Serious SaaS startup founders are starting to see how pursuing big VC funding too early will decrease their odds of success.
Like buying a lottery ticket for a bigger Powerball prize, the odds go down the more money you raise early in your venture.
This is not what the startup tech advisors, service providers, and tech media have been and are still telling us.
But the world has changed for SaaS founders in the last ten years. The old recommendation that “the best founders raise VC funding, it’s just what you do” keeps going despite the reality and facts.
The longer you can go without raising any outside funding or big VC funding, the better your odds of success are as a SaaS founder.
Here’s why:
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Time and Effort
Founders in the US can spend up to 50% of their time for 12-18 months learning the funding game, building their network, and trying to raise money.
In many cases, for B2B SaaS, they could have generated that much revenue with the same amount of time and effort.
And $1M in revenue is worth much more to founders than $1M in funding. Revenue funds your business too, but it keeps on recurring. Funders are looking for startups with efficient revenue growth anyway, so just do that first.
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Slow is Fast
Inviting VCs turns your business into a pro game with serious obligations, important terms, and additional pressures. I’ve played that game and I dealt with the pressure of working six days a week for 20+ years.
But you don’t have to push your business that fast and bet it all in the modern B2B SaaS game, in most cases. You can work much smarter by taking a slower approach to achieve better founder-equity-value results without VC funding.
I know practical SaaS founders with businesses that are growing by over 50% and are very profitable–and the founders don’t work all day.
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Better Risk-Adjusted Odds
When you raise $5 million and value your company at $25 million, you’re agreeing to aim for a half-billion to a billion-dollar exit, which is not realistic for 90%+ of software businesses.
It sounds counterintuitive, but it’s true. It’s hard to get up and running as a bootstrapper at first, but once you do, it’s a much better game for founders, customers, and employees.
I call them Practical Founders. It’s the hidden majority of software companies in the world. They have much better odds of winning this crazy game in the end and doing it their way as they go.
VC funding isn’t bad or wrong. There is still a place for rocket-ride startups to take it, go for it, and bet it all to go big. But big funding is still overprescribed by funders and misunderstood by most new software founders.
PS. This is the video podcast I did with Finn Thormeier last month.
Here is the full episode of the @Founder-Led Marketing Show.
– Youtube:
– Spotify:
#practicalfounders
