Should you fund your startup with your own money or wait for external funding?
Everyone has different tolerances here. And the reality is, bootstrapping is usually not a choice. Most start off bootstrapping because they have to. Getting venture capital early is relatively rare and hard, no matter how it may look on Twitter.
Indeed, we see the great outcome for a bootstrapped startup in Mailchimp, acquired by Intuit for $12 Billion without raising a dime in outside capital. No one, however, really wanted to fund them until they got big enough that they didn’t need it. 🙂 More 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, and a bit crazy to do. But I needed it. I couldn’t bootstrap the size of team I needed, and I didn’t have the money to fund even the early days myself.
In my second start-up, I invested about 10% of my net worth at the time before we raised a seed round. 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. 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 (and you can instead raise it from angels or others).
When I invest, I want the CEO stressed a bit, to some extent. But not over-stressed. Not worrying too much about money. After all, I am giving them money when I invest. One reason to raise that capital 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 the founders are putting in. 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.
(Note: an updated SaaStr Classic answer)
A related point on when to raise if you don’t have to here:
Should you raise VC money if you don't need it?
Yes — if it lets you accelerate hiring amazing VPs pic.twitter.com/GlqfhXdS5a
— Jason ✨Be Kind✨ Lemkin (@jasonlk) October 24, 2022