5 ms·

This is what we did with my company. Raised a $1.1m seed in 2015, and still running the company today. It's a very profitable modest company now with 25 employe

by cj 3y ago

This is what we did with my company. Raised a $1.1m seed in 2015, and still running the company today. It's a very profitable modest company now with 25 employees. At the time we raised the seed round, we thought we were going to go the regular VC funded path, but somewhere along the way (probably when we became profitable) we changed our operating model to one similar to a bootstrapped company. Some investors got annoyed (some probably still are annoyed), but we've offered to pay them back their original investment. I used to get angry emails from investors telling us it's terrible that we're not burning money, because you have to invest and burn money in order to grow fast. I really like the position we're in now, with 100% total control over the company, no board of directors other than founders, destiny is in our own hands. No pressure to raise since we're profitable, and we continue to grow by reinvesting profits back into the business (hiring more people). This strategy 100% will not work if you tell investors this is your plan from the start. VC-backed and bootstrapped companies operate very differently and have very different long-term goals. Bootstrapped companies typically aren't compatible with the goals of investors. I have trouble seeing how you would pitch "raise 1 round" to seed investors successfully. And I absolutely would not recommend being dishonest about your intentions if you know this is your plan from the start. (For us, we truly believed what we told our original investors and the vision we painted, and only changed our operating model a couple years later after burning nearly all of our seed capital)

fairity 3y ago
Your story is so similar to mine that I thought you must be my co-founder, except for the fact that just one piece of the story doesn't align. Congrats on the success - have you thought about hiring a banker to seek an exit to PE? From personal experience, after eight going on nine years, the itch to work on something new can kick in.
- cj 3y ago
  Happy to chat if ya like! Email in profile
cqqxo4zV46cp 3y ago
Investors have myriad tricks up their sleeve to deceive and take advantage of founders. I’d have absolutely zero ethical issues with clawing something back in that relationship.
nightowl_games 3y ago
So how are the investors making money at all right now? Dividends?
- cj 3y ago
  They’re not. That’s not to say they won’t make money in the future. Their investment still exists, and while I’m not optimizing for a quick exit or extremely fast growth at all costs, we will eventually exit. Not sure if it will be in 2 years of another 10 years, but we will eventually. At which point they’ll make at least 5-10x their original investment. When I offered to buy back shares from early investors most said no and opted to keep the shares for a pay day in the future.
  - chii 3y ago
    > When I offered to buy back shares from early investors this is obviously a loss for the investor if they accepted. The time value of money is not zero. Unless you're willing to also pay the expected return from such an investment, you'll have just asked them to provide free capital for you with nothing given back.
    - cj 3y ago
      This is when I break out the worlds tiniest violin :) I agree with you, but so what? The expected ROI for any given seed investment is $0. It’s common knowledge at this point that seed investing is a numbers game where nearly all seed investments fail and a tiny percentage return huge. I consider our investors successful in that we’ll, at a very minimum, return more than they would have seen if they had invested in the S&P 500 over 10 years.
      - markisus 3y ago
        Nit: The most likely outcome is zero return, but expected return is positive (if the investor is rational) due to tail probability.
  - silexia 3y ago
shubham_sinha 3y ago
To be honest. I want to build my company this way only. When I get product market fit and I have insights that we can grow up exponentially by burning money I won’t mind doing it. But this is very hard to pitch to a VC. You want to be honest but that honesty rarely converts into a fund raise.
silexia 3y ago
Better yet from both an ethical and efficiency perspective is to simply not raise money at all. I bootstrapped completely and am far healthier and happier because of that choice.
- JohnFen 3y ago
  I've bootstrapped all of my businesses too. However, that isn't a viable path for every business plan. If you need a lot of money to even begin, if you want to maximize return very quickly and exit, and so forth, VC is a better way. It's all about tradeoffs, and the right tradeoff depends on the specific venture. I do, however, think that a lot of people starting companies seek VC funding when it's not appropriate for their venture, just because they perceive that to be the only, or best, way.
nico 3y ago
This is cool, as long as you have some way of compensating people that took risk for equity Personally, I took a very low paying job at a VC-backed company over 10 years ago. Left some time later with a significant amount of equity in the form of stock options. The company has grown immensely since then, they became profitable and stopped raising money Now I’m stuck with a bunch of ISO options that I need to spend money on to actually own the equity, without any foreseeable exit/liquidity event. The company is not offering to buy back anyone’s stock and won’t even provide financials to find a buyer myself
- cj 3y ago
  I’m sorry that happened to you. Personally I don’t like when founders talk up the value of equity. Stock options should always be seen as lottery tickets and nothing more.
- c_o_n_v_e_x 3y ago
  >The company is not offering to buy back anyone’s stock and won’t even provide financials to find a buyer myself A lot of countries have minority shareholder rights. This seems like something where those rights would kick in (even if you just have options).

by cj 3y ago

fairity 3y ago

Your story is so similar to mine that I thought you must be my co-founder, except for the fact that just one piece of the story doesn't align. Congrats on the success - have you thought about hiring a banker to seek an exit to PE? From personal experience, after eight going on nine years, the itch to work on something new can kick in.

cj 3y ago
Happy to chat if ya like! Email in profile

cqqxo4zV46cp 3y ago

Investors have myriad tricks up their sleeve to deceive and take advantage of founders. I’d have absolutely zero ethical issues with clawing something back in that relationship.

nightowl_games 3y ago

So how are the investors making money at all right now? Dividends?

cj 3y ago
They’re not. That’s not to say they won’t make money in the future. Their investment still exists, and while I’m not optimizing for a quick exit or extremely fast growth at all costs, we will eventually exit. Not sure if it will be in 2 years of another 10 years, but we will eventually. At which point they’ll make at least 5-10x their original investment. When I offered to buy back shares from early investors most said no and opted to keep the shares for a pay day in the future.
- chii 3y ago
  > When I offered to buy back shares from early investors this is obviously a loss for the investor if they accepted. The time value of money is not zero. Unless you're willing to also pay the expected return from such an investment, you'll have just asked them to provide free capital for you with nothing given back.
  - cj 3y ago
    This is when I break out the worlds tiniest violin :) I agree with you, but so what? The expected ROI for any given seed investment is $0. It’s common knowledge at this point that seed investing is a numbers game where nearly all seed investments fail and a tiny percentage return huge. I consider our investors successful in that we’ll, at a very minimum, return more than they would have seen if they had invested in the S&P 500 over 10 years.
    - markisus 3y ago
      Nit: The most likely outcome is zero return, but expected return is positive (if the investor is rational) due to tail probability.
- silexia 3y ago

shubham_sinha 3y ago

To be honest. I want to build my company this way only. When I get product market fit and I have insights that we can grow up exponentially by burning money I won’t mind doing it. But this is very hard to pitch to a VC. You want to be honest but that honesty rarely converts into a fund raise.

silexia 3y ago

Better yet from both an ethical and efficiency perspective is to simply not raise money at all. I bootstrapped completely and am far healthier and happier because of that choice.

JohnFen 3y ago
I've bootstrapped all of my businesses too. However, that isn't a viable path for every business plan. If you need a lot of money to even begin, if you want to maximize return very quickly and exit, and so forth, VC is a better way. It's all about tradeoffs, and the right tradeoff depends on the specific venture. I do, however, think that a lot of people starting companies seek VC funding when it's not appropriate for their venture, just because they perceive that to be the only, or best, way.

nico 3y ago

This is cool, as long as you have some way of compensating people that took risk for equity Personally, I took a very low paying job at a VC-backed company over 10 years ago. Left some time later with a significant amount of equity in the form of stock options. The company has grown immensely since then, they became profitable and stopped raising money Now I’m stuck with a bunch of ISO options that I need to spend money on to actually own the equity, without any foreseeable exit/liquidity event. The company is not offering to buy back anyone’s stock and won’t even provide financials to find a buyer myself

cj 3y ago
I’m sorry that happened to you. Personally I don’t like when founders talk up the value of equity. Stock options should always be seen as lottery tickets and nothing more.
c_o_n_v_e_x 3y ago
>The company is not offering to buy back anyone’s stock and won’t even provide financials to find a buyer myself A lot of countries have minority shareholder rights. This seems like something where those rights would kick in (even if you just have options).