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.

[melonbar]

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.

[enraged_camel]

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.

[logicallee]

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

Any idea what caused the sudden change?

[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.

[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 :/

[michaelbrave]

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"?

[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.

[javiramos]

"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 $.

[arosier]

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

[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?

[melonbar]

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.

[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!

[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?

[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...

[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.

[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?

[js4]

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?

[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.

[melonbar]

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.

[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)