To raise or not to raise, that is the question. If you’re asking this right now – in early 2023 – the answer is most definitely do not raise if you can help it. Investors are like sharks in the water. Now, a couple of years ago when we started CREx, the market was very different. We had to choose whether to bootstrap our business or raise money for our idea. If you ever wondered, “Should I raise money for my startup?” and you’re an early stage SaaS tech startup, this post is for you.
Should You Raise Money for Your Startup?
We’re taught that in order to have a successful startup, you need to raise money. You have to convince investors that your idea is so great that they must get in on the ground floor. And venture has grown as a result. Over the last decade or so, venture terminology expanded. There’s now a “pre-seed” stage and so many series that you need to practice alphabet bingo with your kids/ friend’s kids before even thinking about raising.
Many people will tell you that if you can raise, you should. I’m here to tell you that it’s okay if you don’t want to raise. In fact, many incredible businesses were started by founders who chose not to raise, like Sara Blakely from Spanx.
How We Thought About Raising
At CREx, we chose not to raise money for our early stage startup. Now, there are many factors beyond what I describe below. You also may look at angel or family office investment, which is very different capital from venture. Here was our rationale for not choosing to raise venture (at least, not in our early stage).
- We finally gained control over our professional lives by starting a company. Why would we want to give that up? Investors essentially become your new bosses. You report to them with at least some regularity, and they will eventually take money out of your pocket.
- How valuable do we think our company can be? If it’s valuable, shouldn’t we try to self-fund?
- Because we were first-time entrepreneurs with an early stage startup and little traction, we could not dictate investment terms. We already had revenue and were told that we “can’t” raise an angel round (this is not true, by the way). Based on the limited conversations that we had, fundraising for venture was going to be a lot harder for us. Many venture firms viewed proptech (property technology aka real estate software) as overinvested and business intelligence as unsexy (also not true per predicted growth). Our startup, CREx, is at the intersection of those two industries. Now, perhaps we spoke to the wrong investors.
- Regardless, women and minority led companies don’t have a great track record for landing VC money. We learned quickly that fundraising would take us longer than other founders. For example, I pitched to one VC that we were raising a $3M round with our annual recurring revenue (ARR) and a strong customer pipeline; we about doubled our ARR a month later. He said that he would only be interested in a $1.5M raise. Then, when I told him the other VCs we were talking to at $3M, he said to please send him the deck and he would consider it.
Not only that, I attended a happy hour event for founders and VCs a couple of weeks later. I spoke to two white, straight male first-time CEOs who were raising a $3M seed with less ARR than we had! And they already filled half of their capacity! Smh. - We had two separate consulting jobs that paid us a decent amount AND, more importantly, gave us massive insights into our product. If you can do this to self-fund at the beginning, do it and don’t look back. You will gain invaluable insights into what prospective customers want while getting paid and keeping ownership of your startup.
Now, scratch items 1-5 above: if we did not have the opportunity to get paid while learning about customer needs, we would have still needed to raise money for our startup. This may be your scenario. If you know that your startup is solving a legitimate problem and will create value, then raising money for your startup at the early stage is an absolutely valid path. And at some point in the not too distant future, we may opt to raise. Our goal is to only raise when we can dictate the investment terms. Inshallah!
Advice to Early Stage SaaS Founders
My advice is this: enjoy not having a boss for as long as you can. For female and minority founders, raise money for your startup only when you have to. OR better yet, raise when you want to because you get to dictate the terms.
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