Ask HN: Should we seek funding?

I co-founded a consulting company that is at a turning point. We're fairly successful and have just under $1mm in revenue a year, of which we could consider $200k profit.

We've been developing a product for the past 12-18 months that is finally ready to launch. It is a SaaS product that will cost $50-75 per month. The market we are in is very competitive, but also very fragmented. I can honestly say that our product is great and it has been very well received while in beta.

This is a first company for the founders, so there there are no cash reserves beyond what the consulting company generates. We suspect we could raise $250-500k from small investors should we really try. We're bootstrappers by nature and would rather have our first business be a strong base hit than aim for the fences.

Should we accelerate the product with financing? Wait and do that later? Or continue on the 37Signals path?

To us, this is as much a life choice as it is a business one.

Well, you shouldn't rule out funding options.

It's up to you to do the math. If you stay on the bootstrap path, you own 100% of the company, and have a slower development schedule.

If you take financing, you give up some ownership in exchange for acceleration.

For most people looking at funding there is still a lot of "mystery". Can the team build the product? If they build it, will the users come? And so on. This leads to valuations that are highly speculative (lot's of risk involved), and funding terms that reflect this.

For your case, much of the mystery has been removed. This also reduces the possibilities of crazy-high valuations, but also gives you a lot more power in the negotiations.

My guess would be you might not be the traditional VC big investment big speculation kind of deal, but might look attractive to the lower-end of some of the super-angel sized deals. If your math is good, you could represent a good medium-risk investment.

If you really "only" need $500k and you've got $200K of profit, I would tend to think you could investigate debt financing instead of equity financing. Silicon Valley Bank might be one outfit worth talking to about this.

Only you can make that call. The formula is easy, but there are a few unknown variables.

Think about what you'd do with the money, and put together a realistic estimate of what you'd achieve that way. Compare that to a realistic estimate of what you'd achieve through bootstrapping. Then, figure the equity you'd have to give up, and do the math.

Another way to look the whole situation apart from bootstrapping gung-ho which I suggested earlier will be to ask yourself the following 1. Do you already have customers who have shown intent on using the product? - if Yes then it indicates that people are waiting for your product so there is a reason for you to release soon. If No then find these potential customers

2. If you already have a set of potential customers then reach out to them and validate whether they need all the features which you are planning to include in the first release? - If the features (the basic set) is less than what you had understood then you need to check how much money you need to get it out to the users. Again you are just validating your understanding and not asking the users for what features they'll want.

3. Do you have a kick ass team which anyone who you go for funding will ask you for? - This as mentioned above matters to anyone whose going to give you money

4. Is there competition to your product? If yes then how do you stand up against them?

Answers to these questions will indicate something and then on top of that you should add you gut feel whether you are comfortable or not with taking outside money.

Best of luck.

Awesome advice -- thanks!

Right now the product makes maybe $80k/yr. Not bad for something that hasn't officially launched, but hardly our companies key revenue source. We naturally would rather grow this than the consulting side of things.

I think what I am seeing in this thread is that it probably makes sense for us to hold on investment until a bit after we've launched. We'll learn more about what our growth bottlenecks are that way and what we really need.

It seems a bit premature at this point to take investment against our consulting income if we can avoid it. My guess is that we could probably get better terms if the product is doing well.