6 ms·

First, decide if you really need to raise money. Can you bootstrap (ie, self fund) your business? Too many people immediately go for capital when they don't nee

by cglee 12y ago

First, decide if you really need to raise money. Can you bootstrap (ie, self fund) your business? Too many people immediately go for capital when they don't need it. It's extremely distracting and not all that necessary. You should only look into raising capital if you have a capital constrained opportunity or problem. So many problems initially look like money problems, but they're really disguised as something else (culture, product/market fit, market timing, etc). Usually, it's best to really get to know your market really well first, before reaching for funding. Second, make sure your legal documents are in order. Incorporate, if you haven't already, and open up a business bank account. Make sure to use your business bank account for all business related expenses. This will make accounting much easier down the line. Third, hire a great bookkeeper. Trust and loyalty is really important here, so best if you hire someone who is somehow connected to you. Fourth, hire a great accountant. Some accounts will also do bookkeeping for you. I don't think this is a good idea, as you typically want someone "on your side" watching out for your day to day finances. Intelligence and industry expertise is really important for an accountant. Fifth, if you're making real money, it's important to put some words on paper about how the company ownership is divided, and other "what if" scenarios. You typically also want some sort of Operating Agreement between the founders. Usually this document covers: 1) ownership division 2) provisions for terminating members 3) provisions in case of long term disability or death of a member (for example, do you all of a sudden want your cofounder's spouse or parents as your cofounder in case of death? Look into "key man" insurance.) 4) provisions for adding new members Some people say get a lawyer for these documents, which isn't a bad idea, but most of these types of documents at this stage is pretty boilerplate. If you have some unique circumstance, like an international cofounder or something like that, then perhaps consulting a lawyer is best.

ixmatus 12y ago
Getting into an accelerator or incubator (even if it's one that's not popular) can really help with the legal stuff since you'll be able to get more advice and they will always have those boilerplate docs for you. Form a C corp in Delaware and get the ownership figured out ASAP. I also generally think that all of the founders should vest (no cliffs or anything, but a four year vest for everyone will keep the company safe in the event one of you leave, even the CEO). I agree with cglee's comment that you don't need capital right now, get more traction and build more product. Then in six months revisit the topic and determine if your organic growth is enough to sustain further growth or whether you'll need capital injection. Raising money, btw, isn't always just about the money - if you pick your investors correctly they can help you and your business tremendously.
- rexreed 12y ago
  Agree with the above - altho forming a Delaware C Corp at this early stage is not necessary. It's become much easier now to form an LLC in your state of residence and convert at a later stage (if at all) to Delaware C if you end up raising money.
  - deleted 12y ago
    [deleted]
  - dkrich 12y ago
    Thank you- somewhere it became lore that filing in Delaware is a necessary step to running a successful business. Most businesses that are cited as examples didn't start in Delaware, but did so after they had much to lose and on the advice of their highly-paid counsels. If you have $1k in revenue, congrats, that's a great accomplishment, but with all due respect, nobody is going to file suit against a group of college students with $1k in cash.
    - ixmatus 12y ago
      The advice to just get an LLC going first then convert to a C corp is fine for their stage, I won't argue against it. However, what you're saying in opposition to forming a C corp early doesn't feel very rigorous. From my limited experience as a founder, forming a C corp early has made some things easier. The time we had to convert a California C corp to a Delaware C corp became messy and I imagine converting a {whatever state} LLC to a Delaware C corp also has the potential for being messy. The conversion cost us a lot of money to have done right when instead taking boilerplate docs and simply forming in Delaware first would have been much easier. Angels and incubators will generally want you to be a C corp first or convert ASAP, too (which is a valid option but I feel like there are other more important things to be spending cycles and money on). Raising money without worrying about converting your corporate structure is a pretty big reason to just do it as a C corp from the start.
      - late2part 12y ago
sthielen 12y ago
We've been bootstrapped since the beginning, but, as much as we don't want to admit it, we're starting to outgrow what we can do as our very limited personal savings start to decline. Yeah, it's cool to have some money in the bank after doing these advertising deals, but it's not nearly enough that it's sustainable right away. We have plans to expand to 150 schools across the country, and if we do that we project to be cash-flow positive within 6 months. But right now we don't have enough resources to expand to even 10 schools and try and maintain that. And especially with how our demographic (college students) respond to word-of-mouth with services like these, we really want to be available to as many students at as many campuses as possible before we lose any "buzz" that we're cultivating (either organically or through marketing efforts). With regard to legal documents and accounting and all that, we have an LLC right now, with Quickbooks and a boilerplate operating agreement that I found in a book at Barnes and Nobles. I definitely agree that it is incredibly important to be on top of the legal side of things, but we honestly don't even have the money for that right now.
- rwhitman 12y ago
  Being on the HN frontpage is really going to expose you to both opportunities and competitors. Taking funding is probably a winning strategy for you right now
- danesparza 12y ago
  "as our very limited personal savings start to decline. Yeah, it's cool to have some money in the bank after doing these advertising deals, but it's not nearly enough that it's sustainable right away." Bootstrapped = your profits are able to grow as your company grows. It sounds like you have an expensive hobby at the moment. Either scale back your operations so you're profitable or grow your numbers.
  - webmaven 12y ago
    This. Bootstrapped does not mean "pour personal savings down a black hole".
- Blahah 12y ago
mrfusion 12y ago
Can you expand on the bookkeeper idea? What would their job entail? Can it be part time? Any tips on finding someone?

by cglee 12y ago

ixmatus 12y ago

Getting into an accelerator or incubator (even if it's one that's not popular) can really help with the legal stuff since you'll be able to get more advice and they will always have those boilerplate docs for you. Form a C corp in Delaware and get the ownership figured out ASAP. I also generally think that all of the founders should vest (no cliffs or anything, but a four year vest for everyone will keep the company safe in the event one of you leave, even the CEO). I agree with cglee's comment that you don't need capital right now, get more traction and build more product. Then in six months revisit the topic and determine if your organic growth is enough to sustain further growth or whether you'll need capital injection. Raising money, btw, isn't always just about the money - if you pick your investors correctly they can help you and your business tremendously.

rexreed 12y ago
Agree with the above - altho forming a Delaware C Corp at this early stage is not necessary. It's become much easier now to form an LLC in your state of residence and convert at a later stage (if at all) to Delaware C if you end up raising money.
- deleted 12y ago
  [deleted]
- dkrich 12y ago
  Thank you- somewhere it became lore that filing in Delaware is a necessary step to running a successful business. Most businesses that are cited as examples didn't start in Delaware, but did so after they had much to lose and on the advice of their highly-paid counsels. If you have $1k in revenue, congrats, that's a great accomplishment, but with all due respect, nobody is going to file suit against a group of college students with $1k in cash.
  - ixmatus 12y ago
    The advice to just get an LLC going first then convert to a C corp is fine for their stage, I won't argue against it. However, what you're saying in opposition to forming a C corp early doesn't feel very rigorous. From my limited experience as a founder, forming a C corp early has made some things easier. The time we had to convert a California C corp to a Delaware C corp became messy and I imagine converting a {whatever state} LLC to a Delaware C corp also has the potential for being messy. The conversion cost us a lot of money to have done right when instead taking boilerplate docs and simply forming in Delaware first would have been much easier. Angels and incubators will generally want you to be a C corp first or convert ASAP, too (which is a valid option but I feel like there are other more important things to be spending cycles and money on). Raising money without worrying about converting your corporate structure is a pretty big reason to just do it as a C corp from the start.
    - late2part 12y ago

sthielen 12y ago

We've been bootstrapped since the beginning, but, as much as we don't want to admit it, we're starting to outgrow what we can do as our very limited personal savings start to decline. Yeah, it's cool to have some money in the bank after doing these advertising deals, but it's not nearly enough that it's sustainable right away. We have plans to expand to 150 schools across the country, and if we do that we project to be cash-flow positive within 6 months. But right now we don't have enough resources to expand to even 10 schools and try and maintain that. And especially with how our demographic (college students) respond to word-of-mouth with services like these, we really want to be available to as many students at as many campuses as possible before we lose any "buzz" that we're cultivating (either organically or through marketing efforts). With regard to legal documents and accounting and all that, we have an LLC right now, with Quickbooks and a boilerplate operating agreement that I found in a book at Barnes and Nobles. I definitely agree that it is incredibly important to be on top of the legal side of things, but we honestly don't even have the money for that right now.

rwhitman 12y ago
Being on the HN frontpage is really going to expose you to both opportunities and competitors. Taking funding is probably a winning strategy for you right now
danesparza 12y ago
"as our very limited personal savings start to decline. Yeah, it's cool to have some money in the bank after doing these advertising deals, but it's not nearly enough that it's sustainable right away." Bootstrapped = your profits are able to grow as your company grows. It sounds like you have an expensive hobby at the moment. Either scale back your operations so you're profitable or grow your numbers.
- webmaven 12y ago
  This. Bootstrapped does not mean "pour personal savings down a black hole".
Blahah 12y ago

mrfusion 12y ago

Can you expand on the bookkeeper idea? What would their job entail? Can it be part time? Any tips on finding someone?