This year, there has been more discussion about practical “One-and-Done” rounds of angel, pre-seed, or seed funding for startup SaaS founders.
But it usually ends up being “More Than One and Never Done,” which adds far more risk for founders and doesn’t end well.
Like “just one drink,” once you’ve started this game of selling a piece of your company for funding to cover your negative cash flow, you started on the addictive drugs of outside capital.
It takes serious discipline to start a software business efficiently without dependence on outside investors. You must fund or build the first product yourself, get revenue started early, and be crazy frugal.
Bootstrapping and self-sufficiency are not what they preach at accelerators and ecosystem events. There are funders waiting on the other side, of course.
One And Done funding is one step up from “no outside investors at all.” Just a little funding from friendly angels is the usual method. Get over the early hump and be cash flow breakeven after that, forever.
If you don’t have any outside investors, you can grow your company at your own pace and even decide never to sell it if it grows profitably.
Taking ANY outside funding means you have to sell your company someday to pay back your investors. You need to do as much as you can to make an exit happen successfully. Their funding wasn’t a donation (in most cases).
The first step up from that is “just a little outside funding” from friendly angels. These days, this is usually between $200K – $1.5M in checks from local angels and individuals.
At this point, you and your investors need to be clear about which funding game you are playing:
- Is this a little One-And-Done funding at a practical valuation so your investors will make money if you sell your company for $30-$50 million?
- Or is this “Just a little funding now, but I don’t expect to be cash flow breakeven for a while,” so you’ll raise more and more?
A real One And Done is like bootstrapping +.” Your true DNA is crazy efficient and cash-flow neutral.
The fake One And Done is not as disciplined. You are not confident this funding will get you to cash flow neutral. You spend half your time thinking about your funding pitch and lining up your next investors. You’re on the funding drugs.
For SaaS founders, the real and fake One And Done approaches couldn’t be any more different.
Every time you raise more outside funding, even just a little, you divert your own focus from your business–and raise the valuation bar for a successful exit.
I can tell which One And Done funding approach a SaaS founder takes just by talking to them. I’m skeptical when a founder tells me, “Just this once.”
A real One And Done approach can be very helpful for practical SaaS founders.
It can be friendly funding without big board meetings, unhealthy growth expectations, and other distractions.
It’s just harder to do “just once” than it looks. I see it every day.
#practicalfounders
