I recently shared a thread urging founders to preserve their exit optionality by limiting the amount of capital they raise.
Read this post if you would prefer to own more of your startup.
Skip it if you want to help your VC to buy another yacht.
🪙 Build on your own dime
The easiest way to maintain ownership is to put off the point at which you raise capital so you have more heft when you do. Bootstrapping in the early days will also train “resourcefulness muscles” and limit time spent on unproductive activities.
Today, many seed rounds are being raised based on a deck, an impressive CV, and little else. Founders could avoid many costly mistakes with a year of experimentation on nights and weekends.
📈 Adopt better metrics
The key to “slice maximization” is getting to profitability — fast. Some people think of profitability as an endless grind of corner-cutting. In reality, it means a laser focus on finding high-return sales channels and a high-impact product roadmap.
Put simply, metrics that get your startup to the point of sustainability — profit and contribution margin — should be favored over those that will most appeal to a later-stage investor — top-line growth. “Funds raised” is a toxic vanity metric.
🏆 Build what you know
The best way to keep your costs down is by building your business around the founder’s core strengths. e.g., If one of the founders has a strong B2B sales background, look for product categories where that skill will prove determinative.
The founders of Klaviyo established a rule early on that they wouldn’t hire an employee until they had $1M+ in revenue. This high standard forced the founders to think about how they could extract maximum leverage from each unit of their time.
How to Bootstrap Your SaaS Company to $1M ARR Before Raising Venture Capital
Klaviyo has sustained aggressive growth rates without relying on venture capital, making them an interesting case…
💰 Choose aligned investors
For a startup exit to “move the needle” for a VC, it needs to be roughly the size of the investor’s fund. This absolute reality will influence how supportive your investor is towards this capital-efficient strategy.
Your choice of pre-seed or seed investor will influence your fundraising trajectory. This advice is especially/obviously true for first-time founders. For instance, taking seed capital from a $1B+ fund creates a *really high* implicit hurdle to jump from the earliest days.
NB: This strategy requires luck I have to disclaim that this economical approach to startup building requires more than a bit of good fortune. A couple of small mistakes can throw you off course, and you may not have many options regarding fundraising.
Still, financing decisions are a critical part of your ultimate success and your “slice” of that success. Winning markets is a chaotic and challenging business.
One of the few true choices you have in the early days is not to sell your highest-probability exit options cheaply. These are years of your life that you can’t get back. Don’t spend them frivolously for someone else’s benefit.