Ask HN: How would you raise $600k for a boring software co? | Hacker News Reader

Ask HN: How would you raise $600k for a boring software co?

50 pointsleetrout46 comments

I want to do my own thing and I don't want to do it alone. I am happy to write boring business software with boring tech.

The not wanting to work alone for a year to bootstrap makes me want to find about $600k so I can pay a designer and two other devs to work on the software with me for 12-18 months. I project I can be to 300k ARR in 3 years so 600k to kick this off doesnt seem to risky.

I am certain I can find $100k with friends and family but I want the full amount to make the hires and take the leap.

I explicitly don't want to build a "unicorn" I just want a healthy business building clean, safe, secure software that is doing something positive in the world (even if it is just boring business admin problems).

Thoughts or ideas or how to find an angel (or two) or other avenues?

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If you "don't want to do it alone" it won't be your "own thing".

If you came to me with your pitch, I'd be very suspicious of how you came up with your $ and people requirements, and my response would be "Don't waste time looking for money and designers and developers right now. Instead, lock yourself in a room for 3 or 4 weeks, code some of that boring business software you have in mind (even if you end up having to throw it away), then come back and demo to me what you've accomplished. Then we'll talk money."

Since you plan on doing boring business software, I presume you already have considerable business knowledge and experience. So where is the business plan? Any investor will want to see a 3-5 year plan, which clearly shows how they will get a stronger return on their investment than taking the easy option, e.g. mutual funds, etc.

As soon as you have investor(s), it is no longer your thing. The person providing the money makes the decisions.

> If you "don't want to do it alone" it won't be your "own thing".

Correct. My end goal is to exit investors (happily) and make it an employee owned co-op. Would love for the employees to collective bargain from day 1.

> If you came to me with your pitch, I'd be very suspicious of how you came up with your $ and people requirements, and my response would be ...

I put a budget together based on experience at 5 other startups and small businesses. I have been working for 17 years so I have some experience to draw on but I don't want to get on the same happy-go-pukey, growth-for-growths-sake ride. And ofc, working in a funded company is very different than starting something from nothing, hence the question.

I think you’re getting ahead of yourself. You have $0 in revenue and no business. You don’t raise money on ideas and vibes.

If you have an idea for a business you’d like to build, don’t even worry about the software part yet. Get out there, make cold calls, get customers and do the boring thing with as little or no software. Show there’s demand and that you can make money doing it.

Once you have even a few hundred bucks in revenue, that’s more than $0.

Then write as little software as you can get away with to automate some part of the work you’re doing. See if that translates to more revenue with less effort.

That’s when you start raising from family and friends. You use that money to get some tools you needs, buy some AWS credits, take a few weeks to automate more of the process, hire some people part time to make your cold calls for you/do deliveries/assemble things/configure the giblets/etc, etc.

Once you have self sustaining revenue and a clear path that’s when you raise the seed money to get a dedicated team going. You use that money to expand into new markets, write more software to automate more things that help you grow.

It starts small.

I would say you’re pretty well connected and lucky if you can get someone to give you more than half a million dollars to mess around and find out if you can make a business out of it.

> I think you’re getting ahead of yourself. You have $0 in revenue and no business. You don’t raise money on ideas and vibes.

I mostly agree with you. That being said, people raise money all the time based on personal relationships, past success, etc. I think it'd be more accurate to say that if you could raise money at the idea stage w/ no business & no revenue, you'd already know you can do it & wouldn't have to ask HN how to raise the money.

It's less about asking how to do it because "I just don't know how" and more about asking how others might do it or have done it.

What I have ran into is that reaching out to investors from past startups where I was a dev--they struggle to see me as anything other than a dev (which was 12 years ago, I've had a career since then) and they seem to want social proof. So a bit of a chicken and egg problem.

Well if you have >$0 revenue, even if you’re running into the red, if you have some evidence that access to cash is what’s holding the business back from growing, even steadily in a boring niche, it’s usually enough to get your foot in the door.

Most cities have a network of angels. Some times they hold open events or may have a directory of people you could call to see if they’ll hear your pitch. Then there’s venture debt, and debt. With high interest being what it is now may not be a good time for those options. Self funding and bootstrapping is the most self-sufficient way to go if you have the supports for it.

If you can’t get your foot in the door to pitch angels then I’d keep hustling. Present at local developer meetups, network online, meet people who would be willing to put in some part time into a side-gig for equity. Keep building that revenue until you’re profitable on your own and can hire folks on your own or the angels can’t ignore you.

I don't know that you can do this. $600k sounds small to you, but the people making those kinds of bets ($600k is a big bet, but presumably you're thinking of syndicating a bunch of smaller investors) are doing so on the premise that you're going to go on to raise a priced round, then a B round later --- ie, it's the same portfolio theory that the institutional VCs are using.

The thing I think you have to keep in mind that is that risk of failure (where "failure" is defined as "returning the same or less than the same money invested in low-risk investments would have over the same time period") isn't linear; by scaling down your ambitions, you do scale down risk, but probably not so much that you open up new avenues of equity investment.

I'm not an expert, but I don't think you're going to raise 6 figures on the premise of 6 figures ARR in 3 years.

> I'm not an expert, but I don't think you're going to raise 6 figures on the premise of 6 figures ARR in 3 years.

I don't think you are wrong :)

I know the audience I asked the question to (and thank you for taking the time to reply, I know y'all are busy).

I am curious to hear if anyone has tried anything like this or to see if this piques anyone else's interest or matches their experiences.

Heard loud and clear on slow growth curves not being appealing and thanks for not immediately saying "lifestyle business".

I feel like there is a conversation about small software shops making small software being missing from most discourse... or I am missing where to have these conversations because of the HN echo chamber.

There are definitely spaces like Indie Hackers or Startups for the Rest of Us/MicroConf centered around smaller sustainable software businesses, but those people aren't starting with hundreds of thousands of dollars in investment -- they're building something on the side and then bootstrapping or investing their own money. It's going to be a lot of work, but that's what you need to do if you're not going to get venture-sized returns that will attract VC's.

Yes 100% this, there are lots of people with the same ambitions as the OP, but they aren't getting 600k checks for an idea. They're building companies on side, savings, or with a little help from family or friends.

It's not really a moral issue or even a competitive issue, it's just that the math for an investment has to work out, and the math for all these equity investments from strangers is that you have an X% shot at an outsized return, not an X+Y% shot at an ordinary return.

100% agree. A company that is trying to hit a billion in ARR is not 1000x less like to fail than one that is trying to make a million in ARR.

I just meant there are people trying to achieve his goal (of building a small SaaS), but they are unable to do it in the same way that he wants to achieve his goal (raising 600k on an idea).

First gather proof that you have customers waiting for your product. Thinking something is a good idea and proving it is are two different things.

Then look for local venture capital via your local Startup groups. You will find that they are frequented by all the "usual suspects" and you will meet serial entrepreneurs and business coaches etc.

Build the minimum viable version of your software. Don't add all of the possible features, just add those to the TODO list. Build something that works and be prepared to re-write when it grows bigger.

Going live and gaining real users (free or paid) is how you prove your idea deserves further investment.

You are competing against glitzy show-off projects involving the latest craze (typically AI at the moment), don't let these things distract you.

You may find you actually do need to work alone and build out your idea prototype first though. People hear "good ideas" all day long.

For context, I have very boring software with 150K+ free users and 10k+ paying users. I have not sought funding because a few months after the minimum product was released it was apparent that it wasn't necessary to involve other investors (who understandably want a big slice of the pie).

I’m fascinated by this. Can I ask whether it’s B2B or B2C? I’m guessing with 10k paying users, your price must be on the lower end?

If your core skill is software management and sales, you should raise slightly more money with a less boring company (maybe make it secretly boring with a nice brand.) You asked about finding angels: it is just as easy, and perhaps easier, to find ones that will invest more in a more ambitious company.

If your core skill is coding, the extra money to hire will just slow you down. If you have the drive to work full-time, figure out how to quit your job so you can build this by yourself plus a little freelance help. The easiest way would be to move to a low CoL area and live off your savings or agree your spouse will support you while you build.

Otherwise, I think you would be very likely to waste the $400-500k you'd spend on salaries and overhead and would end up a solo entrepreneur anyway, and dealing with tech debt and an unsustainable number of customers to support.

A few things stick out to me here:

- A lot of startups are already writing boring business software, you need a more specific vision. Whenever I meet startup people, they’re always super hardcore about their extremely niche market. Like, they’ll be super passionate about the problem of “tracking leads in life insurance sales” or their service that will “help custom denture companies ensure HIPAA compliance”. To get a vision like that, you need to research a market. Lots of other people are also researching markets, so it will help if you start researching a market area where you have some expertise already.

- At the end of the day, you have 2 options for funding (VC is not an option since you don’t want to build a unicorn). Option 1: Take out a loan. This will only work if you have enough collateral, and you should only do it if you feel very confident betting your literal house on your business idea. Option 2: Save up some money you can live off of, convince a designer and another dev to do the same. Quit your jobs, and form a company that you all own a part of. Work without paying yourselves until either customers start paying you or you run out of rent money and have to go back to working for someone else again. Option 2 feels more in line with what you seem to want here. Oh also talk to an actual accountant before doing any of this.

- Last thing I’ll say is that going the “boring” route is neither a guarantee of success or necessary for success. It is, however, a guarantee that the work will be boring. This is fine, and we do need a lot of people doing boring work to make the world go ‘round. But don’t fall into the trap of thinking that trading away “interestingness” will get you money or success.

That's a tricky spot, since 300k ARR does not leave a lot of room for profit after paying people to do sales, support, bug fixes, etc. That seems more like solo founder bootstrap territory, maybe with support from a startup grant, incubator, or funds raised from savings or your personal network.

You could look into startup grants and accelerators which can give you some funding up front and don't take equity.

With friends/family (and to an extent, banks) you can ask for a loan instead of a gift, with the idea of paying them back (or with interest, if they're needy friends or banks...). You can also just straight up ask for donations (food, shelter, live with family/friends) to get your thing up and going.

There's also "slower funds" out there for tiny projects if you look around. You can also shop around for angel investors who want something like a fixed revenue share for certain years, without "owning your thing" or "being on the board". But the more people you take money from, the more "needy people" you'll have to deal with, even if on paper they don't own a thing.

Pick where you get your money from, and pick your friends...

$300k ARR in 3 years is not much. ARR is not profit so how will investors make money back? At $300k ARR, you’ll barely break even paying for the expense (employees, severs, etc).

Let's dissect this a bit with some assumptions.

If you're asking for $600k and want to do your own thing, then you're not talking 50%-50% split, let's say it's a rather typical 20% VC seed round. This means your company is valued at $3m pre-money valuation. That requires some convincing to do.

Then a typical VC would want to protect their investment and expect high outcomes - otherwise they'd invest in index funds with low risk, which btw grow fine. The typical expectation would be 3x the investment in say 10 years. So they'd be looking for a $9m exit. Also they'd put liquidation preferences, preferred shares, vesting, cliffs, etc., which make sense. The 300k ARR, which is still fictional may give you a value of $1m and this in very good markets. You'll need to make this 300k MRR so that it makes sense to them.

Maybe you can find a partner who puts $300k and you both get a salary and aim for a $300k ARR together. Then the math looks better but is way riskier and harder to pull off.

I have spoken to an investor and a couple folks with business backgrounds. I am willing to give up up to 40% upfront. I put this in my YC app as well.

I think a $9m exit is doable based on the other big players in the space. One has a track record of raising $80m in their last round if crunchbase can be trusted. If they are getting $80m in a B or C round then I think there is enough market space for me to come get 2-10% (which pushes past $10m ARR).

I appreciate the info / perspective from your comment! Thank you!

If you really want to build a company that sells "boring business software" you'd better to be an excellent saleman already.

So apply your salemanship to the investors.

The business model of what you are creating needs to be very straightforward / communicable (easy to sell and very profitable), TAM must be very large and penetrable, and your financial model needs to be very clear about what kind of milestones (one major customer over $X00k ARR vs. a dozen smaller ones, each with various demands) you need to hit and when. I would phone a friend in finance for this aspect to make sure your bases are covered.

Especially in this market, I think there are plenty of players in the VC ecosystem who would be ok with you not being a growth rocket and just planning an exit via secondary or acquisition. The one issue is, you will need to be growthy enough in years 3-7 of the business for them to justify it.

The "boring" way is go do some sales and get clients to pay for something, then scale up as cash flow increases. That way, if it doesn't work out, at worst you just lost time instead of being half a million in the red on a business loan.

I raised about that much. We were farther along though, we had 3 founders, 200k in ARR, 300% YoY growth and our projections were to hit 1.5m in ARR in 3 years. Angels we didn't already have relationships with were not even remotely interested. (The ones that did invest were friends). So we were only able to raise from friends and family.

You said you were willing to part with 40% at a 1.5m valuation for an idea which is a very high valuation unless you have a very particular background, or a track record of building successful companies (which I assume you don't have or you'd have the cash or network to fund it). A company with 300k in ARR is maybe worth a million dollars. Do I want my 50k investment to maybe be worth 33k in 3 years IF everything goes according to plan? In addition I don't know how you're going to make this work. If you have a burn rate of 400k your first year, and aren't going to be profitable for three years how do you make 600k last until you hit profitability?

Companies like this with small dreams are mostly bootstrapped with a little money from family or friends (Note you will very likely some or all of this money, keep that in mind when taking money from family and friends). Given you constraints this is realistically your only option. And if you want to accelerate how quickly you go to market find a cofounder.

You’ll probably spend more time pitching and entertaining investors then just coding the mvp and start selling.

300k ARR is not much but also extremely difficult if you have never done it before.

The not wanting to work alone for a year to bootstrap makes me want to find about $600k so I can pay a designer and two other devs to work on the software with me for 12-18 months.

Find a designer and two other devs to act as cofounders instead of employees. Pay them in equity. Find an accelerator and/or grant or work from someone's garage or basement or what have you.

Do you have a business plan? Do you have evidence you will have paying customers for what you're building? Are you looking for equity investments or loans?

Networking is how you find angel investors. The best time to start building the network was 10 years ago. Ask everyone you know for introductions to anyone that is interested in angel investing.

You don't need 600K to start a software business. You just don't. That's a mentality that won't help you. Look at Indiehackers and so many people who started a side project and got enough revenue to keep it going without 600K.

"Pay a designer and 2 other devs". Doesn't work that way. What are YOU bringing to the table ? Can you code yourself ? If not, learn to code first. You may not need to be CTO level and can always find someone who is an expert in later stages.

No one will magically give you 600K. YET. you could build a prototype first and then go find people to help. You need to "bootstrap" it which means you need to find a way to use your own money (or borrowed if you can swing it). Good luck.

Take a look at venture debt from certain firms and banks.

Since this isn't about big growth (sounds more like "life style business") typical VCs aren't going to be interested.

Based on the constraints and some of the comments, a different avenue would be to reduce your upfront ask.

Try and assess if you really need all the full-time employees you mention. You can get very far with part-time employees, freelancers and outsourced development till the point where you have an MVP built for which investors can put up money. If you really need FTEs, you can (partially)pay them in ESOPs of the company against future revenue.

Figure out another way. Start small and earn your way in. Start in your basement. I’ve seen too many companies destroyed by the outside money strings.

Make something wireguard-related. It's the boring sort of secure networking infrastructure that vast numbers businesses need.

How about paid-for, closed-source innernet clients for Windows, Android, MacOS, iPadOS, iOS? Which install super-smoothly? https://github.com/tonarino/innernet

As others have echoed, VCs are usually looking for a unicorn exit scenario to offset the massive risk they're taking. You could consider other debt instruments such as convertible notes or even small business loans.

I've also heard good things about tineyseed https://tinyseed.com

You could easily blow through 600k with no sales and little to show. I’ve seen it happen multiple times. It’s risky.

Look at some models like Pirate Bay or Telegram.

Often the unfortunate answer is the Musk route: build a unicorn in something that doesn't interest you, become the angel, then you can self fund whatever boring projects you want (pun intended)

I wonder if YC would fund it. They fund a lot of things that don’t look unicorny (at least to my untrained eyes!)

That said it is not a business if you get to $300k ARR when you need that staffing level. Can it get to $1m?

I don't know the answer to this but I'm interested in learning. I assume there are investors out there who aren't looking for hyper-growth, but I'm not sure where you find them.

They are usually investing in the SP500 or real estate :-)

Debt might be a better option than equity investment, especially if your business plan is low risk and you have a clear path to profitability.

Leave the SF Bay Area, as one advize.

Boring companies don’t get funded here—-you either go big or go big.

Small boring companies don't get funded anywhere.

You don't. The project dies. Condolences.

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