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What can you do if you’re growing users and it’s costing more and more to operate?

Launched our product without much fanfare but months later we’re growing pretty steadily. The growth is causing our variable costs to rise much faster than anticipated.

Because of the growth we’ve started pushing hard on angel investors to get us to further develop the product and handle the growth. We started testing business models with minimal success.

Angels seem to want more when you’ve done a lot. One even said it would be easier to invest on just an idea. Now the idea seems to work now they are saying it’s better to invest if business models are tested.

  • You have a good problem on your hands; you’re growing. Lots of startup founders wish they could be where you are right now, so give yourself a pat on the back! Way to go!

    Now, you need a way to generate revenues quick or raise some capital or you might be brought down by your growth. I would ignore angel investors all together as in my experience they are a huge waste of time.

    They’re too risk averse because they’re investing their personal money, so they cling onto it like crazy, waiting until your company is a sure thing before they invest, but by then you’ll have access to more VC investors than you can handle so why would you need angel investors then?

    I would try to approach VCs instead as they’re less risk averse and explain to them that you’re growing quickly and need some funding to support your rising costs.

    The sooner you get in contact with VCs the better since they’ll be able to track your progress and when they see that you’re continuing to grow, they will invest since they’ll then trust that your company is headed in the right direction.

    Also, see if you can raise some funding from friends and family. I know it’s a hard thing to do to approach them since you don’t want to risk losing their money and in some cases you don’t want to come to them because you’d rather succeed without their help.

    Swallow your pride and do it if that’s what it takes. All that matters in the end is if you succeed; not how you did it.

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    • +1

      There are a lot of Early-Stage VC firms popping up to compete with Angels for early rounds of investing. I think TC published an article this weekend about them, might be worth looking into.

      Reply

  • It sounds like you actually have several problems in your hands. I would agree with the writer above that it’s time to leave the Angel world and step into my world (Venture Capital) because we love investing in growth companies. Angels really are more for the smaller seed stage rounds and it sounds line you’ve outgrown that option. The second problem you have is keeping your costa under control. Either A) your customer acquisition cost is way too high because you keep having to borrow money to buy them, or B) you have an inexperienced Executive team that doesn’t know how to design and implement a more efficient business model (VC’s will also help you with this by recommending or installing their own people to properly manage growth prospects. That being said, you have to rally make sure that you can’t do this in your own. VC money isn’t cheap, may not let you keep as large of an ownership percentage as you think you deserve, and will probably want board seats to ensure control is maintained over their investment. The upside is that your chances of success increase dramatically with all of this money and support. It’s not for everyone, so go back and remember why you got into this business in the first place… Did you want to be rich? – go get VC money. Did you want to change the world and maintain control of your company without regard for how much money you make? – go out and hire experienced startup executives that can design and implement a better business model. Either way be prepare to give up more equity and borrow more money. Best of luck to you. Managing growth is a great problem to have but it can also destroy your company if you’re not careful. If you want more specific advice, you can contact me directly and tell me more about your business @hookemgriff

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  • Yes, go to VCs, they are used to financing experiments a la “the bigger the customer base, the bigger the loss” (Netflix, Amazon, LivingSocial, Tesla, etc etc)

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  • I assume before you started a business you had a revenue plan. You may want to look at getting a business loan.

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