$150k sales in 6 months for our mobile app. Direct Competitor raised $3.5M. We've had just as many users and volume as them. Should we keep bootstrapping or start seeking for Venture capital?
The best time to raise capital for a startup is when you have a clear idea of what you want to do and a clear idea of how much money you need to get to a milestone that will set a higher value for your company. In general its better to bootstrap and do friends and family as long as you can, because the more mature and successful you are the better deal you will get from angels or VCs.
To start off with, stop watching what your competitors are getting in terms of funding. Most start ups who get funded will fail, so this is not a worthy measurement.
If your product has sales only consider funding that will help you grow your user base, ie new development, larger marketing area, etc.. The longer you bootstrap the more of the company you will retain. You also need to consider an exist plan before talking with investors as they will want to know how they will get their money back.
I have a company currently working on fundraising for a series A that has been bootstrapped for 2 years. It's a challenge because it's easy to fall into the trap that money will solve all or most of your problems when in fact this is rarely true and often can make the problems worse. Finding that balance is critical, for all you know your competition is currently hating life... Or thinking they are can make you feel better. :-)
Glad to share my experiences if that will help. Best of luck with your app.
Whenever I have a team in front of me, I generally ask them this:
Do you want to chase the unicorn, or ride it?
If you take VC money, you will be chasing the unicorn for the rest of your time with the company. You will be indebted to someone else to make back that money. Sure, they've raised $3.5M. The *bet* is that they'll be able to earn $35M in *revenue* to pay their investors back sometime within the next few years, and if they don't, then there's going to have to be more cash pumped into them until they do. The cycle will continue until they die.
You, however, have been making a relatively good amount of sales for low overhead. You may even be able to get a business loan at a lower rate of interest from the SBA with that amount of cash gen (they're giving very nice 25 year term loans right now) and now have to worry about investors breathing down your neck for a 10x return.
Then, you can scale at your own pace and own your own company entirely, and maybe even grow enough to go to an ESOP at some point, or sell to someone at a much better return.
I don't know about you, but riding the unicorn sounds way better than chasing it.
The best time to seek funding is when investors are asking for meetings and you don't need the money.
Generally speaking, you want to raise money right after you have done something that increases the value of your company and gives people a sense that 'the train is leaving the station'. You want to raise enough to get you to the next milestone that does the same for the next round.
I wouldn't focus on what your competitors are raising. Sounds like you've kept up with them by bootstrapping with far less capital. Your competitor is now on the hook to make a return on that investment while you still have some freedom.
Bootstrap for as long as you can. However, you also don't want to drive yourself to a point of desperation which will likely get you an unfavorable deal.
You are in a good position to have revenue. That makes a lot of things easier, including raising money should you need it.
Your real question right now is how can you increase your sales. I have no idea what your app does, so I can't say what your industry standard should be, but if you are able to get $150K in six months, you should be able to double that within a year. And you should think seriously about that because within two years the market will have changed so much your app might be of much lesser value to users. The key is to maximize revenue now as quickly as possible.
So what will it take? What do you need to spend money on to raise your revenues? Again, I have no idea whether you need to increase your ad budget, bring on a well networked person as part of your management team, or whatever. That you need to figure out. If you cannot pay for that out of your revenues, then you need to raise funds from angel investors.
How much? Again, I don't know, but you shouldn't be looking for millions at this point. Based on what I have seen with previous companies in your situation, I would guess that somewhere around $1M should be enough to increase sales by 3X to 5X. That would raise your company's valuation to probably between $8M to $10M, and so after about two years, you sell the company. That would be an attractive return for most angel investors.
Bottomline: You have to think strategically -- how little money do you need to achieve the greatest bump up in revenue. Then how will that affect the valuation of the company and put it in a position to sell fairly soon at an ROI that will be high enough and soon enough to attract angel investors.
Assuming a three-month fundraising process, the best times of year to start a financing process is in September, targeting a December close, when investment sizes are 15% larger than average and investment volumes are 50% larger. Starting a raise in May is the second-best choice.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
