Should you fund your startup by your own money or wait for external funding?

Should you fund your startup by your own money or wait for external funding?

Everyone has different tolerances here.

In my first start-up, I signed a $750,000 full-recourse note when my net worth was probably $30,000. So that was a lot.

In my second start-up, I invested about 10% of my net worth at the time. Maybe more like 15% all-in. That was real money, and I felt it, but something I felt comfortable doing without a huge amount of stress. I didn’t want to lose it, but the world would not have ended if I did. I made about 8x on that particular investment, so it was worth it. But too much more would have created family stress.

My “rule” is investing > 20% of your personal net worth is too much — if it creates stress.

While I invest, I want the CEO stressed. But not over-stressed. Not worrying too much about money. After all, I am giving her money when I invest. One reason to do so is to remove certain stressors, to free the CEO’s mind to focus on growth.

So while having skin in the game is good, if it’s > 20% of their net worth (or even just if it is a lot), I ask. I ask if it’s too much. Because I don’t want them worried about this. And if they need to be paid back some as part of the financing, I just do write them a check (one way or another) to repay some of it as part of the bigger investment.

A bit more here: In The Early Days, Don’t Forget To Pay Yourself, Too | SaaStr

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Published on October 17, 2019

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