Why we didn’t raise funding early on

 

race-for-funding

Are you guys funded?

Everyone loves to ask this question. People at startup events, college buddies on WhatsApp groups and even co-passengers on flights.

And sure, I get it. In the world littered with umpteen startups, funding reflects a certain external validation and “seriousness” of your venture. So nothing wrong with this question, really. But what gets to my nerves is the way the conversation goes next:

I: No, we are bootstrapped.

The guy: Uh oh. Yeah, funding is a big problem these days.

Wait a minute. I only said we are bootstrapped.  Did it automatically imply that we failed at raising funds? Is raising funds the only way to build a startup?

Of course not. There are many successful startups that bootstrapped to success including the likes of Mailchimp and GitHub. But these are heady startup days and most people equate “funding” with “success”. In an emotional post recently, Sumanth Ragahvendra put it this way:

We no longer care about what a startup has achieved or aims to do, the problems it solves, the benefits it provides or the impact it has had.

We only care about one thing — how much funding has a startup raised. And that amount determines where you are slotted in the startup caste system…

At SocialHelpouts, we decided to skip raising funds early on. Our product idea could be applied to many markets and we were not sure which one would work out better. And even after choosing a market (“network hiring”), our biggest task was to figure out what problems we would solve best for which segment of that market.

At early stage, our biggest task was to choose a market, test it and find our sweet spot. Funding was not going to do it for us – we had to do it ourselves.

So in last 10 months, we evaluated different markets problems and experimented with different solutions to tackle them. We played with positioning and tried different ways of acquiring our users. Along the way, we worked on creative initiatives such as easyConnects, helping laid off employees form PubMatic and Foodpanda and doing highly focused hiring events such as JoinTheRocketship. These things not only helped us test different approaches to solving problems but also helped us identify our own strengths and weaknesses as a team.

Yes, angel funding exists to solve exactly this purpose. But finding a good angel can still take months and cause distraction away from the much needed customer discovery process. We had sufficient funds of our own that we found more convenient to dip into.

But let me add some caution – bootstrapping can be hard. Expenses on even simple things like hosting and office space can add up quickly. The reasons we have been able to do this are:

We had a lean and cross functional team: We have had only 3 full time employees to cover the entire gamut of operations – development, marketing and support. We all believe in our mission and are happier with more equity than cash.
We had sufficient funds to last 12+ months: This is not about just surviving 12 months. You should be able to provide a great experience to your users. For instance, we spent a disproportionate amount on our website infrastructure, customer experience (Intercom!) and an air conditioned office that kept our team productive.
There was a tangible path to revenue: We were operating in a proven market with a clear revenue potential (hiring companies). Companies will pay for a hiring product that helps them hire, there was never a doubt about that. To at least survive, we just had to build a decent enough product.

Your situation might be different. May be you need to raise funds early or may be you need not. But whatever you do, please don’t just assume you need funding because everyone’s seems to be raising it.

What do you think? Do you think startups are focusing more on getting funded than working on achieving product-market fit?

 

Comments

comments

3 thoughts on “Why we didn’t raise funding early on”

  1. But isn’t your platform free to use? How long do you think can this continue? By the looks of it, you are on the same path as rest of the other startups waiting for their bank account to dry up.

    1. Hi Amandeep,

      Thanks for asking the question. We don’t intend to continue without funds for long time. 🙂
      We do have a freemium model on the employer side and are on track to be profitable soon.

      Nikunj

  2. I really second your thought on funding! The only concern is in India people are still hesitant to pay (especially online) for an excellent product be it something like hotstar or zomato. The biggies of the market have thrown in freebies in everything and the audience especially in tier 2 and tier 3 cities never bother to renew that free trial.

    Coming from our present experience. Even though we have made excellent product(http://ecomnnation.co/) that can head on take a biggie like shopify still people use free trial and discontinue. To keep them on board we had to give a complete free deal with some limitations ofcourse.

    For this market a product company surviving long time or breaking even only from the bootstrapped model seems like a distant dream.

    I would love to talk in length about this with some of your team members. I am already connected with Neha via linkedin. Lets talk about this at length. What say?!?

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