Practical Founders Have a High Standard When Investing Their Precious Cash

Last week, three practical founders told me, “I could raise a few million dollars, but I don’t know how we’d invest that much money so quickly.”

I hear this more often these days. It’s the opposite of the “raise as much as you can and spend it fast” mentality.

They were each CEOs of software companies with between $1M and $8M ARR that are profitable or breakeven with no outside funding yet.

These founders are not saying they don’t know how to spend money to grow.

Here’s what they are really saying and why it makes perfect sense:

  1.  “We have fought hard to build a sustainable and profitable company. We have the discipline to spend cash very efficiently to create profitable revenues.We say No to most things that don’t meet a very high threshold of efficient payback that will create high-quality revenue.If we had to spend $5M very quickly we’d probably waste most of it.”
  2.  “We know this first round of funding from big investors is very expensive for us. We boostrapped our growing SaaS business and now have an efficiently growing company that is already valuable. Why risk that?It’s not just the cost of dilution for us. It’s the loss of complete control, flexibility, and optionality we lose when we raise big funding from professional investors.We would only raise a big round of primary funding when we are confident we can spend this money and make it pay back with a higher ROI and less risk for us–the founders.”
  3.  “If we raise a big chunk of money now, we’re signing up for 3-10 years of aggressive growth to sell the company to pay back these investors. We’d only take their money if we were signed up to do that.We like having the optionality to keep growing our company and sell it when it makes sense to us, not some investors. We probably don’t have the same time frame and expectations.

And we might want to run this company for a long time and Get Big Slowly, which investors would hate.”

That’s what they are saying. Sounds reasonable to me.

It isn’t about raising funding because they can. Or because they will look cool and join the funded-founder club.

They bought their independence. They are very savvy about how to run their companies–and about the well-known risks of big funding.

It just doesn’t pencil out for them right now. Maybe it will, someday.

Most people don’t know this:

When a bootstrapped company with more than $5M ARR raises funding from growth equity, PE, or VC investors, most or all of that money is “secondary” funding that goes to the founders. They are selling a piece of their company and taking money off the table.

Because of the reasons listed above, a small amount of the big funding they just announced is “primary” investment that goes into the company to grow faster.

Founders rarely talk about this publicly, even to their employees.

More software companies are thinking this way these days about funding.

That’s a good thing.


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