I don’t think there’s been a single larger change in the indie SaaS landscape since I started 7 years ago than the increased popularity of raising external capital.
From IndieVC and TinySeed to Pipe and Capchase, to more traditional debt funding like LighterCapital, there are a ton of new players in the space, and all have their pluses and minuses.
But instead of arguing the merits of one form of capital versus another I think it’d be more helpful to share how I think about taking funding at all for your company.
My Experience With Raising Capital
I can speak from some experience on this because I’ve run on both sides of this line.
For many years PodcastMotor and then Castos were entirely self funded. No external investors, no debt, just my hard work getting customers to pay us real money to fund the business and my lifestyle.
Then Castos joined TinySeed in their inaugural batch, and was a great experience. We subsequently raised $756,000 in a pre-seed round in May 2021.
I haven’t raised proper venture capital, and wouldn’t put it past us, but have been on both sides of the funding discussion.
Questions To Ask Yourself
Here are 6 questions you should ask yourself when evaluating whether taking additional funds into your company is the right decision for you:
- Are you confident you can get a positive ROI on spending that money in the next 18 months?
- How do you feel about being accountable to someone else?
- What are your goals for the business? and your life outside of the business?
- What’s the long term goal of the business?
- Can you achieve those goals without funding?
- Is your personality compatible with taking funding?
Let’s dissect these a bit further:
Are you confident you can get a positive ROI on spending that money in the next 18 months?
Don’t take money just because the cool kids are doing it.
Take money because there’s an opportunity in the business that you just can’t capitalize on without additional funds.
And here’s the key: that opportunity has to be really tangible, measurable, and time bound. Something about your business has to have this “one time” potential that you just have to be able to capitalize on now.
In normal economic times you want to deploy the capital as quickly as possible (while still being responsible, of course) and let it go to work so you can see growth in your business in anywhere from 12-24 months. Let’s call it 18 months for simplicity sake.
How do you feel about being accountable to someone else?
When you go from being entirely bootstrapped to having investors (even Revenue Based Financing like Stripe Capital, Capchase, or Pipe) you can’t just do whatever you want with the business anymore.
Even if your investors haven’t taken a board seat you are accountable to them and your goal with the business is to serve their best interest (to some extent) in addition to your own goals.
It becomes a balance that you as the founder must maintain.
You’ll likely need to start writing monthly investor updates.
Your longer term goals may need to be tweaked a bit, and many decisions you make will need to run through the filter of your investors.
What are your goals for the business? and your life outside of the business?
Do you want to run a Lifestyle Business and just take a ton of cash out of the business each year? That’s awesome and there’s nothing wrong with it. But some types of investment you take will not think that’s as cool as I do.
Side note: it’s one of the best things about investment vehicles like TinySeed is you can take funding but still decide you want to run a lifestyle business and pay yourself handsomely each year…it’s not an “all-or-nothing” binary kind of decision you have to make. Want to pay out a distribution to yourself, no problem, they’ll just take their cut. Totally reasonable.
What’s the long term goal of the business?
The second you take outside investment then some sort of clock starts ticking on your business.
This doesn’t necessarily mean that you are going to have to exit and sell the company completely, but it does mean that some future financial decisions will be made with your investors in mind.
If you are building a lifestyle business that you’ll want to run forever and can’t imagine ever selling or having some kind of debt responsibility to investors then I would definitely NOT take on outside capital.
Can you achieve those goals without funding?
If there is not a resounding HELL YES to this one then please don’t raise money.
In all honesty we’ve done a bit of both. In some senses we’ve put our capital to really good use. In others we’ve not capitalized on those opportunities like I would like to.
While the outcomes of your business are impossible to foretell in the future you should have a very clear vision of what this capital will do for your business, how you’ll deploy it, and what the expected payback period is.
If those paybacks and business achievements can be accomplished without raising outside capital then retain that control and optionality over your business, and don’t raise.
Is your personality compatible with taking funding?
This one is interesting, because having investors and people who you as a founder are accountable kind of changes how you behave.
I have this “F the man” kind of streak to me. And I think I’m not alone…why else would we be entrepreneurs?
We believe we can do it better and faster than anyone else, and as such taking a part of your business life and making it have to report to someone else can be weird. Investors are a sort of “boss” you have in your business.
For some founders this would be the first boss they’ve had in a long time…maybe ever for that select few who are lifelong entrepreneurs and have never had a real job.
To “have to” respond to an email, take calls when asked, and provide timely updates is not a big deal to me, but to someone it might be, which is why I include it here.
It’s A Personal Decision First, A Business Decision Second
I have taken dozens of calls with founders who are looking to join programs like TinySeed, looking at Revenue Based Financing, or other types of outside capital. In each of these I start the conversation by asking why they’re considering this. It is always something that you as a founder will have to “live with”, so make sure you’re cool with the questions posed above from a personal perspective first, and then see if financing as a “tool” is the right thing for your business.
If financing seems like the right tool for your business but you as a founder aren’t compatible with it then it’ll be a terrible experience.
Would I Raise Capital If I Had It To Do Over Again?
Yes, for sure. It was both the right fit for me personally, and something that really helped the business. It’s been a great experience to be funded by TinySeed and in our pre-seed round. Our investors are great, supportive, and a big resource to me as a founder. Not just from a financial perspective, but are a trove of experience and perspective as I navigate this part of my entrepreneurial journey. Thumbs up all around.