Would you take VC funding or self fund your startup?
Say you are just starting out to build a product and haven't found Product/Market fit yet, and you've got two options to choose from – getting VC funding, or bootstrap it, which one would you choose, and why?
For the sake of discussion, let's assume that getting outside funding is a piece of cake. You get it just like that if you want to.
I'm asking this because lately I've been under a dilemma. Do people bootstrap out of choice, or because they have no other choice, and vice-versa?
Not everyone wants to run a million dollar tech Empire and yet desire freedom from monotonous routine. Becoming an IH offers exactly that. It is a long road for sure, but it provides peace of mind and better work life balance. Also, when you take someone's money, you become answerable to them. For people who crave maximum independence, bootstrapping is a wonderful idea.
Really well put. I completely agree.
I've been going through this same research. Should I raise money? If so why?
So much reading, investigating and talking to people has revealed a lot.
Firstly I suggest you read Founders Dilemma - it covers a lot of the questions and more importantly, might help you think about the real question - Do you want the Rich outcome (loads of money) vs the King outcome (control). It's a dry book, but an interesting read. Not a bible by any sorts, but worth it.
Remember, that the moment you raise money from any investor (outside friends and family) they are expecting a return at some point in time. The majority of time this means you need to think about an exit. Don't forget that most VC funds will have a target ROI for their funds. Probably 5x (or more) across the fund and depending on the structure, that will be aiming for a 5-7 year turn around.
This also means that any investor, particularly fund based (VC) will drive you harder than hard to grow. Because growth is everything. Growth helps drive valuations up and further funding increasing their value.
General advice is - if you don't need to raise money.... then don't!
The questions you need to ask is... why do you need to raise money?
There are funds out there that will give money to ideas. They are rare and again you'll probably realise they are looking for an idea that will turn into a scaling problem.
I've chosen bootstrapping for now. I have the capabilities to develop the product and a wife willing to pay for life (rent/food/etc). Investment may come if I decide one of the things above... e.g. I found a scaling button and I want/need to go faster.
Very well put. Glad that you've got a supportive partner. Are you doing it full time? When did you make the shift, from job to startup? How did you know it was the right time?
I'm extraordinarily lucky. I am doing it full time. My previous job was a more-than-full-time kind of job so no room for side projects. I started about 14 months ago and it's taken me too long to get to where I am (lessons learned).
I've wanted to build something for a long time. For me I'd gathered technical, sales and management skills. I had something I wanted to try and financially we were in the right position (could live comfortably on one salary).
Everyone's right time is going to be different. Some people need less (ramen and a couch will do). Others have children/family they need to support. It comes down to -
*How long do I have? (running out of savings, patience, emotional energy, etc)
Very insightful. I think you should definitely start tweeting (if not blogging) your journey, struggles, lessons learnt. I know I'll read them religiously. All the very best Dale!
Thanks. Maybe I should blog? I've considered it before. You may have inspired me here.
Definitely. I know that I would read. Do let me know when you share your first post.
If someone were able to pay me a salary(min 2 years) and I could get a 20%+ cut of the company while we figured out a product. I would work on that first. It would need to be customer oriented. Not hey lets build this and see if people like it.
I bet this idea resonates with a lot of indie hackers. Very practical indeed.
I'd prefer to bootstrap as I don't want dollar signs in someone else's eyes to sway what I do with my business. But if the circumstances are right, I'm not above accepting VC money.
It's very practical I'd say.
Personally I think, if you are a venture-backed startup founder you're looking at many years of long hours with a small potential for a huge payoff.
Yep, my biggest concern is once investors are involved, they only want a payout. How quickly can you ramp up valuation so we can exit and I get a fat paycheck?
I honestly would have zero problems with building a business that is just above breaking even. Profit is important for padding and that, but if my business made enough to cover its own expenses, employee expenses, and for me to live a comfortable life. I'd be happy with that.
I don't need a billion dollar exit.
That's great man!
I guess I want the same too. I'm more interesting in making something which my customers would love to use. Money is a necessary outcome, but the whole idea is to build something for customers, and have fun while doing it.
Taking VC money puts a blow to my independence as well. I want the freedom to take holidays, travel, spend time with friends and family whenever I want. I don't want to slog 16hrs a day in hopes of cashing out someday in the future.
Plus, I'm not really comfortable playing the high stakes game of raising immense money as well. I just want to start small, and stay small.
Thanks for your reply.
I'd bite a VC's hand off. I've seen startups get as far as making profit, and then fail because running the business was all-consuming, they had no resource to grow it.
(Saying that, I've also seen funded ventures spend money like it was water, suddenly acting like a big successful company just because they have money in the bank, when in fact they're haemorrhaging cash every day. They fail too. Though, in those cases, the C-level personnel go on to other VC-funded startups, and do it all again.)
I think a lot of starters fear diluting their share capital, but it's way better to have a small piece of a big pie than a big piece of no pie at all. (Not that the big-pie scenario is ever guaranteed, and I'm not saying this applies to all those who don't chase funding.)
My understanding is that chasing VC is a job in itself, and one that requires its own skillset. Not easy for solo starters - especially given the oft-quoted phrase that VCs invest in teams, not products and, by implication, not individuals either.
I'm totally with you on this.
I also think that raising money gives you extra baggage to carry with you. Now you gotta focus upon your business, and also keep the VCs happy. You also gotta have good numbers to show to raise the next round as well. The focus is more about raising the next round, rather than the actual business.
With Dependabot, I'm bootstrapping out of choice. I doubt raising money would be a total piece of cake, but I was senior at my last gig and have had plenty of VC interest.
The big considerations for me are:
Hope that helps with your thinking.
That is the dream.
I like how your are approaching the whole thing, revising your plans and decisions periodically. It's very practical. It's in fact ideal.
This bit is killer!! I'll turn it into a poster and put it on my wall.