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Yesterday I tweeted:
To be clear we have invested in companies that don’t meet all or any of these criteria, and we’ve also not been able to invest in companies that met it perfectly. But I wanted to give founders a wheelhouse of what we’re looking for.
But several folks asked the question (I’m summarizing): “that sounds like a successful business with a clear trajectory towards continued success. Why would they raise capital at that point?”
I agree this alone is a huge milestone in an entrepreneur’s journey and is itself a level of success. So why go and raise money at that point when you don’t “need” it. It’s a fair question and one I realized I haven’t explicitly answered, so this post is non-exhaustive list of reasons why bootstrappers in this or similar situations might still want to raise capital.
PS – but what about those that truly need it in the way someone who wants to build a McDonald’s absolutely must have a construction loan to get it done. It’s a fact of the investing world right now and the return requirements of funds that early-stage investors are generally much more interested in opportunities that don’t necessarily need the capital vs those that truly do. I think about this constantly and right now my opinion is that the best route for entrepreneurs is to try to bootstrap through those early phases.
I am constantly thinking about experiments to try here and keeping an eye out for other opportunities for very early stage capital but for 99% of entrepreneurs the best thing will be to bootstrap to some amount of traction. We are building out resources and a community for this at Founder Summit Remote.
So in this scenario you’ve got a nice software business that’s maybe not a rocketship but it’s growing steadily, some base level of monthly recurring revenue, and customers are fairly happy and stick around. What would you go and raise outside capital and what would you do with it? I’ll list here a few of the reasons I feel are most aligned with us as investors, thought there are many more:
At Calm Company Fund, we typically like to invest in businesses where this will be the “last check” in the sense that business plan after we invest is to not need further outside investment. What that means is that the capital itself typically solves a short/medium-term problem (go full-time, make a few key hires, etc). But Calm Company Fund is intended to be more than just a source of cash and our goal is to help increase the long-term trajectory of your business.
This by the way is what the founders we have invested in consistently rate as the most valuable aspect of working with Calm Company Fund, far and above the cash itself. Here is our approach:
The last thing I sometimes hear and saw on this Twitter thread is roughly “yea I see the upside but is it worth all the hassle of dealing with investors?” I empathize with this immensely. As an entrepreneur I wasted a big chunk of my life trying to raise capital from VCs and I know tons of horror stories of founders who had to deal with investors taking control or trying to force them to take their companies down paths they didn’t want to go.
At Calm Company Fund we’ve done everything we can to be uniquely low hassle for founders. Our Shared Earnings Agreement structure can be executed in a day with no need to change the company structure, essentially no closing costs, no issuing of shares, and gives us no control over the business. We think it aligns incentives with founders of the bootstrapper mindset more than any other form of capital (it’s why we had to invent it).
If it sounds to good to be true we are always happy to put you in touch with the founders we work with who have been through the process.
