Ask HN: Bootstrap or take seed round of 1.5M-2.5M | Hacker News Reader

Ask HN: Bootstrap or take seed round of 1.5M-2.5M

4 pointscph_dev2 comments

We have a developer tool (it's a subset of agile PM tools) and have 600000+ total users with 180-225K monthly user sessions, It is offered as a free tool and few months ago we launched Pro/Enterprise plans as well, We still offer 90-95% features as free, Now we generate some revenue not much but we are able to pay all the costs and will optimise our pricing model in next 3-6 months.

We get some interest in the tool from investors and one is offering us a possibility of 1.5-2.5 M USD seed round. Is it wise to take the VC money or should we continue to bootstarp. We do not have a lot of expenses, 4 co-founders (3 developers, 1 marketing) all working part time on this tool along with our day jobs. All the development is done by ourselves.

With VC money we can leave our jobs and focus full time and hire few sales people, but we can achieve the same in 1 a year if we go little hard on free to paid conversion. Also we are based in Europe, and the VC is in USA, should we take money from local VC in Europe or it does not matter.

What are benefits of taking VC money and what are downsides, can some of you really tell us your personal experiences, it will help us to make the decision.

Thanks in advance

Only take VC money if you want to create a large company and sell it in a 5-7 time frame. Or go out of business trying...

The main reason you should raise seed money is because (a) you need it to build the product and (b) you are worried someone else could take your market and need to move faster. Otherwise, build the business (as opposed to the product) and then raise 7-10M to expand it.

A common pattern is that you give up 20% of the company and a board seat then spend through the Seed round much quicker than planned with revenue lagging expectations. Then either fail to raise the A (happens most of the time) or have to give up another 20% and control of the company.

The control issue might be subtle too -- one board seat for the seed, one board seat for the A, two for the founding team BUT the money brings in a new CEO who has the 5th vote. The board actually controls the company (even it you own a majority of the stock) and the CEO will side with the money when it matters.

I would prove your economic model (will your current users actually pay for it?) before taking any money. In fact, probably the first thing to do is just ask them (see https://blog.asmartbear.com/vetting-startup-ideas.html).

...

My experience was that we raised $700K because we needed to cover the business guy's salary based on a trial by a single large enterprise client and couldn't get anyone else to adopt. The investors were great but it would have been better for all parties if we'd done something else with our time and their money.

My final bit of advice is put your revenue and growth expectations in a spreadsheet and game out the no-money vs with-money scenarios. Then increase your expense numbers by 20% and cut your revenue growth curve in 1/2.

is it really seed when you have an operational product with significant user base?

sure you can take that money, but sounds like it is low risk and higher valuation than you might think - either ask more or give less.

whether or not you take VC money, I think, is largely dependent on the VC rather than the money. many startups didn't need money, but wanted the VC. other startups could've used VC money, but managed without it. the worst thing is taking money from a VC who doesn't share your vision.

I'm on the fence on this one, but I'm not experienced with VCs.

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