Bootstrapped startup needs $400K to move forward. Now what?

Nine months ago I had an idea that would be disruptive to a very large industry (we’re talking billions of dollars spent in this industry). I created a POC and then a working prototype. Then I built a team of seasoned pros in their respective departments. No one takes a salary and I’m the only one with equity.

I backed up my gut feelings about success with hardcore research and numbers from industry sources. I conducted blind surveys and the results are exciting.

The problem is a portion of the product offering is a service back end which requires human resources, an office, etc. That puts our funding at $400K so we can move to the next level. Unfortunately there is just no other way to roll this out at a smaller scale. The upside is that our product offering scales very very well in relation to expenses. So our burn rate would be $400K annually, but doesn’t increase much as we take on customers because our design is very efficient.

So I have no idea what to do. We’re too small (zero sales) to go VC, and probably even Angel. I sought out a few Angel groups but they want to see rev – well we can’t do that without $400K. I thought about Kickstarter and feel like that’s our only real option, although lauching a KS with a $400K funding level is probably doomed from the start.

Pulling my hair out about this. Suggestions?

 


  • I’m sure you really don’t require 400k.

    My favorite part about doing finances for my startup is when I get to scrap something off the list because we don’t really really really need it.

    Find out what you really really really really need (we call it the 4 reals here) and work with that.

    • Thanks – I hear you. I’ve done that, our CFO has done that. $400K is really bare bones, zero salaries for founders (which raises another point I’ll make below), it just covers employee and business expenses. There isn’t a penny in there for marketing which is an issue in itself!

      The upside is $400K sustains us very well, so if we have 1000 customers our bandwidth (so to speak) is great – scale us up to 20,000 customers and our expenses are still roughly $400K.

      But it’s that initial hurdle that I don’t see a way over. Unfortunately this isn’t a SaaS offering where you could throw (putting it lightly) something together and release it to the world for a $100/month Rackspace fee.

      As for the founder comment – I call them founders, but in reality I’m the only one with skin in the game hence the 100% equity. So while I call them founders they’re really “future employees who get some equity for helping here and there”. Without them I’d be one person and that would certainly hurt my chances of moving forward. Still, no one has stepped up to throw money in but they all want to ride the success going forward because this is an exciting proposition.

  • You said no one takes a salary yet you’re the only one with equity. What gives?

    Here’s the deal you have two options

    1) find someone with credibility. Preferably in the industry or one who have had exits and make him her a cofounder

    2) Start in a related field that allows you to generate revenue without huge funding. Then move into this field once you have operational record.

    • I haven’t given out equity yet because I’m the only one really doing anything. Everyone else is there for support when needed in their respective areas, but I handle everything (development, market research, web site, funding research, the financial models(although the CFO helps there)). All of these others are ready, willing and able but no one can quit their day job and the equity isn’t going to change the current relationship and suddenly everything will fall into place. I’m still going to the one driving everything forward, so why dole-out equity in return for zero output from the others (yet). It’s kind of like “ok if this goes somewhere, I’m in – and until then I’ll participate in discussions”

  • You don’t need employees yet — just do all the work yourself. The employees wouldn’t even have anything to do before you get to the point where you have customers. So get the customers first, cash their checks, deliver your service, and then scale up from there. Bend over backwards to make sure your first customers are absurdly enthusiastic about your product/service.

    It’s utterly unrealistic you will be able to serve 20,000 customers with 400k expenses. Unless your product is completely self-service, and you won’t need to spend any money on marketing, sales and customer support. I’m guessing that isn’t the case, though.

    • I would typically agree with your points on the expenses, doing it all myself, and not being able to support 20K customers on $400K. But in this case with our tech and model I have to disagree with you. Your comments are fair, I haven’t disclosed the uniqueness of what we’re doing. Anyway – truly appreciate your time and feedback – thanks.

  • If angels are telling you that you need revenue, either you’re dealing with VC-lite (not actual angels) or you simply don’t have the credibility and/or operational plan they believe.

    Do you have a 5 year budget?

    What are your assumptions for customer acquisition going forward and have they been successfully defended?

    When does your $400K burn turn positive?

    How will you scale?

    What’s your exit plan?

    Will your business be worth 10x or more in 3-5 years? Based on what multiple of year x revenue and why that multiple?

    As others have pointed out – the fact that you are the only one with equity and equally no one else has a salary, that doesn’t sound sustainable to me. What happens if one or more of your seasoned team takes off because there’s nothing financial holding them in?

    I see far more holes than bridges – and maybe that’s what the angel investors you’ve talked to thus far see as well.

    • I disagree. These days you do need some traction to put together an angel round unless you are a true silicon valley insider.

      I have made 30 angel investments so far and I require prospective companies to a) hit 40K MAU b) demonstrate amazing deep technology or c) make some revenue before even talking to me with the exceptions that I know that person well and am basically in for a friend and family round.

      • Thank you everyone for your feedback, it’s very appreciated.

        40K MAU makes sense for SaaS because you if you’re an engineer founder you can create and launch with minimal expenses. But we have a hardware requirement that customers must own (inexpensive) so the model works differently. The nice thing is that we make the same gross rev with 4K customers as a typical SaaS-only with 40K customers.

        In case anyone is wondering, I know I’ve been obtuse here anonymously, but we are going after the $40B television ad market with a very disruptive technology. Would that be considered deep?

        Thanks again – appreciate all help and answers greatly.

      • Interesting, you disagreed with me yet 2 of your 3 non-related requirements have nothing to do with revenue.

        So you’re actually 2/3rds agreeing?

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