I talked to a bootstrapped SaaS founder today who asked me, “Should I raise a little funding this year?” Here’s his situation, my questions, and my recommendation. It always depends.
I know this founder well. He has boostrapped a vertical SaaS business to $3M ARR and has been profitable along the way.
They had some internal bumps in the business last year and grew slower than he wanted. That’s fixed now.
It’s a hot market that is forming very quickly, with active partner relationships and acquisition pre-discussions already.
He has a clear plan to grow the business to a certain size in the next 2-3 years and sell the company for a certain range of exit value. No outside investors.
Why would a founder of a profitable, bootstrapped, growing software company consider funding if he wasn’t desperate for cash?
“I want to grow even faster to be bigger when serious acquisition discussions come up in 2-3 years.”
If his company could grow twice as fast and sell for twice the valuation in a few years, some added funding fuel might pay off well for him.
I asked him about his base plan for 2024 and where he would invest to grow:
- What growth and profit can you confidently achieve without any outside funding fuel?
- What are the upsides and downsides to this plan? Would a skeptical and savvy investor think it is achievable or even “conservative?”
- What are the few things you would invest more of your own profits/cash in first to grow faster than your base 2024 plan?
- How confident are you that increased spending from outside funding will create a level of high-quality revenue that you could only achieve with that extra spending? Would you bet your company on that?
- Do profits matter to an acquirer or just revenue size and growth rate?
- What’s the minimum number you would sell your company for someday?
We got through all those questions in 30 minutes. He had answers to some of these questions but not all of them.
Ultimately, he understood that he wanted to grow faster but he knew he could do more within the business without raising any funding.
The time and energy he would spend on raising a little funding could be invested to get better with what they have this year.
Any angel funder, VC, growth equity investor, or SaaS debt provider would ask for his base financial plan and what exactly a new plan would look like with more funding/spending.
Since he’s the self-funder now, that helped him see how he could be thinking about investing a little more of his own cash and profits–before dealing with outside investors.
I know he wants to grow the company faster and make up for a challenging year. I know he has founder friends who are raising VC rounds.
Outside funding didn’t make sense to him right now, after our discussion.
It’s a really high bar to consider raising outside funding if you don’t have to.
#practicalfounders
