Raising money is less stressful than bootstrapping
Dec 05, 2022
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- Myth #1: VC boards want growth at any cost
- Myth #2: You lose control of your company
- Myth #3: Fundraising is a drag
- Myth #4: Your investors are your boss
- Myth #5: It's IPO or bust
- Myth #6: Getting VC backing is stressful
- Truth #1: Some companies ARE a terrible fit for VC
- Truth #2: There are terrible reasons for raising money
- Why VC = less stress (for me)
Since PostHog raised Venture Capital (VC), we've had far less stress, and far more fun.
There are lots of myths around what it's like run a business with VC funding – today, I'm here to dispel them.
Myth #1: VC boards want growth at any cost
This hasn't been our experience.
The truth? It depends entirely on who joins your board, and how you've pitched to them.
Our experience has been an intense focus on finding the Ideal Customer Profile, and trying to focus as much as possible on the right users. Yes, we track revenue, signups and so on, but our board sees those as the output of building a great product for a specific set of end users.
We have to prepare for the board meetings – now that we've got the process down, these usually take a few hours to do. We keep the majority of the meeting focused on one or two discussion topics rather than presenting an update.
The guidance our board have given us has outweighed the cost of setting up and running these sessions every three months. And, frankly, if I know someone is marking my homework, it encourages me to do a better job.
Sidenote: is this the real reason we're open source?! 🤔
Myth #2: You lose control of your company
Our board could pressure us to take certain decisions, but Tim (co-founder) and I are ultimately in control – after our series B, we've got control of three out of five seats. Control is something we can negotiate each time we fundraise.
The fact we have plenty of runway, can pay everyone well, and have great people that ship stuff, means we have more control than a bootstrapped startup that must generate revenue or go out of business.
Of course, this can easily result in a lack of discipline, but it helped us get an open source project off the ground first, before focusing on revenue last summer.
Myth #3: Fundraising is a drag
There is a huge amount of variation. It all comes down to roughly these requirements:
- A clear explanation of what you're working on
- Fast progress being made
- An idea that could be very big
- Proven team
- Good VC market conditions
I've intentionally not listed "a good network" as, while easier for some than others, I believe you can get this done as a byproduct of the above.
None of these are necessary, but the better you do against each of them, the less time you'll have to spend fundraising. Ironically, this means you'll have more time to focus on product, which means - the easier time you'll have fundraising.
Myth #4: Your investors are your boss
Although you may retain control, if you fundraise, you've now got investors that you feel you should report to.
However, if you're building a bootstrapped company, you still have to report to someone – your own team, if applicable, and your customers.
One more party has made a positive difference to us, but for others it can be bad – if your board asks for X, and users want Y, then you may have problems. This depends on the kind of people you raise from and your relationship with them.
There is a critical boss that VC removes though – you, to a certain extent. Personal finances can survive much longer when you're early-stage but have VC funding.
This can lead to a lack of discipline, as mentioned before, or it can lead to longer term thinking. But it's quantifiably less stressful.
The fact you still need to be accountable for spending to your investors, we've found, means larger spending is intentional and reasoned.
For example, we pay 4 months notice if we let someone go. I doubt we'd have made that call if we were bootstrapped. We simply think it's cheaper to spend money here than to have an underperformer stay for longer because we feel bad.
Myth #5: It's IPO or bust
There's a myth that you can only exit (sell your shares) from a VC-backed company through an Initial Public Offering (IPO), or through selling the business.
The reality is that you can sell secondaries, but they aren't guaranteed. Most founders we know do this around the series B, or whenever the company is an obvious success. For employees, this normally starts a couple of rounds later.
You can't sell anything like 100% of your stake each time – a few percent of what you own is the norm – but VCs want you to remove some personal stress while keeping you hungry for more. As the company gets bigger, this can go from removing any personal debt, to a life changing amount whilst still running the company.
Tim and I both think this path will give us the greatest happiness. It means removing financial stress from our lives, whilst being lucky enough to work on our mission of increasing the number of successful products in the world. It's a huge amount of fun for me to try to beat huge competitors by doing things "the right way" for developers.
Myth #6: Getting VC backing is stressful
It may not be easy, but getting VC funding is way less stressful than bootstrapping.
When bootstrapping, you have two choices:
- Start working on your new business before you quit your job
- Spend your personal capital until you're profitable
Neither is relaxing.
I know this because we did it. Tim and I committed 12 months of personal runway to getting PostHog off the ground. We simply paid ourselves nothing for the first six months. It was stressful. We had to save up ahead of time, then had to spend as little as possible in our personal lives.
All that personal stress evaporated once we got into YCombinator. We focused 100% on the business and we're happier and more successful as a result.
What I didn't realize at the time is many teams will raise a pre-seed round, ahead of real traction or having a team. This reduces the barrier of needing a bunch of savings, and the stress of living hand to mouth to get something off the ground.
Now you know that, don't make our mistake if you can avoid it!
Truth #1: Some companies ARE a terrible fit for VC
Those are some myths dispelled, but this doesn't invalidate bootstrapping and some companies definitely shouldn't seek VC funding.
First, you need to want to build something very, very big. It's hard to relax and run things as a lifestyle business once you're at $1M ARR or more, for example. Are you going to want to push further when you've no financial need to do so?
Second, the style of product matters. If you don't need much capital, then don't raise it.
At PostHog, the opposite was true – we've built a really wide platform with lots of products inside it, which made VC more important to us. The innovation is starting on an open source base, and integrating all the tools that customers need to build a more successful product.
That's an awful lot of stuff to build. We also believed that our paid self-hosted product would be 90%+ of our revenue, so we'd need to build a free and a paid product on top (although that later turned out not to be true...).
Truth #2: There are terrible reasons for raising money
Although there may be exceptions, here are some standard ways to fail:
- You want to hire people to find product market fit for you
- You want to hire people to do the early sales for you
- You want to raise money because of your ego
Why VC = less stress (for me)
To sum up, VC funding is less stressful for me because:
- I don't have to worry about personal finance
- I can focus on doing the right long term thing, all the time
- It hasn't changed control / who my boss is
- Raising wasn't a huge distraction
- We don't need an IPO to be successful financially
- What we enjoy doing and what we're building is well suited to a VC model
Ultimately, running any company is usually a marathon – I believe that looking after yourself let's you in turn look after users better. That often means raising money.