Ask HN: What are some good strategies to self-fund a startup?

Keep your day job and start selling your solution before you build anything. Get 10-15 companies to sign the dotted line for your saas and ask them to start paying in Month 1. Then hustle on your off-hours to build the solution and get it out as soon as possible to validate if you're solving a hair on fire problem.

The great news w/ this approach: If your solution is a true painkiller, then you will have an easier time convincing each next prospect to sign up.

Ideally, you get to a point where you're making $10K MRR ASAP and growing WoW by atleast 20%.

Do NOT consult. It's a distraction and eats into the time you should be spending building your product or selling your solution.

My cofounder and I went through this process illustrated above before we quit our jobs. The one big mistake we made though was to quit our jobs after only signing one customer. If we could go back, we would have had atleast 5 signed contracts before quitting.

Also, don't waste your time w/ lawyers. Just use Stripe Atlas for all that jazz (ideally after you've got folks interested in using your solution)

Lots of us have tried this, and I bet many of us found that rather than being able to work on your product, we found ourselves caught spending all our time finding the next consulting gig to put food on the table.

The people I've seen find success with this model took their proceeds from consulting and paid someone else (affordably) to build their product. It might not have been exactly how they would have done it, but it got done.

I've also seen people be very focused and take a couple months, burn some savings, and get a product up and running, and then pick up gigs to keep themselves afloat. Don't underestimate the cognitive overload when you are trying to keep a client or two happy and you are trying to build your own product and get it marked at the same time.

If you have a good working relationship with a business partner or two, it can make all the difference. Likewise, if any of your are married or in long-term relationships, do not overlook the importance of maintaining those as starting companies and/or basically holding two full-time jobs while you bootstrap can put a lot of strain on things.

We are both married with kids, so I definitely have to manage my time correctly.

Sorry if it wasn’t clear, we were thinking of doing contract work until we built up enough money, and then quit the contracting business and work full time on the startup.

At least for me, there’s no way I can hold two full-time jobs, it would eat into my family time too much.

>we were thinking of doing contract work until we built up enough money, and then quit the contracting business and work full time on the startup.

Awesome if you can do that. It's possible I never had the network I needed to really thrive, but the few people I saw do really well in contracting were parma-temps, IE: they basically left their previous full-time jobs and became full-time contractors to those jobs. My own experiences over roughly a decade were that you can spend a whole lot of time having to chase the next client, and just when you think you are starting to really set aside some good money here comes another little downturn or break between projects.

Keeping your day job and finding ways to get the product bootstrapped on the side is hard work, but I've seen more people find success that path. Frankly, the most successful people I've seen already had a nest egg from hitting the birth lottery or from a windfall in their day jobs.

Keep the day jobs - one thing that kills startups is lack of runway, and without your stable day job, you are burning a very short runway. Consulting to pay bills is going to dilute your time away to nothing, even more than the day job would. Better to just keep working where you do, and grab a few hours a week to start this as a side gig. When it makes enough to replace your day job, that is the time to make the switch.

My friend and I did something like what you propose (selling services and working on a product). It was hard and slowed us down a lot.

Consulting work is a business all to itself. Tacking a startup on top of that just complicates matters. Got a family? Well, you won’t see them much.

If I were in the same situation, I’d keep my day job and spend my spare time working on the product. This approach would cover living expenses, compartmentalize my tasks, and allow me to put all of my non-job hours into the product.

Like you, we tried to start our company the “right” way. That too was a mistake. If I had it to do over again, I’d skip the lawyers and accountants and just try to make a product people wanted to buy.

If you can achieve product-market fit, funding and all of the business stuff can get sorted out reasonably easily.

Why don't you see how far you can go without quitting your jobs or spending any significant money? Putting up a website is free nowadays. No need to form a company until it seems like you might actually start making deals or need it for some specific legal reason.

You say your domain expertise is in a field you want to get out of - does your startup not have anything to do with this field? Are you technical or non technical cofounders?

We are both technical, and seasoned with 15+ years of experience each. The startup would be in a completely different domain, but there would be some overlap. Basically, we are both ML people but pretty strong software engineers, so we end up doing little ML work, and end up writing lots of software, from back-end infrastructure, to front-end software to interact with the systems.

I don’t mind doing all that for an MVP. But taking it all into production and maintaining it is not my preference - I’d rather hire folks that love that part.

Good - you have the skills needed to bootstrap the thing for cheap. Don't even worry about what's going to happen after your MVP right now - you'll have to work your ass off to ever get to that point. My advice is to NOT spend any significant amount of your own money on the project, because chances are you will not see it again. The reality of the startup game is that even the well-prepared will fail most of the time.

I sincerely appreciate all these replies! It definitely seems like a common thread is to keep my current job.

To expand on that for a bit, any thoughts on keeping my current job, but working part time?

I’m on my wife’s health insurance, and I could definitely swing this financially. I think my employer would be open to it as well.

One twist on the consulting route is to set your rates to be very high — higher than you'd set them if you wanted to be employed full-time. It's a 'win' if most of your clients decline, and you end up consulting 2 days a week, but making as much as if you were working 3-3.5 days. Then you have 3 days a week to work on your startup, and a somewhat longer runway on your startup.

Keep your current jobs and work on your idea on the side until it hits an MVP stage and you can show it to people from your target audience. Only then depending pn the feedback decide if it to take on it full-time or to drop it. Chances are that it won't make the cut.

Figure out what your expenses will be before you try to raise money. Do you care about getting paid a salary this early on?

If you can start small (don't hire) and find product market fit before you scale, you should have no problem doing this on the side.

Having sort of done this myself (self-funded for 18 months, then raised some friends-n-family and now cashflow positive), I would recommend:

- stay with your job (like others have said) as long as you can. I probably could have done this longer.

- control your cash burn, not just current but also the time horizon of the commitment. I have found that contract-based work can be very efficient for engineering work, IF you are good at specifying the technical job details.

- Before you get into a situation where you are spending more than you make (either because you kept your job but are spending more than your job pays, or because you left your job to do this before there is enough revenue to pay yourself living expenses), decide (with your partner if you have one) on some specific levels of your savings at which you will a) seek outside funding and b) close up shop and go back to finding a job. This will not only give you concrete goals to work towards (I need to get that customer to keep my bank account above $x!) but also help ensure that you don't blow yourself and your relationships up chasing a moving target.

- pitch to some institutional investors. "But I said self-funded!!". I get it. But recognize that: a) the process of distilling a 10-15 slide pitch is very, very helpful in refining and focusing your business plan, b) investors will have useful feedback, c) the experience is helpful (even if to understand how often very silly the investor courting process is), and d) having deep familiarity with any concerns that prospective investors have will help you to either address them, if you decide to do so, or alternatively, regardless of whether you agree with the concerns, to have thought ahead of time about how you will speak to them when other people have those same concerns such as prospective key employees and certain customers (especially large ones who may be about to sign a big check)

- find 1-2 other cofounders (who are not your relatives or spouse). you will have a ton of work to do, especially if you keep your day job, and you will want others to lean on, not just for the work but also emotionally (do not underestimate how physically and emotionally draining this is going to be). At least as importantly, just like pitching to investors, in the process of recruiting co-founders you will receive valuable feedback that will help you to refine the business

- Being fundable is a worthwhile option to keep open. For this purpose:

  a) get a lawyer at least for certain key items. Ideally, a lawyer with prior experience at a startup-focused firm (Wilson Sonsini, etc) who has left and started their own practice. You'll probably pay 350-550/hr, but the person will be experienced and in my experience, this kind of lawyer will not excessively bill. I would advise against using any medium or large law firm at this stage unless you are ready to pay way, way more. Key items below.

  b) make sure your IP is clean. Many states enforce employer's right to own the work you do outside of work hours. It is uncommon that your normal job will have absolutely nothing to do with your side project, which muddies the water even further. you should *definitely* review your employer handbook, policies etc, and research this topic. Keep in mind: you're not trying to be right in the case of a lawsuit, you are trying to avoid any possibility of any lawsuit. If there is any legal dispute with your employer, then regardless of whether you legally win, you automatically lose from a business perspective. Note: in many cases, it can be beneficial to be open with your employer about this side project. To decide, ask others in your firm who have gone thru this kind of experience (if you can find any such folks)

  c)  get the right corporate structure. An LLC can give you significant tax benefits when you are bootstrapping. A C-corp will be needed if you ever want to raise VC. I can imagine no reason to use an S-corp-- but that's what you want to ask your lawyer

Admittedly, you can still succeed doing none of this, and still fail doing all of this, but I hope these suggestions might help to maximize the probabilities in your favor

I certainly appreciate all the replies, but seriously thank you for writing such a detailed response. You touched on a lot of other topics I’ve been reading up on.

Glad to hear it was helpful!

Thanks for sharing this advice. I'm exploring external funding but there's a lot of good points here too.

Good to see that the cashflow is going the way you want, best of wishes for your future! May I ask, would you mind sharing what your startup is?