Would you rather own a VC-backed unicorn 🦄 or a 1M yearly revenue bootstraped SaaS Business 🐜 ?
Mehdi Rifai
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Chikodi Chima@chikodi
It depends on what the profitability of the $1M revenue SaaS business is.
With lots of employees/contractors, and low margins, it might not make much money.
With a VC-backed unicorn I could sell some of shares and have millions in the bank, which would allow me to focus just on growing the company to exit.
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I think the bootstrapped option, not being beholden to anyone with a 1m yearly revenue sounds nice
@mehdi_rifai I think most go that route because they didn’t have that second option… I could be slightly wrong here but I just don’t see how the VC option is more feasible.
@khaliphj I prefer the bootstrap option. But I can understand the other party. Raising VC can also help you scale faster, make bigger investments and create defensibility to protect your business from future competitors and other threats. You can also derisk along the way by cashing out a bit of money during rounds.
Always results over bells and whistles
Some may say "but that's all revenue, not profit!". But it's a SaaS, not a manufacturing business, so margins should be acceptable even in the worst case.
@richard_gao2 indeed that's why I specified that it's a saas you don't have goods to buy/store or manufacture. You average around 80% profits.
Why not both?
Consider the issues with bootstrapping
[1] Avg shelf of new technologies is no more than 5-6 years i.e. it is becoming increasingly difficult to stay relevant with any tech for very long. Disruption catches up faster than people plan for, and reinvention needs capital
[2] 'If churn does not kill you distribution will' Capital is not required to understand distribution but definitely essential to ace it. Distribution is seldom won by the first or the best product (if there is one), but always by products that invest in it.
[3] You are never in the loyalty business, you are in the value business. Customer will question value every 12 months, and it is very hard to be the i-phone of your category. Investing in your product (marketing, sales, R&D etc.) with a small self-funded budget can only do so much
[4] $1M ARR business is harder to reach but much harder to maintain.
Having said this, bootstrapping your way to $1M in ARR is a perfectly good goal to have. But it is becoming increasingly difficult to stay relevant as a tech business for that long if you are completely bootstrapped.
@shailendra_singh_ht those are indeed excellent points about not picking the 1m ARR route. Thank you!
I would question number 2 while I agree with the statement "Distribution is seldom won by the first or the best product (if there is one), but always by products that invest in it." Investment doesn't necessarily mean capital deployment. Every business should have distribution built-in in its DNA. It should be a clear focus. You rarely get to 1M ARR bootstrapped without nailing and getting obsessed with your distribution (or at least there is no example I can think of)
@mehdi_rifai I meant you need capital to crack distribution i.e. team, marketing dollars etc. Your closest funded competitor would have the same understanding on how your product gets to your users as you do.
My submission is he might get there fast or early with the capital than you.
hmm VC backed 🦄 I think. Sounds like a once in a lifetime opportunity, unless you’re very lucky.. 1 million turnover comes around more often, but is definitely also nice.
@janine_nitz unicorns are not very common indeed. They make the headlines but there are only 1200 unicorns around the world. It's extremely little! So it is a once in a lifetime opportunity.
You would have to understand different things such as:
- Valuation: In the unicorn you know the valuation, what would be the multiple to value your bootstraped SaaS? Lets say 10x, so around 10M valuation. Considering in the VC-backed you have 20% equity and in the bootstraped 100%, you have a 200M vs 10M opportunity.
- Lifestyle, flexibility etc. You have to take into account this as well, and matters a lot. But I think the lifestyle would have to be very bad to compensate for the 190M gap.
So, in this case, I prefer a unicorn.
Another decision is what to start, and whats more doable. I think its more doable the bootstrapped option, so maybe that, but once the decision is about owning a unicorn already... no doubt in my mind.
@mehdi_rifai agree, initial part is easier this way, but then scaling gets pretty hard. The thing about 1M in revenue is the gross margin and EBITDA. If you have high churn, low repetition etc. you are going to burn all your money towards keeping the business in 1M.
I will go for the Bootstrap option, If I build a business I want to built-in on my terms, so that I can pivot my business accordingly
I think it would depend on what one is building and on the Founders' vision.
If the outlook is to build a sustainable, profitable business with linear growth (mostly), bootstrapping is the best approach.
If one is in an extremely competitive, high growth space (say D2C, Tech, etc), it might need external capital infusion, to scale fast and outdo competition. And in the process, build value, employment, revenue.
Of course in both cases, PMF and revenue will play crucial roles.
Je le veux car mon pays me donne pas cette chans pour trouve une entreprise qui vous donne revenus je vais pas le garde pour le veux l inverstire pour que je veux beaucoup le l endemen
A Unicorn being a billion dollar valuation company?
@mehdi_rifai owning a significant share of a billion dollars I would suggest has more value than a $1M revenue bootstrapped SaaS, unless perhaps the SaaS was entirely life purpose aligned
Haha, I think most people in this channel would choose Ant.
Everyones gotta scale faster or else wait enough to find 20 duplicates of their own product, which is why i would choose a VC backed Unicorn
I think that will purely depend upon people to people and their vision, if you are working on any new category or any path breaking technology which require lot of money to start with then you will have to go for VC but you are build some lifestyle business or are very satisfied with improving some current product then you can go for bootstrapped
@kunversation yes indeed for deep tech and R&D heavy businesses VC money is necessary. The questions is more about less R&D heavy products.
It's a great question which some of us learn the hard way - $1M bootstrapped any day.
Boostraped 1M arr is the only choise for me.