Would you ever raise money for your indie startup? 📊
I'm curious how you all feel about fundraising nowadays.
Raising money has always been a charged topic among bootstrappers, but I suspect it's becoming less so as more indie-friendly funding options arise…
Or maybe not? 🤷🏿♂️
Let me know what you think in the comments!
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I used to say I'd never raise a round. However, I'm really eating my words on that one. We are in the middle of raising funding for my startup.
I had very similar feelings to others in this thread. I had no idea what I'd spend the money on if I did raise a round of funding. However, in May we really doubled down on business planning, and measured the inputs and outputs. At this point our MRR is greater than 10k, and we feel very confident that we have product market fit. Our goal is to become a well known industry leader, and this was just too hard to accomplish with a budget of 10k a month(plus we'd like to be able to feed ourselves as well). When we ran the numbers, it was crystal clear that it was in our best interest to raise a round.
I'd recommend for all Indie Hackers above $5k MRR, to be constantly creating/reviewing a growth plan. Your numbers may point you to never raise and that's okay, however you may find yourself in a similar situation where giving away a small piece of equity could lead to serious growth.
Do you know how much you are going to raise at this point or is it a moving target?
Having done the VC backed thing ($8M) this is my new perspective:
How do you discern "dumb" money from "smart"? In other words, which factors play at your "heartbeat" decision making to determine which VC is dumb and which one is smart? In your words?
It's not a heartbeat decision (which, frankly, I'm not totally sure what you mean by that). I meant I would take their money immediately.
Call 3 founders they've invested in in the past that are NOT on their website or in some showcase of their success stories. You want to talk to a founder where there was a real test of the relationship.
Ask exactly what the investor did for them, particularly during the rough times. Did they make intros to your first 10 customers? Did they pick up the phone at 3am when you were having a nervous breakdown?
You'll find 80% of them don't do anything but put money in and complain to you every year when they need a K-1.
You'll find most of them don't spend any time on the low performers in their fund. That's not the kind of person I want in my corner when shit goes down.
You need to do as much diligence on your investors as they do to invest in you.
@andrewpierno totally agree with you!
Hi @andrewpierno, I’d love to know who the smart investors you know are! Great advice below but I’m curious who you specifically like. I agree that great investors can be part of your team and I’m interested to find those.
Having raised money for another startup I did a bunch of years ago, I am a big ole NO (bootstrapping all the way!) on this one.
Why?
Raising money is DISTRACTING. It took our eye off of the important stuff like community and user experience and, well, MARKETING.
Raising money made us compromise on so much. We were constantly changing for our VCs (when we should have only been listening to the community).
When we started the previous company, I had a wonderfully flexible, growing speaker career. I was told to give it up to show commitment to VCs. Doing this took away all of my income and took me off the speaking path. It made me even more reliant on VC funding. I have so many regrets about this.
This time, we're bootstrapped, using profits from our agency to build Phlywheel. It makes us smarter about how we spend money and leaner and we make decisions more deliberately.
I'd like to say "no, I'm definitely bootstrapping" because my goal isn't to create a company but to get enough income that I have creative freedom to work on whatever music/games/apps/etc I want without worrying about money.
I voted "unlikely" though because never say never, I guess 🤷🏻♂️
I used to think this. My mind changed when I did the math and realized that if I grew the company quicker and sold it tomorrow, I would have more money AND time sooner than if I slowly built a lifestyle company.
My company is making over $2.4 million a year right now. My math is that with a $600k seed I can generate an additional $7.2 million within 1 year. Then I’d have all the creative freedom in the world and not have spent 5 years to get it.
So now I’m starting to talk with investors lol.
By making do you mean revenue? Or profit? In either case, why is the seed round so small relative to your revenue?
SongRender looks awesome!
Honestly it doesn't work like that. You'll get in a trap because you don't have enough money, and then you'll have much less freedom as your bank accounts drifts down into the lower economic classes of society. I have been an indie hacker entrepreneur for 12 years, it's better to go big (while not working too hard).
This. Embrace the alpha energy and bust some heads (figuratively).
I agree 100% on this.
My issue is that I've been "offered" $300k and I have no idea what to spend it on. I'd really like to either work at a fast growing startup for 18 months to 36 months.
Could you take the $300k to hire someone to do your job? And then go work at a fast growing startup yourself?
i) With that story you have good chances to get hired at a fast growing startup
ii) You can always go back to your business if it develops well
iii) You might be able to have some passive income on the side
Same here, hiring comes with it's own set of challenges that I'm not 100% sure I'm prepared for. It so much easier to run a start-up with you are a solo founder, but I could imagine that also being a limitation of growth at some point.
Just read "Blitzscaling" for a well organized course on capital inefficiency.
Basically, take half and give it to Google, Facebook, etc
Take the other half and set it on fire 🔥.
Looking at US tech salaries, that's just enough to pay yourself a salary for one year plus benefits such as retirement and healthcare, plus just enough to cover administrative costs and employer-side taxes. For one person for one year. Reality.
I live in LA and pay our devs LA salaries. No dev is at $300k...
Employer overhead is like salary +20% for benefits, etc.
Sure, but if you paid your employees like Facebook. I've been an indie hacker entrepreneur for 12 years now, and I wanted people to understand that if they are one of the lucky 10% who "succeeds", they'll most likely be much poorer financially compared to taking a job in the United States. You can take your revenue and divide it by 2 to get an equivalent salary. However not matter how often I say this nobody believes me.
I'm not sure I understand what you're saying.
Don't understand or don't believe? Simply put for someone from a country with high salaries, indie tech entrepreneurship even if successful will almost always make that person much financially poorer than having a job. You will be competing with other entrepreneurs in low cost countries such as Eastern Europe and Indonesia (where my competitors are located). Most people here come from well-off families and are very well educated. Yet due to their miscalculations, they're setting themselves up for financial misery. It takes years before a startup is profitable (if it is) and then you have to subtract out all kinds of other costs from your profits. That's why I say take your revenues and divide them by 2 to get an equivalent salary. For example, I have over $100,000 in profits each year recently, but can spend only $3000 a month (for 2 people) and haven't had health insurance for the last 13 years. The other money goes into taxes, retirement and savings which are a must given I have no benefits and am not eligible for unemployment. To put into perspective how little money that is, a one bedroom apartment in a big city in my country costs $2000 plus utilities. $100,000+ is enough money for that and food. We don't really have any valuable posessions or any cars either. $100,000 in income, and I am the poorest person in my entire extended family of 20 adults.
Just didn't understand what you meant.
I think I do now.
I know the negatives you outlined are your lived experience but the difference between a 100k a year job and a 100k a year business is that you own it...
In theory you can sell it for some multiple of yearly revenue.
or hire someone to do the work and get a job yourself if you really want to.
or figure out how to push through the current ceiling you're at.
but the idea that owning equities (building a business) is NOT a path to wealth is just not true.
I get the sense that you're stuck or feel stuck, but what you've done is actually really amazing.
Thanks for understanding Andrew.
Yes in a way stuck because my different sites (good ones) over the years have provided me enough money to keep me from doing other things as it's hard work. I coped for a while in the past by only working when I didn't have anything else to do and joined other failed startups. That was a mistake, and for the last couple of years I have been working hard and it was just starting to pay off with $23,000 in monthly profits (again don't compare this with a job salary) and rising. Then coronavirus hit my sector the hardest.
However my main point is to warn people that indie tech entrepreneurship is almost always like throwing your life away. The exceptions to that are so rare, it's better to not even mention them.
University studies show that the #1 reason people choose entrepreneurship is their brains miscalculate the risks and returns. That's why I have to keep repeating myself, people here use your intelligence on something productive and calculate your risk and reward properly.
You've won me over. I agree with you that most people should not be entrepreneurs. and I also think the downsides/risks are not talked about enough.
There is no way any investor is going to agree to let you take out 300K per year in a startup unless its Series B or above and has $10m in ARR. Investors expect you live comfortably but frugally.
Of course.
It's so interesting to see how "startupland" has changed. A decade ago, raising was almost seen as the only indicator of success. Everyone was banging on about how much they raised, and at what valuation. But I think there are increasingly many of us now that are against the "growth at all costs" mindset...
I voted maybe, it's gonna depends on the development of Logology. If we can grow without any funding, we'll go that way. If we find a good opportunity to grow faster, then why not!
If you decide to raise money you should know exactly how to spend them, if you decide to raise money to hire new people you should already know who to hire.
If you don’t have a well defined plan your work will become “ how to spend investors money” instead of “hoe to grow my company”
I have a cushy enough day job that it probably wouldn't be fair to my family to take funding and go full time on my side project. Most of the recent crop of funding-for-bootstrapper type funds seem pretty geared around an okayish salary for 1 year. I think I could eventually get to salary replacement level with my business, but I'm not confident that I could do it in one full-time year of work. I think I'd probably need a 2-3 year salary guarantee to make it worth the risk. If we keep on our current trajectory (with W-2 jobs), we'll probably retire young in 8-10 years anyway and I can work on whatever I want at that point.
Stay in your current jobs, save and retire! :) As you're in the US and likely earning $100 an hour of actual work after you add in your job benefits such as retirement, health care, leave and so on, it would not make sense to spend any time at all on entrepreneurship which pays you at the poverty level. I hope you are visting Indie Hackers on your employer's time and not your own, and I encourage you to use your life productively even if that means not losing your time to entrepreneurship.
This is a very strange sentiment and very out-of-character for the community. I think you're in the wrong place with that attitude.
I would personally rather make poverty wages working on something I own than make a good salary working for someone else, but that decision impacts more than just my lifestyle at this point. I tend to flop back and forth between indie dev and W-2 salary, but my current gig has struck a nice balance. I'm W-2, but only 4 days a week. I work on my side hustle on Friday (and nights and weekends). It's a nice creative outlet that makes the less interesting work more palatable.
I could make higher salary if I were more client-facing or higher up in the consultant stack, but then I'd probably have to wear nicer clothes, deal with more assholes, and work more hours. Compounding interest is going to have a lot more to do with when we get there at this point in my career, so it makes more sense to optimize for day-to-day happiness.
Hi Will, I'll take that as a compliment as to me that's a sign that my insight seems to be needed in Indie Hackers.
I just looked into IntroCave (amazing!!), your interview and financials. I actually didn't realise you had already started in business. You have a lot of talent with video and I can see your passion in your work.
To be honest I would say the business is in distress. You could tell me you're ready to pay off your investment in just 2 more years. But the way I do the calculations is a bit different. I can see you've spent a tremendous amount of time and effort, not just in making videos but also in all kinds of complex marketing. I'm going to just guess and say you work 15 hours a week on this. I will now add in your hourly rate of $100 per actual hour worked which sounds high, but that includes all the other benefits your get from your job as well as some allowances for business taxes, fees and paperwork. So 4 years x 50 weeks x 15 hours per week x $100 per hour = $300,000 US dollars that I believe that you should add into your cost equation.
I hope this helps. I have been solely a website entrepreneur for the last 12 years and also have a Masters degree in Technology Entrepreneurship from a top university.
Seems most people (I don't mean you) don't consider the extra costs, insecurities, and lack of benefits that come with entrepreneurship and that's just bad mathematics. Most people here seem to deeply believe in bad mathematics that leads them to take bad risks and become long-term financially poorer. It's often hard to get people to see that. I'm trying to help people think more clearly about some things that are usually wildly misrepresented in the entrepreneurial community.
Your degrees are not meaningful to the conversation. Your "cost" equation is naive to the point that it seems you're trolling for the fun of it.
You're telling people in an indie hacker community to get day jobs. You may be right! I don't think you are, but you're entitled to your opinion even if it seems to be proffered in bad faith.
You wouldn't join a birdwatching community just to tell people that birdwatching was a pointless waste of money and that their weekends would be better spent working at their day-jobs.
I am shocked by your response and hope that we can deescalate this conversation.
It is unfair and incorrect to accuse me of trolling and of doing things in bad faith when I have done nothing of the sort. All I have done is volunteered to help you. I am sorry that you disagree with me. However disagreeing with me is not a reason to call me a troll or say that I am doing things in bad faith. It's also unfair to be called naïve.
What motivation would I have, as someone who is both experienced and in some ways an expert in entrepreneurship, in misguiding people? That wouldn't make any sense. I am trying to help people make the right choices and to better evaluate risk and reward from a financial perspective.
In the example of your business, I can see it as a viable career choice for someone from the poorer regions of Eastern Europe or Southeast Asia. However purely from a financial perspective, you have an extremely high salary plus benefits, especially compared to people all over the world.
Doesn't it make sense to factor in your own salary plus benefits and overhead into the equation? Obviously it's unethical to have to work for free or for a low salary. And also obviously, transitioning from a very high salary plus benefits to a zero salary, low salary or negative salary without benefits is a big problem.
I believe that you should be normally compensated because I'm not so convinced that this is just a work of passion as you have invested over $100,000 US dollars into your business. I am confident that you did this in expectation of receiving a positive return and not just for fun.
I have also had my share of times of distress with my businesses. I'm also American, and when I first went into business a dozen years ago I thought, it would be 2 or 3 years and then all would be good and then I'd move on. I made the same miscalculations like everyone else here. And what do you think happened to me in the long term? Even though most of the time including now I've had profits over US $100,000 per year, for some reason I've always been worse off financially than having a job. In fact I believe I may be the financially poorest adult in my extended family of 20 adults.
But in this community and online, I'm would be considered a star entrepreneur. Huh?
That's why I'm volunteering to help other entrepreneurs because I have figured out what I believe is a better way to calculate a proper expected salary and to better value time. It's to help people not become poorer in the long term.
Of course I wouldn't advise you to quit your business as it could generate passive income for you. However you must decide if it's worth it for you to use more of your valuable future time on the business. I and other community members would be glad to help you with that decision. Maybe we need to look at your marketing channels, growth opportunities, and customer experience and see if there are any opportunities for achieving the kinds of growth multiples you need to justify a further investment of your most valuable time.
Fascinating comments. So my thoughts after working at a big tech company and dealing with plenty of bull*^%# there is that I’d rather try building what I want and take someone else’s money to do it. There are no free lunches. Even if you’re an amazing developer, you still need other people to grow anything. You need capital to live and pay others. It just so happens we live in a world where some people have a lot of money and they’re willing to take a risk with it. Because if you don’t work money it’s useless. People sound so down on VCs here but these people lose money too. They’re taking risks and trying to put capital to work to build value just like founders are putting sweat equity to work. Everyone risks losing. I guess for me, I’d rather take investment because a) I don’t have it and b) I’m trying to build something that may not be profitable for some time. I think taking VC is all about the kind of business you’re trying to build. And that has to determine your approach. But, that said, I’m just waiting to find out all the things I don’t know yet... 😋
I'd only actively fundraise if i decide to actively (1) lose my family (2) lose my mind (3) lose the respect of the people that i admire (3b) lose 30 (unhealthy) pounds (4) end all enjoyable aspects of starting & running a business (5) watch my community dwindle (6) start smoking again.
I am boostraping, but I think every startup need raise money from angels once at least in their lifetime. If I get money now I would use it to pay the salaries of my cofounders and me, so we can focus 100% in the business
Recently going back and forth on this as I got some bigger offers (6 and 7 figures). I think it distracts me too much and adds a burden: the shareholder. Went into my reasoning of not doing it right now in a video dedicated to this
https://youtu.be/XrbPnawWjKE
I feel it all depends on the context. I’m not actively looking for fundraising and definitely live by the bootstrapper ethos. But if a wealthy friend wanted to throw some cash in and support the cause, I think I’d be OK with that. I would be closely looking at terms of the agreement though, ensuring I retain freedom and independence. Otherwise no deal since it’s not something I’m actively seeking anyway. That helps put some leverage in my court as well. I dont want or need your money. Would it help, sure!
I'd rather not. We have scratched a few of our business ideas because of this.
However, if it's what the business needs I would.
This makes me though of a meme
*if you don't use a meme, here is the origin
Tried about 200 VCs and a few dozen angels, unfortunately at a time when we hadn´t much to show beside words and plans on paper. Naturally, we got rejected by 99%, and the last percet at least talked to me but we never received any money.
Beside bootstrapping, government schemes are a good idea. You don´t need to give away equity with them
Your recent podcast helped crystallize in my mind the cultural motivation of VCs prioritizing growth, and how that pulls companies towards 1 of the biggest reasons startups fail; inability to grow sustainably.
My grad school has an incubator that I'm researching, but I assume a coming deal-breaker will be how their online documentation seems to shepherd all startups towards VC funding.
I have realized that a lot of the intelligent people I know going entrepreneurial, including startups that have nothing to do with tech, likely came to that from the same frustrations I did; a desire to use one's brain power to innovate in an organization will eventually endure people who oppose even the most obvious improvements, and their opposition usually comes from the fact that...most people are below average. :-) The longer bright people stay working under ladder climbing dullards, the more their work to help end-users gets directed into unproductive, unintelligent, even foolish goals. After a while, so much of their innovative, creative spirit gets misused that they're rather risk being an entrepreneur than continue.
So the idea that I would give away equity only to risk losing too much control to some new below average mind with foolish demands? In a venture I'm even more personally invested in? That just sounds like a nightmare. Especially given how many stories I've heard of VCs wanting to grow over creating the most conscientiously focused product for customers.
I would not. Because If I would, I would also be hiring peeps and turn into a startup.
Sometimes it's not an option to raise or not. If it's a hot enough investment, one of your competitors is going to take that money and pay more for talent, drop their prices, and run you into the ground.
Once a while I get offer but I am still on this journey and want it to be this way for a while. So, I would go with unlikely. Maybe in the future there will be some unforeseen issues that could be only solved by getting funding.
Hi Courtland, I've dipped into raising funds (to get an understanding of the landscape, what's involved, required and so on), and two things are obvious:
The other issue is the risk-averse attitude here in England — the stiff upper lip has long been replaced by the quivering lower lip.
Whats the attitude to raising funding in the UK. I know brits are more risk averse than the Americans but I assume they are less so than other European countries right? I am a Brit but its been a while since I was in the UK.
As I understand it — and please don't assume this to be an absolute — based on what I've been reading and the various conversations I've had, if we look at this as a spectrum with an aversion to risk left and risk-philia right, Britain is far left, USA is far right, and Europe is right of centre.
I wonder if tax structure plays into this? If you invest in a startup and it makes a return, your tax bill in the USA is 20%, which is far less than normal income tax. How is it in Europe?
I would imagine tax has some role, but I feel it's more an aversion to risk.
You’re right - it’s probably a multitude of factors.
It's been a battle in my mind recently. To raise or not raise. I read 'Company of One' and felt growth can be seen in many ways. Growing organically sometimes takes longer time. So this gives an upper hand to competition who raises funds. Should one look at raising funds for ads / marketing / sales?
Always take the money, even if you don't know what you would use it. You will figure out eventually.
I go back and forth on this. I get the idea that at the very least, you might as well have it sitting in your bank account. That said, the downside to taking when you don’t need it or necessarily know how to spend it is you start to lose your discipline. For instance, let’s say you thought about spending ads on LinkedIn but never did so bc you weren’t sure of the ROI nor the exact mechanics of how to get an ROI. Now that you have the extra money, you might be more willing to try it out and they end up being a time waster away from your core activities that produce ROI. Not saying that this always applies but I could see how fiscal discipline and time discipline can be related.
I understand what you mean, but in business you always have somewhere to spend money, sometimes it will be well spend sometimes not as for everything. Money will have you grow faster. For example, for my current project I don't need money to grow it, but with money my growth would be X5 or X10. I would accomplish the same output just much faster. We all have limited time. Also, if somebody gives you money for me that proof that you are doing something really good.
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