Should you raise money?
Happy Sunday!
I took a week off from writing last week to rest and recover from a long and (mostly) good 2022.
If you’ve followed me for a while, you’ll know that I love to “get quiet” during the holidays. My best thinking (personal and business) happens when I stop and rest. I spent most of the week after Christmas journaling at The Mill in San Francisco. A lot of money was spent on coffee and toast, but it was worth it.
To the new subscribers … Welcome! I write this weekly letter about building my company Bullpen. My hope is that it can be used as a reference for my kids if they decide to start businesses (my oldest is 2, and my second is due in May).
I cover all sorts of topics, and this week, I’m diving into the decision to bootstrap Bullpen. Additionally, I’ll also share my two cents on when I think it makes sense to raise money.
☝️ But first … if you’re new here and find this stuff interesting, subscribe below! I send one email weekly, and you can unsubscribe if you don’t like it.
Most people shouldn’t raise money
One of the most common things I hear from founders who have raised money is they did it too soon or shouldn’t have raised it at all.
When I started Bullpen, I was very interested in running a software-first company, getting into Y-Combinator, and raising a big funding round. Fortunately, I was only able to raise a few thousand from angel investors, and Y Combinator didn’t accept me. Thus, I had to build Bullpen profitably.
Most businesses are not suited for venture money. My rule of thumb … if you can start your business from a laptop, then you don’t need the money.
Rather, you need to build something that solves a problem that a lot of people have - and it needs to have good unit economics.
Bootstrapping Tip: No code tools like Bubble are easy to learn and allow you to build a custom web app in a fraction of the time of traditional code. In fact, Bullpen’s web app is still running on Bubble. We use it to manage several million of billing annually.
Rather than raising money - focus on getting your first customers
Once you’ve built a prototype, your best use of time is finding your first customers - not raising money.
Your first customers will vote with their feet. Iterate on your product until your customers tell their friends about your business and keep coming back for more.
The above process is how you find product-market fit, and most venture investors won’t consider investing until your business has product-market fit.
You have a prototype and customers - time to raise money?
Not quite … once you have a prototype and some customers, you need to nail your unit economics. In short, you need to make sure the cost of acquiring and servicing your customers is far less than the price your customers pay for your product or service.
You don’t need money to do this! You don’t need a fancy accounting team either. Take a napkin, and divide the cost of servicing your customers by what they typically pay you. If your answer is below 3, then you likely need to rethink your pricing model.
I have good unit economics - can I raise money now?
You’re in better shape than ever to raise money. However, do you really need to?
If your business is able to acquire and service customers for less than those customers pay you, then you can likely grow your business profitably without venture money.
At Bullpen, we set aside the $45,000 raised from angel investors in a “rainy day” fund. So far, we haven’t had to use it.
When does it make sense to raise money?
There are several situations when raising money is inevitable:
The cost to develop a prototype is massive (biotech, rocketships, electric vehicles, etc)
The value of your product is dependent on a large number of users (Facebook, Linkedin, etc)
You have to purchase expensive licenses to deliver your product effectively (Netflix)
That’s all for this week! Leave a comment with your thoughts on fundraising - did I miss anything?
✌️📤
Tyler
Founder @ Bullpen