain circumstances. I also feel that there can be caveats with the luxuries that a VC brings to the table. I am trying very hard to be cautious moving forward. Thanks for your response.

Yeah but at what cost? Non-monetary offerings are great for differentiating between VCs, but usually don’t justify a round in and of themselves.

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.

"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.

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! :)

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.

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.

Perfect analogy! I will be sure to bring this up when me meet for our next sprint.

Good luck, FYI I think the other comments here are insightful. I believe a mistake we all want to avoid is assuming funding is fractal aka the same at every magnification. Smaller opportunities are handled much differently than bigger ones. The problem is sorting which is which, something everyone (including investors) have trouble determining. So I think it's on us (entrepreneurs) to decide whether we're aiming for the moon or more modest goals. ...and there is NO shame in building a company to millions instead of billions and keeping it all. Also no shame in aiming for the moon and missing (or better yet succeeding). The only thing I'd be ashamed of is letting someone else make or impose the decision on me.

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.

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.

> 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?

How would you go about contacting family offices? (If there’s anyway aside from warm intros). I tried to cold e-mail a few, as I did with VCs, and unlike the latter I received zero replies.

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.

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.

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

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.

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.

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'.

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.

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.

You are right. The founder of Patagonia talks about this. In particular growth vs sustainability.

Growth for growth is usually a short-term game, and it can generate amazing returns quickly, however it is usually a lot riskier and not very sustainable in the long run.

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.

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.

Hire a sales person.

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


Currently we have our non technical founder doing sales and he not only enjoys it gasps but he has excelled quite a bit.

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.)

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.

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