The question asked by most founders when it comes to funding a startup is…
Should I bootstrap it? Or fund it with a venture capital company?
This is a loaded question. Many people have strong ideas around how to fund and run a business, particularly a SaaS business. But the answers to this question are as individual as the companies themselves.
No matter which route you take, know your options. Leading from a place of unawareness is a detriment to the company. The best decisions you can make are informed decisions.
Bootstrapped to Funded
If you know our story, you’ll know that we accepted a seed round of funding in the form of a SAFE when Baremetrics was at a 30% growth rate. But before that, the company was bootstrapped.
In some ways, bootstrapping a startup can feel safer – or at least more comfortable. It promotes a more slow-and-steady growth for your business. Without the pressures of investors, you’re able to develop your product to your vision, and on your timetable. And of course, you maintain 100% ownership. This is how many non-SaaS companies are built.
So when venture capitalist firms first started calling around, we avoided them. But as the company grew, we had a change of heart. By taking funding we weren’t just accepting money, but gaining the expertise of people who have been in this game a long time.
Taking funding was the right move for Baremetrics, and since our initial seed rounding, we’ve taken a second (turns out when you have money in the bank, you spend it!). But there are a lot of factors that go into these decisions, and they are factors you should consider carefully.
When is it time to fund?
While there is a time and place for bootstrapping, there comes a moment in the growth of many SaaS companies where funding is critical. Here are some things to consider to help evaluate if you’ve reached that place:
- Do you have a strong proof of concept that will lead to a favorable valuation?
- Do you need to accelerate your team’s growth to support your product development?
- Do you need to execute quickly in order to beat a competitor to market, or to stay ahead of them?
- Does your product rely on expensive infrastructures?
- Are you seeking advice from a team of people who will hold you accountable to meet your goals and keep you on track?
- Do you feel that a security cushion of funds will put you at ease and enable you to take some risks?
- Do you need some room in the budget?
If you answered yes to any of these, it may be time to explore your capital options. Even if you’re just asking questions, speaking with VC firms and investors can share information with you that may even impact how you bootstrap, if you end up walking away without a seed round.
But keep in mind: the best time to ask for funding is before you need it. Once you’re really desperate for more cash on hand, it’s likely too late to go to a VC firm. So as you’re weighing your options, do it from a place of financial flexibility.
Who gets a slice of the pie?
When dealing with VCs, most people are concerned about maintaining ownership and control. One issue seems to stand out in particular: equity dilution. While it’s true that each round of funding you take will dilute your equity, it’s a myth that VC firms will always take such a large chunk of the pie that you and your employees will left with nothing.
This is where it’s very important to get a good lawyer involved. Find someone to advocate for you when it comes time to sit down with investors to discuss a funding proposal. Negotiate what matters to you. Things like dilution, but also items like board seats, vesting periods, and intellectual property. If it’s extremely important for you to maintain as much control over your company as possible, fight for it. And get it in writing.
So…which is better?
So here we are, back at that quintessential question: which is better? You’ve probably figured out by now that I can’t answer this question for you. Different growth tactics work better for different companies.
What’s most important is that you decide how you want to grow. Don’t let the pressures of Silicon Valley – or any other place or industry – dictate the path you take. It’s very easy to become focused on one particular form of success, but there are many ways to be successful, as we’re finding at Baremetrics. As long as you are aware of the options available and make the decisions that feel best to you, you can’t lose.