469: Fundraising for Startups—There’ve Never Been That so Many Options
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In today’s episode of The Startup Chat, Steli and Hiten talk about Fundraising for startups.
When it comes to funding a startup, previously, you had two options to choose from self-fund your start or get VC funding. Now times have changed and there are more funding options available to founders.
In this week’s episode, Steli and Hiten talk about how there are so many options for fundraising, self-funding versus VC funding, why it’s important to do what’s right for you and more.
Time Stamped Show Notes:
00:00 About today’s topic.
00:31 Why this topic was chosen.
00:58 How there are so many options for fundraising.
01:23 Self-funding versus VC funding.
03:22 How Steli and Hiten have always preferred self-funding to VC funding.
04:05 How the world has changed.
05:00 An example of a company that took VC funding after discouraging it.
07:49 Why it’s important to do what’s right for you.
09:03 Why there are different ways to be successful at anything.
00:00 How there are more funding options available today.
3 Key Points:
- There’ve never been that so many options.
- We don’t hate VC funding.
- Business is THE religion.
Steli Efti: Hey everybody, this is Steli Efti.
Hiten Shah: And this is Hiten Shah. Today on The Startup Chat, we’re going to talk about something that we know ends up being on people’s minds off and on, especially if they haven’t done it yet. This is for all of you that haven’t done this yet and for some of you that might be doing it again. The topic is basically we wanted to check in on the fundraising climate when it comes to startups raising money. We both get to see that all the time in different ways. We also get to see self-funded businesses. So yeah, what are you seeing Steli?
Steli Efti: Well, I do see that there are more options out there today than probably ever before. It used to be that you had to decide if you wanted to be a venture-funded startup and go and raise a C round, series A, series B, series C, just do the whole typical VC model of raising money, going for hyper growth. Or you were deciding that you wanted to be a self-funded startup, a customer-funded startup, a bootstrapper, a micropreneur, whatever term you want to use, which basically just meant you were generating or trying to generate revenues and profits ASAP and you weren’t interested in raising money from the outside world. And typically these two worlds where… And traditionally had been very hardened camps. One camp thinks the other one is dumb or bad basically. The VC funded startups would think that the self funded ones are thinking too small and the self-funded ones thought that VCs are evil and all these VC funded startups, I don’t know, are full of bullshit and a bad quality of life and are going to whatever.
Hiten Shah: And the thing is it’s funny, they say it’s hardened camps, or it’s been hardened camps. I have never said anything against VC funding. I’ve raised money and people think like, “Oh, he’s a self-funded founder and hates VC money or something.” I’m like, “No, that’s not true. That’d be a very absurd way to think about business, in my opinion.” And even the camps, I think it’s absurd. It’s like in life what they call a duality. You act like there’s only two options. There’s this duality in your life between good and bad. One’s good and one’s bad. It’s furthest from the truth.
Steli Efti: I love that you’re saying this because it’s so true. I guarantee you, our very listeners that are listening to this very episode would have thought that both you and I are totally against VC, right?
Hiten Shah: Yeah.
Steli Efti: Maybe with you even more than with me, just because they think you’re a better person probably.
Hiten Shah: No way, no way.
Steli Efti: We’ve been both such strong advocates of self-funded startups and bootstrappers and we’ve been… Recently, we have not been raising money for our companies.
Hiten Shah: Yeah, that’s right.
Steli Efti: So, I think that these things combined just make people believe or instantly assume, “Oh, Hiten and Steli hate VCs and investors,” which is just not true. I think that we, the two of us, and a few other people, even back in the day when those two camps were very much against each other, I felt like always there was a middle camp that had no voice because we didn’t have a dog in the fight. So we didn’t just argue as loudly. But I was always telling people, I’m not dogmatic about this. This isn’t a religion.
Hiten Shah: It shouldn’t be!
Steli Efti: It shouldn’t be!
Hiten Shah: Business, business is the religion.
Steli Efti: There you go.
Hiten Shah: Business is the religion here.
Steli Efti: There you go.
Hiten Shah: Not, not funding or not funding or whatever. No.
Steli Efti: If it makes sense, I will do it.
Hiten Shah: Do it! Yeah.
Steli Efti: If it doesn’t, I won’t.
Hiten Shah: Don’t do it.
Steli Efti: I don’t think that there’s a this is the only way to do it in all circumstances. Now I do think that the world has changed. So this is why it’s interesting for us to check in on the world right now because in the last, I don’t know, two years or so, a lot of “bootstrapping” or self funded thought leaders or celebrities or whatever, the people that were waving the flag the hardest have moved on and raised money. And had to reconcile their world view and talk to their audiences about why they changed their mind and why they’ve done that and vice versa. But a bunch of people that were super well known founders that had raised a ton of money have gone on to start another company and be like, “I’m not going to raise any money on bootstrapping profits. I’m doing this a completely different way.” So the crowds have mixed a little bit. I think people have moved camps and have created a bit of confusion, but maybe also enlightenment.
Hiten Shah: Let’s talk about the company that actually talks the most shit about VC funding.
Steli Efti: [inaudible 00:04:51].
Hiten Shah: Let’s start there.
Steli Efti: [inaudible 00:04:53], right?
Hiten Shah: Yeah. Seriously, I have a lot of respect and love for those folks, but I got to say I’m tired of it. Hey, if you’re listening, which you’re probably not listening to me, because you won’t listen to this. We’re all doing business, including you guys, including new people. We’re doing business. That’s the bottom line. And for the amount of people they used to be able to influence and the amount of influence they’ve had even on my businesses, I am sad. I’m sad because all they want to do is talk crap on VC funding and it’s not cool. It’s not cool at all. It’s like, you know how many businesses wouldn’t exist without VC funding? Most of them. Straight up. So I’m not angry, but I’m disappointed in people I respect a lot and their just attack on it. It’s a gap. There’s going to be companies that are venture backed and went all the way and there was a focus on growth and all kinds of, there’s these problems that happen, but it’s none of your business. You don’t know about it. You haven’t done it. Straight up, they don’t get it.
Steli Efti: You know what makes me sad? Not to shit on them too much, because they were and they are an amazing company-
Hiten Shah: Honestly. Honestly, Steli I’m not going to [crosstalk 00:06:12].
Steli Efti: They deserve a little bit of that.
Hiten Shah: No, they deserved it for what fear, uncertainty and doubt they are putting an entrepreneur’s minds about something they don’t understand. It would be totally cool and they’re the ones that say, “We don’t talk about things we don’t understand.” Jason Freitas came out and said that himself. It’s not about shitting on him. It’s, look, they have influence and a ton of it. I’d say less than ever before now.
Steli Efti: That’s true, yeah.
Hiten Shah: But they should not be lying to people, as if they know what they’re talking about, because they don’t know what they’re talking about here.
Steli Efti: You know what it is. I think when they came out, I think they were a really necessary voice in the market. That’s why they became so famous. Everybody was thinking about these VCs and investors and these startups in such unhealthy and unrealistic ways that the market needed “some rebels” that were like, “You know what? You guys are the cool kids? Fuck you.” Somebody needed to be the punk rockers. The people that are like the anti-establishment that’s like, “You know what? Everybody wants to be like you? Nobody cares about you.”
Hiten Shah: Now, they’re curmudgeon, cranky grandparents. Right?
Steli Efti: Yes, yes, yes. Now it’s changed. [crosstalk]
Hiten Shah: It’s like “Yo, your schtick was cool, back then.” I’d rather them talk more about remote work.
Steli Efti: Yeah.
Hiten Shah: Like really, because you know, that’s something they can teach everyone about and they were on first and they were honestly correct about where the world was going there. And I’d rather hear their dogma on that. But again, you talked about dogma, right?
Steli Efti: Yeah.
Hiten Shah: I just wanted to basically, for lack of a better word, go after them for dogma. Right?
Steli Efti: Yeah.
Hiten Shah: That’s the problem here. It’s like, look, if you’re going to dissuade an entrepreneur who should raise money because of your dogma, and then they fail because they’re self-funded and endeavored shouldn’t be self funded, that sucks. What if they would’ve been able to raise money because they had the ambition, they had the idea and it would have helped them? Then you’re doing a disservice to founders and I know that’s not their intention. That being said, that’s how it comes across when you just shit on something so hard. And so, to me it’s like don’t listen to them. Do what’s right for you.
Steli Efti: Yeah. I think in today’s world, whoever is telling you that there’s only one way to do things and it’s their way, that’s to me the strongest signal that you should stop listening.
Hiten Shah: Yeah.
Steli Efti: Right? No matter how successful somebody is, and I say this all the time, I tell, whenever I give people hyper strong advice, whenever I start screaming because I’m so convinced of myself, I give this disclaimer and I say for what I just told you with all my conviction, there’s probably 1000 counterexamples of people that did the exact opposite and succeeded. There’s just not one way of doing it. But this is what I believe right now. As you asked me, I’m telling you what I believe right now, but there’s not one way of doing it and for every formula of success, example of success, I can find you a bunch of counterexamples of people and companies that did the exact opposite and still succeeded. Right? So-
Hiten Shah: Yeah, yeah go ahead.
Steli Efti: So I wanted to move on a little bit, because I do feel like the people on both sides, the people that were there were laughing, the cool kids that were laughing, haha, lifestyle business not important enough. And also the people that are like “Haha, VCs, you’re all fucking assholes and this is dumb.” Both of these camps are less relevant today than ever before. You see their message get less attention, less likes, less spreading. You hear them being mentioned less often as thought leaders or as people people pay attention to. So I think that that message isn’t resonating as much. And I feel like the people that are in the middle that have transitioned and transformed in their opinions are getting more attention because people are thinking, “Wow, if this person did something that was VC funded and now they’re self funded, that’s interesting.” Or vice versa. This person has done a bunch of self funded, bootstrapped small things and now they’re raising tons of money? That’s interesting. What made them change their mind? Why did they raise here when they didn’t raise there? These people get a lot more attention. Then there’s these new forms that are popping up now. There’s more, there’s not just The Angels and Accelerators in VC money now. There’s this new form. TinySeed is a big example of a new kind of funding vehicle for a new type of person. It’s the we’re going to pay you a salary for one or two years so you can start your self funded business and our model doesn’t require you to become a unicorn. We’ll take an equity and a profit sharing that is more conducive to maybe a business that’s very healthy and doing well, but that isn’t going to be acquired for billions of dollars and TinySeed is just one example. There is, I think, at least three or four other funds out there.
Hiten Shah: Yeah, there’s Earnest, there’s Indie.vc.
Steli Efti: Yes.
Hiten Shah: I lost you for a second.
Steli Efti: Yeah, I lost you after Earnest, Indie.vc. You said there’s a couple of examples.
Hiten Shah: Oh, I was just saying there’s Earnest, there’s Indie.vc On top of TinySeed and then there’s a few others as well.
Steli Efti: Yeah, I feel like more than ever before, there are options out there, right?
Hiten Shah: Yep.
Steli Efti: And so I think both are options out there and maybe more than ever, there’s less dogma. You don’t have to choose a camp. You need to just do whatever is best for your business right now and maybe you should raise some money. Maybe you shouldn’t, but you should not be compelled or forced to choose a camp and then die in that camp, no matter what happens in your life.
Hiten Shah: Yeah, I think it’s the job of a business owner to do what’s best for the business and make sure that the business can grow in a way that makes sense for the actual opportunity and the market and even the business owner’s level of the ambition. Because a lot of this truthfully has a lot to do with ambition too. And I’m not saying that you’re not ambitious if you’re self funding or you’re more ambitious because you raised money, but a lot of it is, especially today where there are some ideas that actually self funding makes the most sense for. So if you’re going to enter a crowded market and copy the 10 other companies that are in it, you might actually want to consider starting self-funded until you figure out oh, this is an opportunity that can keep growing or that can be really massive in that market that’s crowded, because it’s likely that it’s going to be hard to build the venture scale type of business. There’s other opportunities where you enter a market and you just need a lot of capital at some point in order to support what you need to build or what you need to grow into. For example, I don’t see anybody building self driving car anything without raising money. I don’t see it. Maybe it’s out there, maybe really early on you do that, but eventually you have to hire dozens of people and go after lots of experimentation in terms of actually the car and the streets and all kinds of stuff like that. So what ends up happening is you need to raise money for some of these things. Another example is there is a lot of self funded eCommerce companies that sell goods online and then deliver them to people. There are some categories, the one that comes to mind right now, because of some recent funding, is mattresses where there’s a heavy cost to it and there’s still some innovation if you build a next generation, like digital mattress or something like that, which is a thing. It helps you with your sleep, blah blah blah. Probably need a bunch of funding for a business like that these days. And also if you go back all the way back in the day, there were things that were started bye a family, a person in a family and the businesses kept being handed down. And that was when brick and mortar was a bigger deal. So in a way it’s almost like, in the digital world today, the way we think about it, there isn’t these multi-generational businesses that are being handed down, self-funded kind of businesses being handed down. But in some ways that is a form of funding. If you get handed a business, you basically got a lot of funding before you even start because you got handed a business back then. Also there were things like small business loans that were a much bigger thing early on and in a way that that’s a form of funding. You’re funding the business, but it’s not your money. So I think that there’s also other alternative capital that’s happening too, that there’s things like Clear Bay, whatever your opinion is of it and all that. But there’s ways to, if you get something started, ways to get capital in to help grow it, that isn’t necessarily equity based or making you go think about it as venture scale, even if you do have a lot of ambition to grow the business and want capital to do it. And then there’s the other side of it and I know I mentioned this, but there are businesses and the one that keeps striking out to me is ones that are in super crowded markets, [inaudible] specifically that should not be funded. They should not go into YC or 500 startups or some of those things, because they’re in a crowded market. And if they can be profitable and keep growing, they’re probably better off than having the pressure of a Y Combinator or 500 startups around growth and things like that, when the business would just be fine if it was self funded and they just kept growing it.
Steli Efti: Yeah. I think to wrap up this episode, there’s more options than ever. As you said today, there’s options for raising money to invest in your paid advertising. Or to raise money for inventory of your eCommerce or to finance all kinds of different things online. And there’s all these different shapes and forms of funding capital out there to fit your need, your business, your lifestyle, whatever is needed to get you to that next stage if you need it. And if you don’t, you can ignore all of this and just go on your way of building your profitable, successful, self-funded customer funded business. But more than ever before, I think the VC funded, self funded, lifestyle business, evil, bullshit, unicorn camps, they all collapse and I think that you are going to be best served if your focus is your business and your customers, and you don’t choose camps. You just choose whatever the best way is to build what you’re trying to build and to accomplish what you’re trying to accomplish and you take all the options into consideration on how to get to your goal in the best way possible. Versus you’ve chosen a camp five years ago now you’re stuck and your identity should not be connected to any kind of funding sources or no funding sources. That’s just crazy, right?
Hiten Shah: Yep.
Steli Efti: Who you are has nothing to do with if you’re raising money for your business or not raising money. It doesn’t make you better or worse. It doesn’t make you cooler or dumber. It doesn’t make you smarter or more accomplishing. It doesn’t make you more a person with more integrity or more quality of life. None of that will determine who you truly are and if you embrace that attitude, and if you’re very pragmatic, you’re going to do much better in today’s world. So I think that that’s it from us for this episode.
Hiten Shah: See you.