6 investors contacted me to put money into my new SaaS. Here's why I said no.
Do not index
Do not index
This article was first featured on getlatka.com
Since I launched my new SaaS (angage.net), 6 investors reached out to me about possibly investing in it.
To give you some context, I’m a solo founder and I do everything in my startup (from coding to marketing to handling customer support, etc).
These potential investors are relatively small investors. Some are just users of the product, really satisfied with it and wanting to contribute. Some are “professional” investors who invested in several startups.
While I would have liked the money and I was already thinking about how to spend it on different marketing activities, I politely declined all the offers.
Here are a few reasons behind my thinking:
First, let me address a common misconception. The money that investors put into your business is not your money. I know this is very basic, but we need to understand that investors are looking for a return on their investment. That’s really all they care about and from the moment you take their money, they will hold you accountable for that.
Being a solo founder, I am responsible for all my choices and I’m more willing to take risks because I own 100% of the good and bad outcomes that my choices produce. If I was to take money, I would have to undergo a big mental shift where I would also be responsible for other people’s money.
Here’s another common problem. As I said, investors will hold you accountable for your choices. That’s the way it should be because they effectively become your business partners. In my experience, most investors (above all if they are inexperienced) actually go past that point and they will stress you for updates almost every day.
I don’t mind being diluted of shares, but I do mind being diluted of what drives me: my passion, my curiosity and the freedom to work on whatever I want at any time without having to ask for permission from anybody.
We are entrepreneurs and we make things to have freedom, not to find ourselves another boss.
It’s common practice that investors evaluate your business before investing. Well, you should also evaluate them back. Do you know their track record? Is this their first experience investing in a startup?
For me, good investors are not just a commodity. Can they be an asset to you not only economically? Maybe they have some experience in a certain field in which they can advise you. It might be that they have some assets or other companies that you can form a strategic partnership with. Don’t look for the money only.
Also, investors are not all of the same kind. There are investors who are looking for a long-term return that can just give them extra money for life. There are investors who are looking to cash in on their investments as soon as possible and are looking for companies with exponential growth. Each type of investor is good for a different type of startup, so you need to consider that.In my case, investors were not a good fit.
My startup currently is small, and I am at about 2k MRR. I started it in late December 2017 (as I write this we are in mid-March).
Because my startup is growing month-over-month and it’s in the very early phase, I don’t think it is a good investment to have investors on at this point. My startup value is increasing month over month while investors would put money in at a certain fixed evaluation based on the current value of the startup. Since the evaluation of my startup is increasing, the investment itself will keep losing value.
A common objection at this point is that with investors’ money you can actually scale your startup and therefore increase the valuation in a shorter period of time. For that, I’m considering alternative investments that don’t require money to potentially produce more money. One thing that I like very much is performance marketing/affiliate marketing. I think of affiliates also as investors because they are putting money up front to cover acquisition costs for you. Yes, you do pay them on revenue share, but they do not own any shares and they are very invested in the business because if they don’t produce results they do not get paid.
It’s common and almost a rule for the majority of founders that, if you have a startup, you need to get funding. Money can certainly help most startups grow faster, but what if you don’t want to hit big and cash out?
In my case, I don’t want my new project to be a million dollar business. I just want this project to reach maybe 10k MRR and have it fund my lifestyle (and dreams) month after month.
This is, of course, a choice you need to make for yourself. Are you shooting for that big hit? Do you want your startup to someday become a unicorn? Or do you want your startup to support you in the long run? Whatever it is, while you decide, remember your “why”.
I’m doing this to avoid the conventional path that society wants me to take, which for me is teaching music to kids in a public school. I’m a musician and I studied since I was 4 years old to become a musician and play in front of people. I don’t want to compromise that. I don’t want to go teach in a school just because playing live is not sustainable economically (at least for me). That’s why I aim for my startup to support me and I don’t care about doing 1M MRR.
Because of this and because I do everything myself and that keeps costs extremely low, I can invest some of the profits in improving the service, the product and getting more customers.
Angage is not my first rodeo. I founded another startup previously, which I started two years ago. With that one, I decided to get help and investments really from Day One.
While the investments certainly helped to make the product better in a way that I never could have done alone, that did delay our go-to-market strategy and eventually accumulate debt for the startup. That is basically why I now advocate going to market as soon as possible with a minimal version of your product (MVP).
The other big error I made was not having anti-dilution protection in place. So since investors had more money than me, they basically diluted me to a tiny piece of shares. I invested a lot of time in this startup so, at that point, it hurt so much that I gave them all the remaining shares.
To conclude, my rule of thumb when deciding on investments is: Look at opportunity cost; raise investors money if you already have plenty of money. Use them as an economic lever so that you know you can do other things with your own money. In every other case: bootstrap.